Philanthropy – Big Word, Bigger Impact

I have a few memories of charitable donations early in my life.  I remember the Salvation Army Santa Clause outside of stores during the Holiday season ringing the bell with a big bucket, gathering donations from people going in and coming out of the mall.

At the time, I did not think much of it, I guess I was not that inquisitive.

Never really thought about the impact of giving a little bit, or a lot, until later in life.  In college I think it finally dawned on mesome of the impact that charity and gifting could do.  For my football program we had something called the H.E.Y.F.A.R.L. scholarship. As a walk-on I was very confused when people spoke so highly about the impact of the scholarship and the pride that the current players had, having earned a partial or full scholarship because of this specific acronym.

This time I was a bit more inquisitive and asked more about the acronym.

Hundred Each Year For A Rising Letterman, H.E.Y.F.A.R.L. The brainchild of a player (Tom Mikula 1948 team) came to fruition in the early 1990s with some help of other football alums and is still in existence today.  It has raised enough money to provide as many as four fully endowed scholarships for William and Mary football players who entered the program as walk-ons.  All from a hundred dollars across the decades of the program, giving current student athletes the financial support they need to exceed on and off the field.

That’s when the light bulb went off.  Something as small as a hundred dollars to start can grow into something so massive that it can change the lives of players and their families for years to come.

Small things, growing into larger-than-life things, all with an idea and a jump start.

This simple,hyper-personalized, example is just one of seemingly infinite charitable causes where dollars can be gifted for good.  The benefits of charitable gifting and philanthropy go beyond the impact, the personal fulfillment, etc.  There are actual immediate and long-term tax savings strategies that can be used as well.

Philanthropy and charitable gifting are not for everyone. This little paper is purely to educate on the different ways to think about charitable gifting from a tax perspective, not to overly promote any type of charity or gifting should you choose to participate in, or not.

Before we get into the mechanics of gifting, we should also note that gifting household items, books, clothing, toys, electronics, etc. are all wonderful ways of accomplishing your “spring cleaning” or de-cluttering objectives.  These can also be used, with the guidance of your CPA or tax professional, to see about any charitable deductions in the gifting tax year.

For this piece, we are going to focus a bit more on the mechanics and financial assets that can be gifted in a way that can truly be a win-win for both yourself from a tax perspective and the charitable organization for their funding needs.  This exercise will focus on the below items to gift.

-        Cash

-        Stocks and Investments

-        Real Estate

-        … and many others

It seems straight forward in terms of financial items you can gift to charity, but how do you gift those?

Like anything else Finance related, this is where it can get overly complex.

-        Donor Advised Funds

-        Charitable Remainder Trusts

-        Charitable Remainder Unitrusts

-        Charitable Remainder Annuity Trusts

-        Foundation

-        Grantor Retained Annuity Trusts

-        Generational Skipping Trusts

-        … AND MORE!

o   But don’t let your eyes glaze over, this is not a textbook so we won’t cover everything!

And so, we begin.

To start, we should look at the nuances between the financial assets; how you can gift them,why you should gift one over another, etc.

Cash Money Records

Sending in a check or gifting cash to a charity is seemingly the easiest and cleanest way to fund your philanthropic goals.  When your alma mater asks for money to support the new fountain outside the library, you can send a check, note it for your taxes and call it a day.

However, there are things to keep in mind when trying to reduce your taxable income, in addition to being charitable.

First, for a cash donation, the income tax deduction is immediate in the year it is gifted.  However, if you’re taking the standard deduction on your tax return adding your cash gifts to charity will be difficult to really see a tax benefit of those charitable gifts.  The standard deduction, being as high as itis, makes it difficult to see real taxable impact of charitable gifts.

As reference, for 2025 the standard deduction is $15,750 for single filers, $23,625 for head of household, and $31,500 for joint filers. For 2026 these numbers increase to $16,100 for single filers, $24,150 for heads of household, and $32,200 for joint filers.

On the other hand, if your deductions, including your cash gifts to charity, are above those standard deduction numbers then there will probably be some help, at least upto 60% of your Adjusted Gross Income (AGI).[1]

It should go without saying, but for the above and everything else related to taxes, please consult a tax advisor before putting anything into place.  This piece is purely to educate at a high level, not to fill out your taxes.

