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How to Donate Responsibly

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Give us this day...One of the ways that you can help others, and receive a financial advantage in the form of a tax break is to donate to charity. Your philanthropic efforts can provide a way for you to influence the world in a good way, as well as give a little back to you with the help of a tax advantage.

Most of those who donate aren’t just in it for the tax break. Many of us like to feel as though we are doing good in the world, and helping others. Donating responsibly is part of making sure that your money goes to a good cause.

Check Charity Navigator

Your first stop should be Charity Navigator. With the help of this web site, you can see where the money goes. You can see how much of the money goes toward administration, CEO and executive pay, fundraising, and how much actually goes toward helping the people that the charity is supposed to help.

Before you give, look at Charity Navigator to see where the money is going. Compare charities, and see which are likely to have a greater impact with your charity dollars. When you use this type of tool, it’s easier to identify which charities are going to be more responsible with your money and help more people.

Consider Local Charities

Another option is to look into local charities. While you might not find local charities on Charity Navigator, you can still see the effect that they have in your hometown. You can attend board meetings (and maybe even be on the board!), and learn about where the money is going. You can also donate our time and effort, in addition to donating your money. This can be a great way to get more personally involved and increase the level of responsibility you take for your charitable donations.

Look into the efforts by local charities, and choose some that will help improve life right where you live. This is one of the reasons that I regularly donate money, as well as non-perishable items, to the local food bank.

Set Up a Charitable Trust

If you want to keep giving to charity, you can set up a charitable trust. This is a way to help grow the assets of the charity, establishing a regular source of income in the service of a cause that you believe in. There are two main charitable trusts that you can consider:

  1. Remainder trust: With this trust, the assets are held in trust for the charity. The trust manages the assets, and the income from them is often split between the charity and the donor. So it can provide you with income as well as the charity. After a certain period of time — you designate it in years — the assets become the outright property of the charity. They can use the assets as they wish.
  2. Lead trust: With this setup, the situation works the same, with the assets producing income, and the income going to the charity, or being split between the charity and the donor (or the beneficiaries). However, once the trust expires, the assets are given back to the donor or to the donor’s beneficiaries.

Either way, there are tax benefits while the donor lives, and there are estate tax benefits later on. Make sure that you consult with a professional before setting up a charitable trust.

No matter how you do it, responsible giving should be a part of your finances. Find ways to make sure your money is being put to good use, and you will feel better about your positive impact on the world.

(Photo: Mr. Kris)

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3 Responses to “How to Donate Responsibly”

  1. Jim M says:

    There is no substitute for doing your homework on all financial issues. This is especially true when donating your hard earned money. Another reason for not donating to people soliciting on the streets for charity – unless you are familiar with it and certain the person asking you for a donation will get it to them.

  2. Scott says:

    I can’t agree more with checking where your money is being spent by the charity. All charities have overhead costs but some put much more into their mission than others. If you are attending a charity event put on by someone other than the charity, make sure to ask how much money is actually going to the charity and if the someone else running the event is getting any profit and/or kickback for doing it.

  3. Chris says:

    Consider donor advised funds as well. CRTs and CLTs are expensive to set-up, carry high administrative costs and are usually for the super weathly (at least $800,000 initial contribution). Donor advised funds can be for anybody and the administrative costs are very low.


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