How Much & When to Give

Examining your entire financial situation is an important first step in determining the amount and timing of giving that is appropriate for you. Some people may choose to use other methods, such as giving a fixed percentage of income on an annual basis. When you know what makes sense for your situation, you'll be ready to align that amount with your charitable commitments.

Step 1: Clarify Your Financial Goals

To help identify your goals, and how they may shift over time, consider the following:

  • Are you most interested in growing, preserving, or transferring your wealth?
  • What do you plan to do with your wealth? Finance retirement? Pay for a family member's education? Fulfill a dream?
  • How many years — and how much wealth — will it take to achieve these goals?

Step 2: Gather/Review Financial Information

Gathering all of your financial information will give you a complete view of your finances and will make discussions with family members and professional advisors more productive.

Step 3: Consider Your Cash Flow

Begin by preparing a cash flow statement that includes income from all sources and annual expenses. Also take special note of your current annual giving and the methods you have been using to give. When considering how your cash flow might change over time, you may wish to ask yourself the following questions:

  • Are you expecting any major changes in income in the next few years? For example, a salary adjustment, an inheritance, proceeds from the sale of a business, or receipt of a lump sum retirement distribution.
  • Do you anticipate any events that will significantly affect your cash flow? For instance, buying a home, paying college tuition, or entering retirement will affect your financial situation.

Step 4: Review Your Net Worth

Prepare a net worth statement to ensure you are aware of all of your assets and liabilities so you can make informed financial decisions. You might wish to consider the following questions that could affect your giving:

  • How does your net worth relate to your income and cash flow?
  • Do you expect your net worth to change significantly in the future?

Step 5: Understand Your Tax Situation

Current and future taxes play an important role in financial and giving decisions. Your professional advisors can help you answer the following questions:

  • Do you have highly appreciated assets or unrealized gains such as a 401(k) rollover?
  • Do you have unknown or low cost basis securities?
  • Do you have highly concentrated stock positions?
  • Have you had, or are you expecting, an unusually high income year?

Step 6: Evaluate Your Plan

Your estate plan can provide liquidity for your heirs and ensure that the people and causes you designate will get the maximum benefit from the assets you bequeath to them. The ongoing changes in estate tax laws make it especially important to review the following questions with your professional advisors:

  • How does your current plan allocate assets among heirs, charities, and taxes?
  • Will anticipated changes in estate tax laws affect you or your family? How will your family be affected if the laws "sunset" in 2010?
  • How can you change your financial allocations for giving to help heirs by minimizing your tax bill and optimizing the distribution of your estate?

Through this framework you can develop a better sense of how much you can afford to give, how much you want to give, and at what point giving makes the most sense for you — either during your lifetime or upon your death. Because your situation and priorities may change, it is a good idea to revisit these steps periodically.

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