A recent Philanthropy Panel Study has determined that donors who give 2+% of their income are happier than those who don’t regardless of the dollar amount that it equates to. The study further suggests that men become more satisfied when they start to give, while women become happier when they give more to charity!
I frequently get questions about Charitable Giving so I thought it was an important topic to address especially since the holiday season is upon us. Many times, other than simply writing a check, people don’t know how to give.
First, I help them identify the charity or simply the cause that they want to support. Many people have a particular area that they want to help in but don’t always know which organizations support those causes. Let’s be clear, nobody gives to charity for the tax deduction. You have to want to give. That said, there can also be tremendous tax benefits to charitable giving.
So, what’s the best way to do it? It depends! Every person has different needs and different desires on how to give. Here’s a list of several ways that you can give.
- IRA- In my opinion, one of the best ways to give is to gift your IRA or your RMDs (required minimum distributions) from your IRA (up to $100,000/yr). You can gift your RMDs via a Qualified Charitable Distribution (QCD) if the following requirements are met:
a. You must be age 70 ½
b. RMD can be taken from anything BUT employer plans
- Life Insurance- You can gift a current or new policy. This option allows you to give a lot more than you otherwise might. Gifting a policy you no longer need or want is a great option. The charity can keep and maintain the policy or possibly sell it. Many times it can potentially be sold for much more than the cash value, and you may get a much larger deduction if they do. Consult your tax advisor first!
- Charitable Lead Trust (CLT)- Set up a trust whereby the charity gets all the income from the trust, and upon death, your beneficiaries get the trust assets.
- Charitable Remainder Trust (CRT)- The opposite of a CLT-. You get the income and the charity gets the assets upon death. A CRT is good for people who need the income (and deductions to possibly reduce taxes) but have no heirs.
- Charitable Gift Annuity- Gives you a guaranteed income for life (annuity) and a piece of that goes to the charity (smaller deduction because you’re getting most of the income generated). The balance goes only to that charity unlike a CRT, etc. which can fund multiple charities.
- Real Estate/ Collectibles- You gift the property (usually highly appreciated) and then the charity sells it. Caution, not all charities have the resources to handle these transactions so discuss it with them first! Regarding collectibles, it must be highly marketable! No junk!
- Appreciated Stock- You gift it to a charity, and they can sell it tax free. You get a big deduction without paying the taxes due if you were to sell it yourself.
- Donor Advised Funds (DAF)- The fund is managed by the organization, but you direct which investments within the funds you want. They do all the work (for a fee!) Tax deduction is limited to 50% of your AGI (adjust gross income) for cash donations and 30% on gifted securities.
- Pooled Income Fund- Similar to DAF, but you have NO investment control. There is a limited deduction based on your life expectancy and the fund’s performance.
- Private Foundation- You are the DAF. The tax deduction is lower-limited to 30% of your AGI for cash donations and 20% on gifted securities. Designed for ongoing family giving.
If you would like to further discuss ways to give to a charity you support, contact us to schedule a complimentary consultation.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation or before Trusts should be drafted by an attorney familiar with such matters in order to take into account income, gift and estate tax laws (including generation skipping transfer tax). Failure to do so could result in adverse tax treatment of trust proceeds. Kestra IS and Kestra AS do not provide legal or tax advice. Any decisions whether to implement these ideas should be made by the client in consultation with professional financial, tax and/or legal counsel.