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Tax-wise Charitable Giving

Sudden acquisitions of wealth, such as the sale of a business, stock award, or inheritance can result in significant capital gains taxes. Strategic charitable giving vehicles can minimize your tax burden and enable you to support causes that are important to you.

Tax-wise Charitable Giving

Sudden acquisitions of wealth, such as the sale of a business, stock award, or inheritance can result in significant capital gains taxes. Strategic charitable giving vehicles can minimize your tax burden and enable you to support causes that are important to you.

What strategy is right for you?

Charitable giving can minimize the tax burden of sudden wealth acquisitions, but how you give matters, and it’s important to choose the vehicles and strategies that will help you realize your goals.

Donor Advised Funds

A Donor Advised Fund (or DAF) is a giving vehicle established through a public charity. It allows donors to make a charitable contribution for which they receive an immediate tax deduction, and it allows them to recommend grants from the fund over time.

Charitable Remainder Trust

A charitable remainder trust is a tax-exempt, irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time, and then donating the remainder of the trust to the designated charity.

SCENARIOS

Here are two scenarios in which we helped clients use charitable giving vehicles to minimize their capital gains burden and support the people and causes they care about.

Ronda – Donor Advised Fund
After converting assets to cash, Ronda decided to create a Donor Advised Fund (DAF). This allowed the full amount granted to the DAF to be used as a charitable deduction in the year a grant was made. Furthermore, when appreciated stock is granted to the DAF, no capital gains are paid by the donor when the stock is sold.  Distributions to charities of your choice can occur over many years into the future. Since the initial gift provided an income tax deduction in the year given, future distributions to charity are non-deductible. By funding a significant amount to her DAF, Ronda was able to bunch future gifting goals into the current year, providing her a significant charitable deduction upfront to help offset the capital gains realized from the stock sale.

John – Charitable Remainder Trust
After selling stock to fund his personal spending goals, John decided to fund a Charitable Remainder Trust (CRT) with $300,000. He specified that the beneficiary (in this case, his brother, though you can also specify yourself), would receive a lifetime 5% income from the trust (i.e. $15,000/year). After his brother’s lifetime, the remainder would be given to charities John designated.

With CRTs, a sizable income tax deduction in the initial year of the gift is determined by the value of the gift and the age of the beneficiary. In John case, he was able to claim a $135,000 deduction in the year he established the trust. Furthermore, since John gifted appreciated stock to fund the trust, he did not have to pay capital gains on the sale of stock in the trust. This deduction helped John offset the capital gains taxes on the sale of stocks he needed for his own spending goals.

We’re here to help.

We can work with you, along with your tax advisor, to explore your options for minimizing your tax burden. We will walk you through the projections of how each decision or vehicle will impact your savings and your financial plan.

“By being strategic in your giving, you can minimize your tax burden and maximize your impact.”


BRIAN MARS
President & COO, Senior Financial Advisor

KEY CONSIDERATIONS – TAX-WISE CHARITABLE GIVING

  • In the case of sudden wealth acquisition, did it come in the form of cash, stock or a combination of forms?
  • Are you looking to maximize your immediate tax deduction or provide ongoing income for yourself or a beneficiary?
  • What types of assets are you gifting (cash, appreciated stock)?
  • Do you want to retain control over how and when your funds are dispersed to the charity or charities you specify as beneficiaries?
  • In the case of sudden wealth acquisition, did it come in the form of cash, stock or a combination of forms?
  • Are you looking to maximize your immediate tax deduction or provide ongoing income for yourself or a beneficiary?
  • What types of assets are you gifting (cash, appreciated stock)?
  • Do you want to retain control over how and when your funds are dispersed to the charity or charities you specify as beneficiaries?