So, cash is great,you get an immediate tax benefit, can be easily tracked, etc.

Taking Stock

In 2023 the S&P 500 was up 24.23%, in 2024 the market was up 23.31%, and as we write this today (mid-November 2025) the market is up over 14%.  That is a lot.  

That means if I invested $10,000 into the S&P 500 (with no fees, dividends, etc.) I would be up to over $17,000 (over $7,000 in profit). But if I go to sell that position so I can pay for the new Callaway Driver that will make me a better golfer then I would get the cash for the full position, which is what I want.  But, come April I would owe long term capital gains on that profit.  

Cost of doing business in the stock market.

But what if, instead of that new shiny driver, I wanted to send that money to the Wounded Warrior Project Golf arm to help their mission? I could do the same thing, sell out of the position, send them the cash,and rest easy knowing the money is going to a better place than in my golfbag.  I would still owe money for the capital gains tax on the position, but there would possibly still be a taxbreak on my taxes due to the cash gift.

That’s where gifting stock can be even more beneficial than selling stock and gifting the cash.

When gifting a stock that has been held for greater than 1 year, or a long-term appreciated security, you are able to have the double benefit of deducting the full market value of the position and not having to pay the capital gains tax!

For short-term appreciated securities (held less than 1 year) your deduction is limited to the cost basis.  Again, both have limitations, like cash, related to your deduction and your AGI.

Let’s look at how this works in practice.

I bought NVIDIA because I’m very smart on Halloween 2022 right before ChatGPT came out for$10,000 (this is sarcasm by the way). After making over 200% on the trade in less than a year I began to feel charitable and wanted to give the over $30,000 in the position to a charity on October 15^th of 2023.

Option 1:

-        Sell the position, in full, and give the money to charity.  Doing this I would realize a short-term capital gain, taxed at a typically higher rate than long-term capital gains.

Option 2:

-        Gift the position to a donor advised fund or directly to the charity if they have the means to accept stock.  This works, except the deduction I would get is not on the $30,000, it is only on the $10,000 I paid for the trade because I did not hold this stock for 1 year.

Option 3:

-        Wait a few weeks until this has been a full year, then gift the stock, or a portion of it, to charity, in which case I would get the full fair market value, or $30,000 for the position as a potential deduction, and not owe any capital gains on the sale of the stock.

Personally, I like option 3.

Now, with all that said none of this must be an all-or-none idea. A combination of things can be done, gifting a portion of the stock, while still holding some of the stock back. Maybe you split it into thirds where as you sell enough to cover what you put in, hold $10,000 in NVIDIA to keep riding (hopefully) higher, and give the other $10,000 to charity.

Point is, there are a lot of options with stocks that you have at your disposal but the key things to remember are how long you have held the stock and is there a mechanism or vehicle at the charity or at your disposal to be able to accept the stock as a gift.

Real Estate

As you can imagine, donating a residential or commercial property can be a bit more tedious than cash or stock.  However, the idea of being able to provide a piece of real estate to a charitable organization, especially those aiming to house under privileged individuals seeking shelter, can be one where the impact can truly be infinite.

What is great is that the benefit of the gift goes beyond those that receive the donation, the donors have some advantages as well.

First is the tax impact where there can be income and capital gains tax deductions.  Signing a deed over to a qualified charity provides the donor of an immediate tax deduction based on the property’s fair market value.  

Second, any taxes and maintenance of the property are now the responsibility of the new owner, so any headaches or upkeep related to that property are off your to-do list.  

Now donating your primary residence, where you sleep, to a charity for others seems very admirable.  But then you must ask the question, where will you sleep at night? Most of these real estate gifts are second homes, inherited properties,etc. and not your primary residence.

The actual vehicle of being able to donate real estate to a charity also must be considered and whether the charity would be able to accept and/or use it.  And that is where the mechanisms and vehicles I’ve alluded to come into play, so let’s dive deeper into some of those more prominent vehicles.

DAFs, CRUTs, and GRATs… OH MY!

In this section I want to broadly define and elaborate on a few of these.  In my experience they tend to be the most common instruments for charitable donations, but they are not an all-encompassing list and textbook-ready basis of understanding for these very nuanced and intricate details.  

