Year-end is typically a time when many families do last minute financial planning. This may include repositioning your portfolio, making last minute gifts to loved ones, and making charitable contributions before December 31. In the Jewish community, this last point is especially relevant since while many families make their tzedakah commitments around the High Holidays, December 31 is an important deadline for fulfilling those commitments and making year-end donations to worthwhile organizations that benefit our community both at home and in Israel.
While many individuals choose the straightforward approach of writing a check to the charity of their choice, there are myriad creative ways to give tzedakah that may help donors achieve other personal financial planning objectives while benefiting the organizations they feel passionate about, such as the Orthodox Union or its programs, including NCSY, Yachad, JLIC, and others. While these strategies are more involved than writing a check, they may be worth considering depending on an individual’s financial, tax, and estate planning situation. Below are a few approaches to consider:
- Make Qualified Charitable Distributions (QCDs) from your IRA: Investors who are at least 70½ can donate up to $105,000 from their IRA annually as a QCD. The distribution is made from pre-tax dollars and can be used to satisfy your annual Required Minimum Distribution (RMD). Typically, one would need to pay ordinary income tax on RMDs. This strategy is a wonderful way to sidestep this tax liability while benefiting the charity of your choice.
- Donate appreciated stocks: Especially in a year like 2024 when the markets have skyrocketed in value, there may be many investors with large imbedded unrealized capital gains. Donating these highly appreciated securities directly to charity allows you to avoid paying capital gains tax that you would otherwise need to pay when selling the security. It also allows you to rebalance a large position, which helps de-risk your portfolio.
- Donate cash proceeds from the sale of stocks that are at a loss: This is particularly relevant in a year when you have investments that went down in value but may be applicable in any year. When an investment does not work out, there is an opportunity for investors to recognize the loss by selling the position and offset any capital gains for the year or up to $3,000 of ordinary income. Additionally, the cash proceeds from this sale can be donated to charity.
- Utilize a Donor-Advised Fund (DAF): A DAF is an account where you can deposit assets for donation to charity over time. The donor gets an immediate tax deduction when making the contribution to the DAF and can still decide how the funds are invested and distributed to charity. A DAF is extremely simple to set up and manage on an ongoing basis. Numerous options exist in both the for-profit and non-profit world for investors looking to establish Donor Advised Funds. In addition, a DAF may
be particularly useful when “bunching” your charitable contributions. “Bunching” involves donating several years’ worth of charitable contributions all at once, which is sometimes done for tax planning purposes.
- Set up a Private Foundation: A private foundation is an independent legal entity set up for charitable purposes. Unlike a public charity, which relies on public fundraising to support its activities, the funding for a private foundation typically comes from a single individual, family, or corporation, which receives a tax deduction for donations. Starting a private foundation is one way to create a legacy beyond your lifetime. Additionally, the family has control over grant-making, which includes an ability to support organizations other than 501(c)(3) public charities.
One downside of starting a private foundation is the work and cost associated with establishing and maintaining it. It requires the assistance of advisors, including a CPA and lawyer, which makes it more cumbersome and involved than simply using a DAF. However, for the right set of circumstances and level of wealth a private foundation is worth considering.
- Charitable Trusts: With charitable trusts, a donor accomplishes both philanthropic and certain tax planning objectives. Charitable trusts may be set up inter vivos, meaning during a donor’s life, or testamentary as part of a trust or will at death. There are two basic types of charitable trusts: charitable remainder trusts (CRT) and charitable lead trusts (CLT).
A donor establishes a CRT to provide an annuity to a beneficiary and designates a charity to receive the trust’s remainder value once it terminates. CLTs are somewhat of the opposite. They first make payments to charity, either a fixed amount or a percentage of principal, for the term of the trust. At the end of the trust term, the remainder value can either go back to the donor or to heirs named by the donor.
These trusts are a wonderful way to benefit charity and achieve a family’s retirement and estate planning goals in a tax advantaged manner. It’s important to engage an experienced estate planning attorney to determine proper execution.
- Bequests and Beneficiary Designations: Although all the items mentioned above come up regularly, by far the most common legacy gift or “planned gift” across the charitable sector is a donor leaving a bequest in their will or making a charity the beneficiary of an insurance policy or a retirement account. In fact, bequests make up more than 90% of all planned gifts. It’s quite seamless to update the beneficiaries on your estate planning documents to leave a legacy to an organization like the Orthodox Union, which can be changed at any time. This is an important conversation to have with your professional advisors.
If you do decide to leave a bequest to the Orthodox Union, please let us know during the planning process so we can work with your family to ensure that the legacy you leave is the one you envisioned and you are properly recognized.
Since many of these strategies are a bit out of the box, it’s important to consult your team of tax, legal, and financial advisors to determine an approach that is most sensible for you. Doing so will position you to have the biggest impact with your philanthropic dollars this year.
For more information on charitable or legacy giving opportunities at the Orthodox Union, reach out to Paul Kaplan at Kaplanp@ou.org.
Paul Kaplan is the Associate Director of Institutional at the Orthodox Union based in New York.
Jonathan I. Shenkman is the President & Chief Investment Officer of ParkBridge Wealth Management and serves on the OU Planned Giving Advisory Council. For more Jewish financial content you can follow Jonathan on X, Instagram, or YouTube or by listening to his podcast “Jonathan On Money.”
The words of this author reflect his/her own opinions and do not necessarily represent the official position of the Orthodox Union.