Cashology by FNBO

Dec 22, 2021

Make Charitable Gifting Your New Years Resolution

_Let’s say someone decides to make charitable gifting a new year’s resolution. What makes this resolution easier to keep than others?_ * Most resolutions are about reducing negative behaviors. * Eating too much, spending too much, watching too much Netflix. * It’s tough when you go about changing or eliminating a negative behavior. * But when you focus your resolution on increasing positive behaviors, such as community involvement or charitable gifting, your success rate will be higher. * You’ll feel great about it and, with charitable gifting, there can be some significant financial advantages, too. _How can someone get started on this and know it’s right for them?_ * Getting started is easy. * Think about non-profits you like to give to. * What causes are you passionate about? * And think about how much you want to give and how often. * And if you want to do it individually or have your family involved. * Once you’ve thought about these basics, then a chat with your wealth management advisor can help you figure out a strategy for gifting. _There are a lot of different approaches to charitable gifting? What are some of the most common ways?_ * Let’s talk about two of the simplest ways. * One, of course, is giving cash gifts to organizations you support. * You can make a resolution to make regular donations or a one-time donation. * And if it’s a qualified charitable organization then you’re entitled to a tax deduction against your income taxes. * And you can easily check to see if a charitable organization is qualified or not. * There’s a website charitynavigator.org can tell you if your donation will be tax deductible or not. * The second easiest way, after cash gifts, is to make qualified distributions from a retirement account directly to your charitable organization. * If you have an IRA, for example, and are at least 70 and a half years old, you can contribute some or all of your IRA to charity. * The upside – at 70 and a half you’re required to take distributions anyway and the donation will not be taxed. * So you get to take your required distribution without realizing any tax burden. _What about Donor Advised Funds? Those are set up just for charitable purposes, right? _ * That’s right. * A Donor Advised Fund is an account that’s like an investment account but set up for charitable purposes. * The big advantage here is there are no rules on how much you give or which organizations you give to, as long as it’s charitable. * And your gifts earn you an immediate tax deduction. * But it’s not for everyone. * Your wealth management advisor can tell you more, but a DAF is best for someone if you have an event – such as selling a business – that creates a large tax obligation. * If that’s the case, you can set up a DAF to receive the funds and distribute them to charity for a larger and immediate tax deduction. * With a DAF you want to work with your wealth management advisor and really let your advisor manage the account under your direction. _And then that leads us to things like Charitable Trusts and Foundations and taking more of a family approach to charitable giving._ * Yes, both of those approaches take a longer term “family legacy” approach to charitable gifting. * There are a lot of different types of charitable trusts and you need to carefully select a type, with your advisor’s help, that matches your goals. * A charitable remainder trust is a very common type. * With it, you set money aside in your lifetime and when you pass away the remaining money is gifted to one or more charitable organizations. * The trust can create a stream of income for yourself during your lifetime, give you a partial tax deduction – based on the anticipated eventual gift – and reduce estate taxes when you pass away. * A private foundation takes things a step further. * On the upside, with a private foundation, there are expanded giving opportunities. * You can make grants to individuals or non-charitable organizations. * Giving becomes more strategic and more focused on a cause or ways to make an impact. * But the time commitment, regulatory requirements and costs associated with a private foundation often steer people back to a Donor Advised Fund. * Which can be created and managed much more easily. _And that sounds like a key for keeping a New Year’s Resolution._ * Without a doubt. * That and picking a cause or charity that’s close to your heart. Useful info/links * FNBO: https://www.fnbo.com/insights/wealth/make-charitable-giving-your-new-years-resolution/index.html * How Stuff Works: https://money.howstuffworks.com/economics/volunteer/starting-a-charity/charitable-trust.htm * National Charitable Endowment: https://nationalcharitable.org/donor-advised-funds-basics/

12 min