Is Social Capital a possible way to increase my charitable giving and improve my financial position?

Chad Hassinger |

By Michael A. Jankowske, CFP®
Vice President of Estate and Charitable Planning

July 26, 2018

Every year, the government knocks on your door to collect taxes. Once your income is in the government’s coffers, the government allocates a portion of it to a number of expenses, including those incurred for the common good and in the public interest, such as social security, unemployment, Medicare, health and military. Your direct control over the allocation of the government’s collections is zero—that job is left to the legislative and executive branches. When we consider the inefficiencies of a large government bureaucracy, as well as the influence that special interests and politics have on such allocations, it is no overstatement to say that your “contribution” to the common good and public interest via taxes gets diluted. There is another and considerably more efficient way you can contribute, not only to the common good or public interest but to something you personally really care about. 

It is called charity or philanthropy; and even the government realizes its value, which is why the IRS allows you to offset certain amounts you spend on charitable or philanthropic endeavors against taxes. The thought is that by spending the money, not on yourself but rather on matters for the common good and in the public interest, you are complementing the efforts of the government. So, which would you rather do: throw your common-good contribution into the murky Fed pot or donate it directly to a cause important to you? We thought so. And would you like to donate more than you are now, and at the same time improve your overall financial position? Again, we thought so. Among the efficient ways to accomplish just that involve two vehicles we often recommend to our clients: charitable trusts and donor advised funds. But, first, you need to take the measure of your “charitable intent,” which might range from a $10,000-a-year donation to charity, “because it seems like the right thing to do,” to a generous donation to cancer research because cancer occurs frequently in your family. An interesting behavioral change we have observed with our clients, once they realize they can give more than they thought possible, is that their charitable intent intensifies, sometimes dramatically. They often discover that they have “passion charities.” And when they see how increased donating improves their overall finances, their passion for giving dials up even more. So, how can this happen for you? Step one is not to treat giving as a bite out of the apple you grew, but more as an integral element in your overall financial planning. In short, how can giving benefit you if it reduces how much money you “contribute” to the government? We and other professionals have called that concept of planning “Social Capital”. Another way of describing this is taking part of what you might pay in income taxes during your lifetime and beyond and taking control of how you use those funds for the common good.

So how does one utilize Social Capital? First, you develop a Family Charitable Giving Plan, comprised of a thorough financial analysis, followed by a formal giving plan designed to be integrated into your overall wealth strategy. As part of that plan you could create a charitable trust (like “Melinda and Bill Gates”) and move into it highly appreciated assets such as stocks, real estate, or business interests that are subject to taxation. This way, you could offset or even bypass taxes while creating a fund that benefits others and your family’s position. A portion of the monies gets distributed back to you eventually so the trust could create better cash flow for you, increase the amount of your legacy and simultaneously, depending on the size of the asset, raise your level of charitable giving. You could elect to use a donor advised fund (DAF). As with a charitable trust, a DAF could deliver tax benefits when you donate appreciated assets; and you may increase your giving to one or more targeted organizations that are public charities. A DAF usually does all of the administrative work to facilitate your giving.

In sum, yes, it is possible to increase your charitable giving and improve your family’s financial position. Meaning that, for once, you could have the best of both worlds, for your family and for those you want to help. 

Unless otherwise expressly indicated, the opinions or views expressed in this article are the author's own and do not reflect, and may differ from, the opinions or views of Strategic Financial Group, LLC or others within Strategic Financial Group, LLC, including its officers, managers, owners, employees or other service providers.