Carnegie Investment Counsel Blog

You Can’t Take It with You Part 2: Philanthropy

Posted by Carnegie Investment Counsel on Sep 17, 2021 4:00:00 PM

You Cant Take It With You Part 2

Did you know that 90 percent of high net-worth households give to charity according to the National Philanthropic Trust? It’s an impactful way to ensure your wealth goes to good use. Nonprofit and charitable organizations are fueled by individuals who support their services. Currently, there are about 1.54 million charitable organizations in the U.S., and in 2019, 69 percent of charitable giving came from individuals.

In our first post in this series on living with wealth, we discussed giving to family. [Link to blog when posted] In this post, we concentrate on charitable giving. Outside of playing a pivotal role in helping a nonprofit organization thrive, charitable giving boasts a number of benefits for donors. Making a donation to a qualified 501(c)(3) makes you eligible for tax deductions, and giving a considerable amount can benefit your overall estate planning.

Take a closer look at how you can position yourself for sustainable charitable giving and, in addition, leave an enduring legacy after your death.


Planning for Sustainable Giving

Think of creating a sustainable giving plan as building an infrastructure for philanthropy. You first want to make sure that you’re in a financial position to do so. Consider your current financial standing to confirm your ability to give without putting yourself and your family in a deficit.

Next, think about how your portfolio will benefit from your philanthropic efforts. Consulting with your financial advisor will offer clarity on how you can maximize charitable impact while simultaneously taking advantage of tax benefits. This will come in handy when you consider how one-time, monthly, yearly or long-term contributions will impact your tax status.

Revisit your sustainable giving plan every year with your advisor. It will show you how your philanthropic efforts have grown, allowing you to measure the impact your wealth is making. Tax laws also change periodically and reviewing your giving plan with your advisor will help you strategize your approach.


Selecting a Nonprofit Organization

Deciding how you want to use your wealth for philanthropic purposes is highly personal. You’ve spent considerable time creating financial security and choosing to pay it forward should come with careful decision-making. You may have charitable organizations that are close to your heart already, but if you don’t, you can begin the process by asking yourself a few simple questions:

  •     What causes do I care about most?
  •     Who do I want to benefit from my philanthropy?
  •     Do I want to focus on my local/community organizations, or do I want my philanthropy to reach across borders?

Documenting these responses will help you understand the focus of your sustainable giving. Consider creating a mission statement that reflects your findings. You can use the statement to guide your search for charitable organizations. You can explore the many nonprofits that are seeking support through platforms like America’s Charities, Charity Navigator, GuideStar and your state’s attorney general office. 


Different Ways to Give to Charities

There are quite a few ways you can use your wealth for sustainable giving. Cash donations are perhaps the easiest and most well-known form, but there are other ways to ensure your chosen organization(s) thrive:

  • Appreciated stocks. Donating appreciated securities is one way to share your wealth and can be done as a one-time gift or as part of a longer term gifting plan. Gifting low-cost basis stocks can help avoid capital gains tax and provide a charitable deduction for the asset’s full fair-market value in the year the gift is made.
  • Other appreciated assets. You can also gift non-publicly traded assets like artwork, memorabilia/collectibles, real estate, life insurance policies or other high-value items. These donations also can offer charitable tax deductions and avoid capital gains.
  • Qualified charitable distributions (QCDs). Gifting IRA-required minimum distributions directly from your IRA to a charity avoids income tax. This is a tax benefit whether you file taxes using a standard deduction or itemized deductions. Coordinate with your tax preparer to receive the benefit of the QCD deduction.
  • Donor advised funds. These types of funds are growing in popularity: They give donors time and flexibility with their sustainable giving strategy. You can make ongoing deposits by way of cash, securities or other assets without needing to choose the recipient right away. The donor receives the tax benefit at the time of the deposit/gift to the donor advised fund. The charitable gifts can be distributed gradually over time or in lump sums. While the asset is awaiting distribution to a charity, it can be invested with possible growth potential.  The donor advised fund sponsor verifies the charity is an IRS qualified charity, records the gifts, acts as a resource for gifting rules and facilitates the gift distribution. The fund can be a beneficiary in your estate documents allowing for legacy gifts. These types of funds are established and maintained by many organizations such as Charles Schwab, Fidelity Investments and many others.


Giving Through Charitable Trusts

While this gifting strategy requires more effort to establish and has a financial cost, it can create a tax benefit and income stream for the present and future, while providing a legacy for the long-term. The legwork involves working with an estate planning attorney to write an irrevocable trust document and determine all interested parties and a payout structure. Costs include attorney fees and possibly trustee/advisor fees. There are three factors involved in this gift:

  • The donor funds the irrevocable trust. This is a gift that cannot be reversed, and the donor receives a tax benefit at the time of the gift. 
  • The income beneficiary receives income payments from the trust during the donor’s lifetime (or a specified period of time). The income beneficiary can be the donor, another person or a charity. 
  • The final beneficiary receives the remainder of the trust at the end of the trust period. It can be the donor’s estate, beneficiary or a charity. 

A charity must be either the income beneficiary or the final distribution beneficiary. 

A charitable trust is one way to diversify a concentrated stock position with a low-cost basis. It results in:

  • Tax savings for the donor.
  • An opportunity to diversify a concentrated stock position.
  • An income source for a long period of time, either to the donor, donor’s loved one or charity. (The income to the income beneficiary is subject to income tax based on the beneficiary’s tax status.)
  • The final beneficiary receives a lump sum benefit or income stream at the trust’s specified time. 

There are many tax rules and laws governing charitable trusts. Coordinate the trust creation and maintenance with your attorney, CPA and financial advisor.


Vetting Charities

When researching the recipient(s) of your philanthropy, make sure they’re qualified 501(c)(3) organizations. You can verify through the IRS website via their Tax Exempt Organization Search Tool. Once you’ve decided on your organizations, confirm that your mission aligns with theirs. You’ll also want to review their Form 990 (an IRS form that most tax-exempt organizations need to file every year), read their annual report and audit for thorough understanding of their services. You can also contact the charity to clear up any remaining questions you might have.


Navigating Charitable Giving

Supporting a nonprofit charitable organization through sustainable giving is one way that you can give back to the community and the world. When you decide to do so, a financial advisor can help guide you through the process of making this type of impact with your wealth.


Need a Financial Advisor?

If you are currently looking for help with financial planning, contact us. We are happy to schedule an introductory meeting at your convenience.

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Topics: Giving, Financial Planning, Wealth Management, Nonprofits

Carnegie Investment Counsel

Written by Carnegie Investment Counsel

Carnegie Investment Counsel is an Registered Investment Adviser (RIA) providing personalized financial guidance to help you preserve and grow your wealth, so you are freer to enjoy your life. As your fiduciary, we are obligated to place your investing success ahead of our returns.

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