It’s surprising to realize that the old 80/20 rule is still at work today when it comes to giving. Twenty percent of givers use techniques that maximize their effectiveness. While eighty percent - the rest of us - are blissfully unaware that we are collectively paying millions in taxes that could be funding the charities that we are passionate about.

Years ago, I was doing very well financially as a managing director at Goldman Sachs and I was part of that eighty percent of people who didn’t know how to maximize their giving. When I was offered an opportunity to meet with a philanthropic specialist, I declined. What could they possibly tell me that would change my planning?

Well, that was the wrong answer. In my current career at the National Christian Foundation, I’ve discovered that there are a variety of valuable tools and strategies that smart givers are using to make a bigger impact. Here are some of those ideas:

1. Use a donor-advised fund (DAF)
For many years now, donor-advised funds (DAFs) have been the fastest-growing area of charitable giving. A DAF works like a charitable account - the giver gets a charitable deduction when assets are contributed.

The money in your DAF can be invested and grow tax-free. Importantly, you are still advising the DAF sponsor when and how much to give to your own favorite charities. In this way, DAFs are similar to private grant-making family foundations, but without the hassles and expense. Many DAFs offer powerful websites with the convenience of online banking.

Most importantly, using a DAF enables you to give when it’s convenient for you, and then decide the amount, timing, and recipient of the gift at a later date. For example, contributions of appreciated securities at year-end can generate a charitable deduction this year, but grantmaking out of your DAF can occur over the next several years. DAFs make your giving work better for your own personal finances, as well as being simpler and more convenient.

2. Stop writing checks
Cash is the worst way to fund your giving. It’s shocking but true. Gifts of cash are after-tax dollars exchanged for a charitable deduction.

But by gifting appreciated assets - such as securities, business interests, and real estate - you gain a fair market value deduction and avoid the capital gains taxes embedded in the asset. Essentially, you are giving pre-tax dollars and still getting the charitable deduction - a double benefit. You can contribute these appreciated assets into your DAF for added benefit.

3. Plan ahead for tax events
Capital gains taxes are optional taxes - you don’t have to pay them if you don’t want to. If you are charitable and you have a taxable event on the horizon, such as selling the family business or a piece of real estate, you should explore your charitable options today.

Many people sell and then give, missing out on the double benefit derived from gifting pre-tax dollars. Your charitable options include not only gifting a full or partial interest in the asset outright to a DAF, but also gifting the asset to a split-interest arrangement such as a charitable trust or charitable gift annuity. These arrangements can pay you income in retirement.

4. Have a charitable shareholder
One smart strategy is gifting a partial interest in your business or income-producing real estate to your DAF. For instance, if you give a 10 percent (non-voting) interest in your company, 10 percent of the company’s profits and distributions can automatically flow to your DAF. Then you can grant them out to your favorite charities.

There is a potential three-fold tax benefit:

1. A large up-front charitable deduction for the fair marketvalue of the donated shares
   

2. A lower (or zero) tax rate on the ongoing profits of the business
   

3. A lower (or zero) tax rate on the ultimate sale of the business

It is critical that the DAF or charity you are giving to has expertise in taking in business interests. Charities can pay income and capital gains taxes from business interests, called Unrelated Business Income Tax, or UBIT. A charity’s tax bill can be just as much as or more than yours, eliminating the benefits of these strategies. Make sure your charity has the expertise to reduce or eliminate these taxes before proceeding.

5. Give generously through your estate
Bill Gates and Warren Buffett have traveled the globe, encouraging billionaires to pledge and give away at least half their fortunes to charity at death. If you have been blessed with wealth, check out givingpledge.org to read the reasons why many respected business leaders are leaving a charitable legacy.

A DAF is a simple, easy solution for a family foundation legacy, but ask the DAF sponsor if they have rules about appointing successors. Some sponsors allow DAFs to be administered by a successor committee, enabling them to function similar to classic family foundations.

Robert G. Collins is the Chief Strategy Officer for the National Christian Foundation

National Christian Foundation is the 8th largest charity in the United States, facilitating more than $1.5 billion of giving each year. Through the NCF Giving Fund (donor-advised fund), we provide families and business owners with a “multi-family office” foundation experience, serving as personal foundation staff. NCF specializes in complex gifts such as closely held businesses and real estate, which can provide additional tax benefits beyond cash giving.