We all know the adage that it is better to give then to receive and, hopefully, for the sake of humanity, it is a characteristic that we may all integrate into our daily lives.  But how much better would it be to give strategically?  The Holidays bring on a sense of giving, compassion and an awareness of those that may need the assistance and support of others.  Couple this end of season/ Holiday phenomenon with the desire to reduce taxation and steer our dollars to the needy vs. the Tax Man and it is easy to understand why the compulsion to give is desirable on many levels. Also consider the natural tragedies that have befallen so many people and rendered them in a desperate state whether it be in Houston, the Florida Keys, Puerto Rico, the Virgin Islands, and the many locales outside of US territories such as the Caribbean islands, Mexico and more and it is clear that there are many that could use our help to restore their lives to some level of normalcy.

Efficient charitable gifting strategies may minimize the net cost of donations or allow the donor the opportunity to give more to the causes that they have already chosen because of either minimizing the cost or by providing tax deductions that may offset the gift.  Consider one or more of these standard tax planning implementation strategies.


Fund Gifts with Appreciated Securities: By donating appreciated securities instead of cash you avoid the capital gains taxes that might otherwise be due on those securities. For tax purposes, you get the full market value of the appreciated securities as a potential deduction from income taxes and completely avoid capital gains tax liability. The charity captures the full market value of the gift by selling the securities on receipt and, being a non-profit, not being liable for any capital gains tax liability.

This strategy is helpful when you want to trim appreciated securities in your portfolio without having to realize capital gains. You can also donate appreciated securities even if the portfolio is not in need of rebalancing and then keep investment strategy constant by immediately repurchasing the same securities.

Fund Gifts with IRA Withdrawals: By directing IRA withdrawals directly to a charity you eliminate boosting Adjusted Gross Income by directing potential taxable income directly to the charity of your choice. Current law allows use of this strategy if you are over the age of 70 1/2 and the IRA withdrawal goes directly to an IRS-approved charity (and not to a donor advised trust).  Under the current tax laws, when utilizing this strategy, you have a better chance of accomplishing the following benefits:

Lowering the portion of Social Security income subject to taxation; reducing the amount of Medicare premiums; keeping taxable income low if you take the standard deduction, and/or reducing your vulnerability to the IRS limits on itemized deductions.  (Consider that for each donation, you’ll have IRA withdrawal paperwork to complete and you will receive a check to your home address for forwarding yourself to the charity. In light of these paperwork requirements, consider restricting this strategy for your larger contributions.)

Contribute to a Donor Advised Trust: By donating to a donor advised trust you can accomplish tax planning now and determine charitable gifting decisions later. You donate cash or appreciated securities to an account held at a brokerage firm or with a charity that functions as a Trust held for the completion of your charitable gifts. In these qualified charitable trust accounts, the donor receives the potential charitable deduction in the year the wealth is donated to the donor advised trust and then can subsequently advise the fund to disperse gifts to the charities of your choice in a manner preferred by the donor. (Remember that donations to a donor advised trust are irrevocable and that gifts can only be made to IRS approved charities.)

Set up a Charitable Remainder Trust: This strategy also turns appreciated securities into income; however, in this case you retain more investment risk and responsibility and have less protection against longevity risk than you would with a gift annuity.  To implement this strategy, you transfer appreciated securities to a trust, either offered through a charity or that you self-manage within a trust created for you by your attorney. You get a potential charitable deduction in the year of the transfer equal to the amount that will remain for charity, as estimated according to IRS prescribed calculations based on an assumed factor for your longevity. Required withdrawals are taken each year, computed according to a detailed IRS income-layering calculation. You can choose to have either annuity trust income (calculated as a fixed dollar amount) or unitrust income (equal to a fixed percentage of the portfolio’s value each year). Funds remaining at your death go to your chosen charities.  This strategy is more beneficial when interest rates are high. As with the charitable gift annuity, it works particularly well when you want to trim appreciated securities from your portfolio without realizing capital gains and/or in years when you have a need for a large charitable deduction, e.g. if you sell your business or some real estate for a large taxable gain.

Think of this strategy as turning appreciated securities into personal income when you are comfortable retaining investment and longevity risks.

Set up a Charitable Lead Trust: This strategy exchanges a large current donation for income that goes to a charity during your lifetime and that gives the funds remaining at your death to your heirs. It works particularly well when interest rates are low.  The strategy works best if you anticipate having a taxable estate and if you already have ample cash flow for your own daily needs, and have a keen interest in lifetime charitable giving and heirs to whom you would like to leave wealth. The process includes transferring wealth such as appreciated securities to a trust whose mandatory distributions during the term of the trust go to your chosen charities, and any funds in the trust remaining at your death go to your heirs.


Set up a Charitable Gift Annuity: Charitable gift annuities can turn appreciated securities into lifetime income. In return for a large irrevocable gift to a charity, you get a large charitable deduction in the year of the gift plus a lifetime stream of taxable income. The charitable deduction is equal to the net present value of funds estimated to remain for the charity at your death, as calculated by IRS formulas with an assumed factor for your longevity. Income is usually fixed in amount and so does not offer inflation-protection. Close attention to the credit worthiness of the charity is important since you are relying on the charity to provide income for the rest of your life. If you are concerned about preserving wealth for heirs, consider pairing this strategy with permanent life insurance held in an irrevocable life insurance trust. This strategy is referred to as a “wealth-replacement” strategy.  Think of this strategy as a low-administrative, hassle-free way of turning appreciated securities into lifetime, fixed income with a charity you trust to be financially viable over the long-term, when interest rates are high and the benefits of an annuity, i.e. never outliving your income are sought to protect against “longevity risk”.


When planning charitable giving be sure to work closely with your tax, legal and financial advisors. Tax-efficient charitable giving may be easily accomplished but for a more meaningful effect, by integrating aspects of financial, tax and estate considerations, it is best to work with experts that may guide you in gifting strategies that will benefit the charity, feel the goodness of gifting to your chosen causes during your lifetime, provide a tax benefit for you and minimize taxation to your estate in choosing the types of assets best given to charity and the assets best passed along to your heirs.


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RZ Wealth is guided by Irvin Rosenzweig, a Barron’s Top 1000 Financial Advisor with CFP®, ChFC®, CLU®, CRPS®, and AEP® designations in partnership with Ron Carson, Founder and CEO of Carson Group, who is an inaugural inductee into the Barron’s Hall of Fame and on the Inc. 5000 Fastest Growing Company list.

Learn more how RZ Wealth’s seasoned leadership leverages Carson Group’s national strength and resources of more than 46 other well-known advisory firms nationwide which comprise nearly $8.6 billion of assets under advisement.

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