Dec 2019

Giving Strategies to Consider

by | Dec 1, 2019

As we get toward the end of the year, the holiday season inspires many of us to not only be grateful for what we have, but also to look for ways we can give to others less fortunate than ourselves.  It’s important to remember that there are only 3 things we can do with money:  spend it, save/invest it, and give it away.  However, the concept of giving is not purely focused on money.  We must remember that we can also give our time, energy, talent, and expertise toward helping others.

In this article, we want to focus on some giving strategies and concepts that can make your giving more impactful.  Tax laws have recently changed how the deductions for charitable giving work.  As always, speak with your tax advisor to determine the most effective way for you to give.

Consider Giving Appreciated Investments Rather Than Cash:  Many people support their favorite charity or church by making cash gifts to them throughout the year.  However, did you know that giving a gift of appreciated stock or investments rather than cash could be far more impactful for both you and the charity?  Here’s how:

  • You can effectively give more when you give stock or investments.
    • Scenario A – Let’s say you want to make a $10,000 contribution to your favorite charity during the year. Normally, you might simply write a check for $10,000, and receive the benefit of a potential tax deduction for doing so.  You also have a $100,000 investment portfolio that you started years ago with $40,000, which you chose not to touch.
    • Scenario B – Instead, you elect to give $10,000 worth of your appreciated investment to the charity. If you sold the investment, you may have to pay capital gains taxes of 15% – 20% on the investment gains.  You would hold back the money for those taxes and give the rest away as your charitable gift, which diminishes the value of your gift.  Instead, simply give $10,000 worth of your appreciated investment.  Not only would you receive the potential deduction for your gift, but you can effectively give more because you’ll be avoiding the capital gains taxes on your investment.  Your charity loves this solution because they can turn around, sell the investment, and likely not pay any capital gains taxes whatsoever because of their non-profit status.
  • You can diversify and rebalance your portfolio through charitable giving. We often encourage you to diversify your investments, and not have all of your investment eggs in one basket.  However, some investments grow faster than others, naturally knocking your portfolio out of alignment.  You could bring it back into alignment by selling the investment, taking the tax hit on the gain, and reinvesting the money elsewhere.  Charitable stock giving can also help diversify your portfolio while allowing you to avoid the taxes.  If you give cash normally, simply give away the appreciated investment and infuse that cash into the portfolio.  You can effectively rebalance and diversify your portfolio without paying taxes on the gains.

Giving In Retirement:  For most people, their largest investment asset ends up being their retirement account such a 401(k) or an IRA.  Once you reach age 70.5, Uncle Sam forces you to begin taking Required Minimum Distributions (RMDs) out of these accounts in order to ensure you pay your taxes.  For most people, this ends up being an unwelcome tax burden.  What many people don’t know is that they can give all or a portion of their RMD to their favorite charities and exchange a potential tax burden for a possible deduction while providing substantial help to others.

Creating A Lasting LegacyMany people live below their means and build a substantial amount of wealth throughout their lives.  You can use your will and/or a charitable trust to specify how money can be given away to future generations in order to provide a legacy that will far outlive you.  This is one of the most powerful ways that you can establish a family name that stands for unselfish giving.

An easy way to give a smaller percentage of your account is to simply name the charitable organization as a beneficiary.  A charity will happily give you their tax ID number to facilitate this.  We’ve actually found that many charitable organizations don’t know that they need to give their tax ID numbers to donors in order to set up the transfer appropriately, so be sure to ask them for this.

Finally, an important step in the legacy giving process is to ensure the charity that you are giving your hard-earned wealth to is actually a good steward over the wealth they manage.  Charity Navigator is a fantastic, public organization that evaluates the actual impact of many charities (www.charitynavigator.org).  We encourage you to research your charity before you leave them your financial legacy to manage.

This newsletter is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought. A diversified portfolio does not assure a profit or protect against loss in a declining market. 

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