So, with the expectations set, let’s jump in.

We should start with one of the more common vehicles, the Donor Advised Fund (DAF).  

A Donor Advised Fund can be started by either a charity or an individual/family to start their strategic philanthropic efforts.

First, let’s look at the charity.  Let’s say a group of people started a charity, for whatever purpose they felt strongly about.  They began with some bake sales and carwashes, the next thing you know they have more money in the organizations account than they can use or gift to their cause every year.

So, they figure,it would be great to invest these funds so that the charities money can grow,while they continue to raise funds through various means.

This is where the DAF comes in.  This organization starts a Donor Advised Fund with a custodian like Schwab and can invest the extra money they have so it can grow like any other investment account.  What is great about this is that when sales are made in the DAF there are no capital gains. So, when the DAF grows and the organization wants to use some of those investable assets to fund the next initiative or venture for their organization, they can simply sell, raise some cash, and send the check directly from the DAF.

But Donor Advised Funds are not just for charitable organizations.  Families can set up a DAF for themselves forthe purpose of charitable gifting.  

Let’s go back to the example of how smart I was when I bought NVIDIA before ChatGPT was launched (again sarcasm).  I could send some or all those NVIDIA shares to a newly established Donor Advised Fund, after waiting 1 year or longer of course, and get the fair market value deduction for the gift to the DAF.  

This means that my DAF is established, I did not have to rush to give out an amount of money I was not comfortable giving in a single year, and anything I do not use will grow tax free and tax-deferred until I want to fund my next charitable gift.

What is even better is this DAF becomes a mechanism to continue to gift money or securities into every year should I choose to.  This also can help families talk about finances. Many studies of affluent families make mention of how discussing how they allocate their charitable gifts each year brings the family closer to understanding the impact of their net worth, the good it can do, and helps the children or next generation become more invested in the long-term sustainability of the family assets.  This helps lead to a more sustainable family legacy and not have situations where future generations spend down too much of the family assets (think Rockefellers vs. Vanderbilt family legacy).[2]

Finally, DAFs can be started at relatively small minimum account sizes (think a few thousand dollars), especially compared to their big brother, the Family or Private Foundation.

Foundations

These are certainly larger than Donor Advised Funds and have a lot more nuance and moving parts within them.

Foundations typically get started around an initial contribution of about $1 million or greater.  Because of all the additional administrative costs including tax preparation, guidance, etc. these tend to be much more intricate.  

Many foundations also have a very focused mission.  A few examples are the Ford Foundation, which was started by the Ford family, and is focused on social justice and economic opportunity.  The Walton Family, of Wal-Mart wealth, has a foundation focused on areas like education, poverty alleviation, and the environment.

Because the checks from these foundations can be larger in size and, at times, in impact for the receiving charity, many of these foundations have a board that helps to vet and do their due diligence on these charities to ensure the foundations dollars are being allocated properly.

Additionally, the foundation, with a larger available balance, can invest in more than just public market stocks, bonds, and ETFs. Many of these foundations have sizable allocations to Private Equity,Hedge Funds, and other Alternative Investments like a University endowment fund would have.

All the paperwork,administration, organization, and due diligence come with additional costs.  To cover those costs, the size ofthe underlying account would have to be larger to start.

Many families want to start a Family Foundation but have an amount of charitable dollars that amounts to something in a grey area.  They have more than would be normal to just start a Donor Advised Fund, but not quite enough to start a Family Foundation.  As you can imagine, a new business line and niche have been created to address this market with new providers providing what amounts to an outsourced team for this type of family.  They can help run the logistics of filing, taxes, administrative costs, etc. without all the bells and whistles of having your own singular team, you are able to work with a partner to deliver a Foundation-like experience more cost effectively.

I Love A Good Acronym

Like any professional, an acronym becomes something that is thrown around, worse than industry-based jargon.  If you don’t know the acronym, don’t even think about asking what it stands for because ultimately the words associated with it will still make zero sense.  It makes us feel important that we know these things and makes us feel cool that we can say them to someone else in our field and they know what we mean.

