Monday, May 17, 2021

Planning to Give



Ask The CFP® Practitioner

Darcie Guerin

“Wisdom is oftentimes nearer when we stoop than when we soar.”
~William Wordsworth

Question: What are the best ways to make gifts to charitable organizations?

Answer: That’s a common question that comes up each year around the holidays. For that reason, let’s review how to best fulfill your charitable inclinations and make a difference in the lives of others.

Grandma was right when she said that it’s better to give than receive. There’s more than the potential tax benefits. Sharing our good fortune may also bring smiles, warmth and gratitude to the recipients. Generosity is good for the heart and the mind too. Just thinking about helping others unconsciously activates a part of the brain responsible for feelings of gratification. The University of Buffalo has documented tangible benefits as well. Researchers found that unselfishly helping others, whether carrying groceries, watching the neighbor’s pets, or driving a housebound friend to an appointment or community event, increases the potential for a longer

Extremely Easy

Most of us write checks or volunteer when donating. Another option is to gift highly appreciated securities. This can provide an immediate tax deduction and you will likely avoid paying capital gains tax on the appreciated portion of the securities value.

Planning your gifting can make it a part of your financial plan. This creates a truly lasting legacy allowing you to often amplify the benefit to the recipient, and if done correctly, it may improve your tax situation. Here are a few more options.

Seriously Sophisticated

Donor-advised funds (DAFs) are in effect a family foundation with no legal expenses or administrative and tax reporting requirements. DAFs can be established with an irrevocable contribution of as little as $10,000 in cash, marketable securities or mutual fund shares. Additional contributions can be made in amounts of $500 or more. Contributions can be deducted immediately, subject to limitations, and you can distribute funds when you’re ready; the account can be invested and grow tax-free* for as long as you want, allowing you to make a difference for years to come. Our family established a DAF and it’s a wonderful way to include everyone when deciding on the grants. This is an opportunity to pass along your values in very real terms, and it can be as easy as a few clicks online.

Charitable remainder trusts (CRT) are popular irrevocable trusts allowing you to donate an asset, which the trustee sells and then reinvests those proceeds in an income-producing portfolio. You receive the tax deduction, as well as a percentage or fixed amount of income. When you pass away, the remaining funds go to the designated charity.

Charitable lead trusts (CLT) are like the CRT, whereby you gift an asset to fund a portfolio, but the CLT reverses the payout order. The charity receives the annual (or lead interest) income for a set number of years; afterward,

Because everyone’s tax situation is unique and the codes are complex, work with your financial and tax advisors first to determine how to give and at what level.

Because everyone’s tax situation is unique and the codes are complex, work with your financial and tax advisors first to determine how to give and at what level.

the remainder passes back to you or other designated beneficiaries.

Gifting life insurance that you no longer need for its original purpose can be a charitable gift, while minimizing exposure to estate taxes. Simply transfer ownership to a charitable organization or naming the organization as beneficiary.

There are other strategies as well. Ask your tax and financial advisors about wealth replacement and maximum gifting using life insurance.

Charitable gift annuity. This is a simple contract between a donor and a qualified charity. The donor contributes cash or assets and is entitled to a charitable tax deduction (subject to income limitations) for a portion of the donation. The charity agrees to pay a fixed sum to designated recipients annually. Any remainder reverts to the charity.

Because everyone’s tax situation is unique and the codes are complex, work with your financial and tax advisors first to determine how to give and at what level. Doing so can help you live comfortably while giving wisely.

Begin by asking yourself these practical questions:

  1. What are my giving goals?
  2. Who do I want to help and to what extent?
  3. Can I afford to give during my lifetime and still meet my primary financial objectives, or should it be part of my estate plan?
  4. What are the most efficient and effective ways to give?

Benefits to Donors

If implemented properly there are three potential tax advantages to giving: 1) immediate tax deductions, 2) avoidance of long-term capital gains taxes, 3) reduction of future estate taxes.

As the late-night TV guy says, “But wait, there’s more!” Grandma was right, it is truly better to give than to receive. A survey of 4,500 Americans conducted by UnitedHealthcare found that those who volunteer have less trouble sleeping, less anxiety, more confidence and empowerment, better friendships and social networks, and a sense of control over chronic conditions. The effects can be felt whether you give of your time, talents or treasures. To make the most of the latter, be sure to consult your financial advisor and tax professional before implementing planned giving alternatives, as they carry complex tax implications.

Stay focused and plan accordingly.

*There is no assurance that any investment strategy will be successful. Investing involves risk including the possible loss of capital. The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. 

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” 

This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC, 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email Website: 

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