Three Reasons for Charitable Giving

Charitable giving is a neat thing to do and we say that for three simple reasons:
  1. Charitable giving is a powerful tradition that can link family members together, even when children and grandchildren get older and move away. 
  2. There are many people that could use a helping hand. 
  3. There are powerful tax incentives associated with charitable gifts....and most people fail to use them properly. ​

How to Research a Non-Profit

Researching a non-profit is important and it is a great activity to bring a family together. The following questions should help you get started.
  • Is the charity's mission in alignment with the things you care about?
  • Does your involvement allow you to teach important values to your children?
  • Does your involvement allow you to get closer to the people in your community? 
  • Is the charity able to execute on its mission?
  • Is the charity spending an appropriate amount of money on its staff?
  • Is the charity spending too high a percentage of its revenues on fund raising?  

There are a lot of great resources that let you evaluate charities and what follows are links to several of them. Through these resources, you can search for charities by location, by charitable mission, by asset size, reputation, etc. 
  • Charity Navigator - With over 7 million users and 8,000 charities studied, this site is well-known and respected for its simple 4-star rating system. 
  • GuideStar - With nearly 1.8 million charities listed, GuideStar has more non-profits listed in its database than any other of which we're aware. The company doesn't provide a rating system on each charity. Instead, it provides the financials of non-profits and asks users to make their own evaluations. 
  • Charity Watch - While Charity Navigator and Guidestar both do a great job in looking the financial statements of non-profits, Charity Watch digs down to understand just how effective the charity is at its mission. It also looks at how much is being spent today on program expenses vs. how much is held back in reserve for the future. Because of the more in-depth coverage, this site only covers 600 charities or so. 
  • GreatNonProfits - This is a relatively new addition to the charity due diligence landscape and it adds a social media flair to the charitable arena. This website is to non-profits what Yelp is to restaurants. It's a very neat place to go to see what others are saying about a charity, particularly when the charity is local. Personally, we believe this is a great idea and hope it catches fire.

Tools and Techniques of Charitable Giving

While gifts of cash to a charity are great, there are many charitable tools and techniques that might make sense for you. They can help with current, taxes, future taxes, give you more control over the money, and allow future generations of the family to be involved. 

Appreciated
​Gifts

This is a smart strategy to use when you: (A) want to make a charitable gift and normally do so out of income and (B) simultaneously want to trim the appreciated securities in your taxable investment portfolio.

By simply gifting the appreciated securities to charity, the capital gains tax on the sale of the assets is avoided and you simultaneously receive a charitable deduction for the full market value of the gifted securities (as long as the securities were held for at least one year).

​We cannot begin to tell you how many people that we have helped to take advantage of this simple and smart approach to charitable giving. 

Charitable Lead
​Trust

This is technique used to manage gift taxes. Imagine you have an asset you would like to gift to family members several years in the future and you don't need the income the asset generates now. By setting up this trust and gifting the income to a charity, when the asset is eventually gifted to family members, the IRS allows you to discount the value of the asset by the present value of the charitable gifts made over the intervening years.

Jackie Onassis (Kennedy's widow) is known in the financial planning world for having used this technique.

Fund Gifts with IRA Withdrawals

​This is a smart strategy to use if you are over the age of 70 1/2 and you have money in an IRA. It allows you to make a distribution directly to a charity from your IRA and it counts towards your required minimum distribution.

This is important because, by not taking a distribution into your income directly, you avoid the problem of exceeding the Provisional Income threshold that causes  your Social Security benefit to be taxed or the threshold that causes your Medicare premium to be higher. Remember, those items are affected by your Adjusted Gross Income,  and distributions from your IRA directly to you, affect that calculation.

Charitable Remainder Trust

This is a technique used to manage ordinary income and/or capital gain taxes (and possible estate taxes). Imagine having a highly appreciated asset that you want to sell and turn into a lifetime income stream. In a normal situation, when selling the asset, taxes would be due on the sale leaving you with less money to invest for income. By using a charitable remainder trust (or a charitable gift annuity), there is no tax on the sale of the asset. Additionally, you receive an income tax deduction for the net-present value on the amount expected to go to the charity at your death.

We employ this strategy for families that have a lot invested in one asset (e.g. Coca Cola stock) or for business owners who want to sell their businesses.

Donor Advised
​Funds

Donor Advised Funds, otherwise known as DAFs, are very interesting vehicles. 

A DAF - frequently managed by firms like Fidelity and Vanguard - allows you to contribute money or appreciated assets and take an immediate charitable deduction (subject to regular limitations, etc.). Then, at your discretion, you can ask the DAF to make a distribution to the qualifying charity of your choice. The big caveat is that the DAF has to approve the choice of the charity.

It really is a neat vehicle and is similar in many ways to a Charitable Trust.

Family
​Foundation

For wealthy families that deeply value charitable giving, a family foundation is an attractive option. Through it, you can contribute large amounts of money to your own foundation and make distributions to other charities and individuals that meet the requirements of your foundation. Of course, you also receive charitable tax deductions (subject to limits). for the amounts you contribute. Furthermore, you have the ability to have your children sit on your foundations board and learn what it is to be a steward of that money and to be a leader in your community.
Strategic Wealth, LLC | 5957 Shiloh Rd, Suite 114 | Alpharetta, GA 30005 | (678) 456-5060