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Appreciated assets include stocks, bonds, mutual fund shares, real estate, and certain life insurance policies. If you have significant unrealized gains in your investment portfolio or other appreciated long-term assets such as real estate, gifting these assets to charity rather than donating cash can result in a much larger benefit than selling the assets and donating the proceeds. That is because you can claim the full fair market value of the donated asset as an income tax deduction (up to 30% of your AGI for assets donated to public charities), even if the initial cost of the asset was much lower. At the same time, you can avoid any capital gains tax that would otherwise have been due if you sold the asset.

If you wish to donate tangible personal property such as artwork or other collectibles, an independent appraisal of any gift valued at more than $5,000 is required. In certain circumstances, the charity may be able to facilitate such appraisals.

If you are 70½ or older and required to take a minimum distribution from an Individual Retirement Account (IRA), you can transfer your distributions (up to $100,000 per year) directly to certain charities through a “Qualified Charitable Distribution.” To make a qualified distribution, simply ask your IRA custodian to send your distribution directly to the charity. No tax deduction is allowed, but the distribution can be used to satisfy all or a portion of your IRA distribution requirements. You will also not have to pay any federal income tax on such distributions.

Donor Advised Funds (DAFs) are tax-effective charitable giving accounts for individuals that are maintained by a charity and designed exclusively to invest, grow, and distribute funds to charities. A donor contributes assets to a DAF and subsequently recommends that a grant be made to a charity of the donor’s choice; the DAF administrator then makes that grant on behalf of the donor. When a contribution is made to a DAF, the donor receives an immediate tax deduction for that contribution, and no capital gains tax is paid on the appreciated value of any assets. Assets within a DAF can grow tax-free.

The Vanguard Donor Advised Fund, administered through Vanguard Charitable, a 501(c)(3) nonprofit organization, provides donors the flexibility to recommend grant recipients, either in the name of the fund, anonymously, or in the name of another designated individual. Contributions to donor advised funds are irrevocable, and maintaining a DAF carries ongoing administrative costs. If you expect to receive an influx of income, such as proceeds from the sale of real estate or a business, DAFs are a great way to make a larger donation so you can receive a deduction in the same calendar year.

Many people include bequests to charity in their wills or revocable trusts, but the kind of assets you leave can have a significant tax impact for your heirs. If you plan to leave money to charity as part of your estate plan, it is almost always better for your heirs if you use your retirement assets to fulfill the gifts before gifting your non-retirement assets. Because the contributions you make to a qualified retirement plan such as an IRA or 401(k) are tax-deferred, your heirs will typically have to pay income taxes on any money they withdraw from the account after they inherit it from you. In addition, if your estate is valued above the estate tax exemption amount, these assets may only reach your beneficiaries after being subject to estate tax. Ultimately, this means your heirs may receive less than 50 cents on the dollar from your retirement accounts, depending on their tax brackets and your estate tax situation. By contrast, a charity is not subject to income or estate tax and will receive 100% of the funds you donate.

Establishing a Charitable Remainder Trust (CRT) allows you to give funds to charity while retaining a stream of income for yourself or other individual beneficiaries—potentially for the rest of your or their lifetimes. You transfer assets into the trust, allowing the trustee to sell the assets tax-free and reinvest the proceeds in income-generating assets. You then receive an established income stream (subject to income tax) for the term of the trust. At the end of the trust term the remaining assets go to charity. Contributions to CRTs can qualify for an income tax deduction based on the current value of the remainder interest going to charity. Although irrevocable, CRTs offer flexibility by allowing you to decide how the trust is designed, including the payout rate and the lifespan of the trust, as well as the ultimate charitable beneficiaries. You can also reserve the right to change the charitable beneficiaries in the future.

By contrast, a Charitable Lead Trust (CLT) is the opposite of a Charitable Remainder Trust (CRT) because the charity you specify receives the initial stream of income, while your heirs receive the amount that is left at the end of the trust’s term. Such a trust can be created during your lifetime or as part of an estate plan. A CLT can be structured to provide the donor with an upfront charitable deduction as well as attractive gift and estate tax benefits: any appreciation of assets above the IRS’s assumed rate of return will be considered a tax-free gift to your heirs and not subject to federal estate taxes.