Yes, the above is a bit sarcastic and although being “in the know” on these is great, I do feel strange knowing that these can be great planning tools for people, if we only made it more accessible; starting with what we call them!

So, let’s start to understand the acronyms, the words associated with them, and most importantly what they do.

Charitable Remainder Trusts (CRTs)

A charitable remainder trust, or CRT, encompasses a few different strategies we will touch on.  

At a high level, a CRT is a type of trust where you donate an asset, or assets, into the trust.  The trust is set up to provide an income stream for a set period, or a lifetime. Then whatever is left, that goes to charity.  One key point here is that the trust is an irrevocable trust, meaning once it is set up it is not meant to be changed.  This is key when setting one of these up with a proper Trust and Estate attorney who will draft the language and paperwork around these.

The two main types of CRTs are Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrust (CRUTs).  CRATs and CRUTs have a very specific difference, so let’s dive into those.

To start any CRT(CRAT or CRUT) there are two main starting points.  First, identify what appreciated stock, real estate, etc. that you are going to be transferring into the trust once it is created.  As mentioned prior, the nextstep is to work with an Attorney to draft the appropriate language for the trust, ensuring it meets all the necessary requirements to make sure it is fully valid.

So, what is thedifference between a CRAT and a CRUT?

A Charitable Remainder Annuity Trust is set up so that there is a fixed dollar amount paid out to you, or another designated beneficiary, every year for either a term (up to 20 years) or for life.  The payment does not change, despite how the trust performs once the asset(s) are transferred in.  

A Charitable Remainder Unitrust is set up so that there is a fixed percentage of the trusts’ value, which is revalued each year, paid to you or a designated beneficiary every year.  After the term, or the lifetime, the remainder goes to charity.

So, let’s use an example to illustrate this.  If I have a bunch of highly appreciated stock that I want to ultimately go to charity but would like to get some income off that over the remainder of my lifetime to help fund other areas of my life, a CRT is a great choice.  If I am concerned about inflation and the increased cost of general expenses, a CRUT would be better because the amount of money I’m getting each year could theoretically go up with the CRUTs value.  However, like any investment account, the amount I get each year could also go down with themarket.

If I am getting 5% each year from the $1 million, I put into the CRUT, then my expectation is that my $50,000 the first year will go up, along with the market.  But if the market drops in the first year by 10%, the amount I would get would be less than $50,000 in year two.

$1,000,000 goes into the CRUT

$50,000 distribution ($950,000 in principal)

Market Performance= Negative 10% (estimated $855,000 value remaining after year 1)

That means that in year 2, I would be getting $42,750 from the CRUT.  That is 14.5% less in year 2 than I did in year 1, all because of the timing, the market, etc.

Remaining balanceof CRUT = $812,250

Now, my other friend does the same thing, but they don’t care about inflation and just want a specific amount of money they can expect each year, even though it won’t go upover time.  Using the same metrics as above, let’s look at how they do with a CRAT instead of the CRUT.

$1,000,000 goes into the CRAT

$50,000 distribution ($950,000 in principal)

Market performance= Negative 10% (estimated $855,000 remaining value after year 1)

Year 2 distribution is still $50,000, the same as year 1, despite the market performance.

Remaining balance of the CRAT = $805,000

With these two very crass examples you can start to see the pros and cons of both a CRAT and a CRUT.  You can see how, due to market performance a CRAT could run out of money quicker than a CRUT if you’re pulling the same amount every year despite what the market is doing.  It is also possible to see that if you’re relying on an income stream from a CRUT, to be so dependent on market performance for those dollars can make things difficult if you’re getting a fixed percentage from the trust.

The last distinction between these two is CRTs is continued donations to each.  Once established and funded, a CRAT can no longer be added to.  So, in the scenario I used before where you could see how a few back-to-back years of a down market could bleed that account dry quicker than expected, there are no additional contributions allowed.

For the CRUT, you are allowed to add to the account over the lifetime of the trust, making it more aligned with a DAF or Foundation, but with the addition of an income stream for a time period.

As for the charity, for both CRATs and CRUTs, the charity (or charities) you have chosen to receive the remainder will receive whatever is left in the trust after the term of income payments has expired.

