Giving Power Meets the Balance Sheet

Integrating Housing Wealth into Charitable Planning

Charitable giving is frequently addressed as an ancillary topic in financial planning, important, but often detached from the core analytical rigor applied to retirement income, tax strategy, and estate design. Advisors routinely model marginal tax brackets, optimize portfolio withdrawals, and stress-test cash flows, yet charitable decisions are commonly implemented sporadically, driven by year-end requests rather than integrated planning.

In a December 2025 Journal of Financial Planning article, Philip DeMuth’s framework for giving power, which determines the after-tax cost required to deliver one dollar to charity, offers a disciplined metric for evaluating charitable strategies within the broader financial plan. By reducing complex tax interactions to a comparable ratio, giving power enables advisors and clients to assess charitable decisions with the same clarity applied elsewhere in the planning process.

What remains underdeveloped in many charitable discussions, however, is a comprehensive view of the client’s balance sheet. For a large segment of retirees and pre-retirees, housing wealth often represents one of their largest assets. Excluding it from charitable planning can unintentionally constrain otherwise sound strategies and obscure opportunities to improve tax efficiency without increasing financial risk.
This article extends the giving power concept by incorporating housing wealth into the planning analysis and examines circumstances in which reverse mortgage credit structures could play a complementary role for certain clients.

Giving Power as an Analytical Tool

Giving power addresses a central question:

What is the after-tax cost of delivering one dollar to a charitable organization?

A positive giving power indicates that tax provisions reduce the donor’s net cost. A negative giving power reflects the opposite, an outcome that is common but often unrecognized when charitable gifts are made without coordination with the overall tax strategy.

The primary value of giving power lies in its ability to make comparisons across:

• Asset types (cash, appreciated securities, retirement assets)
• Tax regimes (itemized versus standard deduction environments)
• Life stages and income profiles

Most illustrations of giving power focus on what asset is donated or which tax rule is employed. Less attention is given to how charitable gifts are financed when liquid assets are limited, but overall net worth is substantial. This distinction becomes increasingly relevant later in life.

Liquidity Constraints in Retirement Planning

Many retirees with strong charitable intent face a structural imbalance between net worth and liquidity. Common characteristics include:

• Concentrated home equity
• Tax-deferred accounts earmarked for long-term income
• Limited taxable assets
• Sensitivity to marginal tax increases and Medicare premium thresholds

In these cases, funding charitable gifts through additional portfolio withdrawals may increase adjusted gross income, reduce the effectiveness of deductions, or trigger secondary tax consequences. As a result, the giving power of otherwise appropriate charitable strategies can deteriorate.

Addressing this constraint requires distinguishing between the source of charitable funding and the mechanism by which the gift is executed.

Housing Wealth as a Balance-Sheet Consideration

Home equity is frequently excluded from charitable analysis due to its illiquidity and behavioral considerations. From a planning perspective, however, it represents a significant pool of capital governed by a distinct set of access rules and tax treatments.

Reverse mortgage credit facilities, most commonly FHA-insured Home Equity Conversion Mortgage (HECM) lines of credit, allow a portion of housing wealth to be accessed without triggering a taxable event or requiring scheduled repayment. For planning purposes, several characteristics are relevant:

• Loan advances are not treated as taxable income.
• Draws do not increase AGI.
• Liquidity can be created without liquidating financial assets.
• Repayment is typically deferred until the home is sold or the borrower no longer occupies the property.

These features do not create charitable deductions. Rather, they can alter the context in which charitable decisions are made by preserving tax-efficient strategies elsewhere in the plan.

Planning Applications

Preserving Tax Efficiency While Maintaining Charitable Commitments

Profile: Married retirees in their mid-70s with consistent charitable giving and a portfolio structured for tax efficiency.

Planning issue: Funding gifts through portfolio withdrawals increases AGI, pushing the couple into higher marginal brackets and increasing exposure to Medicare income-related premium adjustments.

Planning integration: Charitable gifts continue to be executed through tax-advantaged methods (e.g., qualified charitable distributions or appreciated securities where appropriate). A reverse mortgage line of credit is established as a contingent liquidity source, allowing portfolio withdrawals to be moderated.

Outcome: Giving power improves indirectly by preventing higher marginal tax exposure and preserving existing charitable techniques.

Supporting Front-Loaded Giving Decisions

Profile: Recently retired client seeking to concentrate charitable giving in early retirement years when deductions are expected to be most valuable.

Planning issue: Reluctance to liquidate investment assets during uncertain market conditions.

Planning integration: Appreciated securities are contributed to a donor-advised fund to maximize the charitable deduction and avoid capital gains taxation. Housing wealth provides supplemental liquidity, reducing reliance on portfolio sales.

Outcome: The charitable strategy benefits from higher giving power while the investment
allocation remains intact.

Incorporating Housing Wealth into Legacy Planning

Profile: Older client with a strong charitable legacy objective and limited desire to reduce current lifestyle spending.

Planning issue: Balancing lifetime financial security with meaningful charitable impact.

Planning integration: Annual charitable gifts are structured using traditional tax-aware methods. Home equity is treated as a terminal balance-sheet asset, with charitable bequests addressed through the estate plan following repayment of any outstanding loan balance.

Outcome: Charitable intent is satisfied without compromising retirement income security.

Planning Boundaries and Fiduciary Considerations

Incorporating housing wealth into charitable planning requires careful client-specific analysis. It is not appropriate when:

• Remaining equity is insufficient to support long-term housing needs.
• The client has a strong aversion to debt.
• Adequate liquidity already exists within the financial portfolio.
• The approach is used to encourage giving rather than support established charitable
  intent.

As with all planning strategies, suitability and sustainability must take precedence over tax efficiency.

Conclusion

The giving power framework discussed in Philip Demuth’s article highlights the significant role of taxation in charitable outcomes and reinforces the advisor’s role as coordinator of charitable decisions within the broader financial plan. Expanding that framework to include housing wealth reflects the economic reality faced by many retirees.

For select clients, home equity can serve as a supporting asset by enhancing liquidity, stabilizing tax outcomes, adding additional planning options, and preserving the effectiveness of established charitable techniques. When evaluated with appropriate rigor, this approach allows generosity to be expressed without undermining the client’s long-term financial security.

Most successful financial planning practices have strategic partners that specialize in specific areas of a comprehensive plan. Our team at Equity Wealth Strategies is uniquely qualified to bring insight and support to your practice around your client’s housing wealth.