Determining the amount of income you receive from the CRT is more art than science.  Between the liquidity of the asset(s) put into the trust, the age(s) of the beneficiaries receiving income, IRS Section7250 interest rates, and the adjusted gross income of those beneficiaries, there are a lot of things to identify when determining the amount of income being taken from the CRT.  Please work with a tax advisor on ensuring all these items are checked off and identified prior to engaging in CRT planning.

Why a CRT?

There are 3 main tax planning reasons to start a CRAT or CRUT. The first is to get a possible income tax deduction based on the present value of the assets that will eventually go to charity.

Next, the highly appreciated asset that you are donating is sold within the CRT, avoiding capital gains taxes.

Lastly, if structured correctly, these appreciated assets are proactively being taken out of your estate, which reduces a possible estate tax burden upon your passing.

There are seemingly an infinite number of strategies of what to donate, who gets the income, how much income, how you leverage the income, etc.  Ultimately speaking with a tax professional,your financial advisor, and any other professionals in your circle are best prior to engaging in any CRT implementation. All said, these can be very useful and tactical strategies to eliminate taxes in the short term without giving away the asset entirely.

GRITs, GRATs, and GRUTs

Grantor Retained Income Trusts (GRITs), Grantor Retained Annuity Trusts (GRATs), and Grantor Retained Unitrusts (GRUTs) should not be confused with CRATs and CRUTs.  From a 30,000-foot view they are the same thing with a different goal.

The main goal of the CRAT and CRUT is to ensure that a charity is receiving some principal and/or proceeds after an income stream (either fixed or variable) is met.  These can also be used in some form for estate planning, but the focus is charity.

GRITs, GRATs, and GRUTs operate the same way but the focus is for estate planning rather than charity.  There are ways of involving a charity or philanthropic lean to a Grantor Trust but the main goal of these is to remove large assets from your estate balance sheet.

To briefly define these:

Grantor Retained Income Trust is a strategy where an asset is transferred to the irrevocable trust.  Once it is transferred, the assetis removed from the Estate of the Grantor and with that, the grantor loses the ownership rights of that asset.  Then the Grantor receives income from the asset (think a real estate property) for a set number of years.

A Grantor Retained Annuity Trust is the same as a GRIT (above), in that there is income received each year.  Like the CRAT, the amount is set at the beginning and is fixed for a pre-determined amount of time.

The Grantor Retained Unitrust, like the CRUT, receives an income based on the annual valueof the trust each year, for a set number of years.

Once the set number of years has passed for income in a GRIT, GRAT, and GRUT, the asset and the value remaining will sit and grow in the trust, but off the Grantor’s Estate balance sheet.  A key inminimizing the size of the estate for the grantor.

Since all of these are more Estate planning focused, rather than philanthropically focused, wewill not dive in too much deeper into these topics.

Be Proactive

The best thing you, or your financial advisor, can do is to be proactive in these tax planning situations.  As a financial professional myself, I would rather have a client come to me when they are thinking about selling their business or highly appreciated asset, rather then letting me know they just had a monster financial windfall. Planning ahead of time is a lot easier than reacting and trying to fix a tax issue once it has already happened.

Not every one of us is philanthropic, which is fine, but many of us are more charitably inclined than we truly think.  Gifting a little to our alma maters, to local education, or to a couple of causes near and dear to us really adds up before you know it.

Having had a stock market that has gone up double digits over the past few years has led a lot of investors to be in the position of holding things they want to sell, but notable to push the sell button knowing they will have a tax liability.  

By setting up a Donor Advised Fund, looking at different strategies that can mitigate future taxliability, or just having a conversation with your financial and/or tax professional can be impactful.  

These strategies offer investors the opportunity for the rare win-win scenario of mitigating your immediate tax liability and with the ability to do some good.  Considering many are already charitably inclined, doing so in a tax efficient way can open tons of new opportunities for investors to sell some of their winners without having a tax issue, all while contributing to something near and dear to them.

If you havequestions or want to explore these types of opportunities, we at HUDSONPOINT capital would love to chat further. Schedule a call here.

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[1] https://www.schwab.com/learn/story/charitable-donations-basics-giving

[2] https://trustandwill.com/learn/rockefellers-vs-vanderbilts

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