CI Stavis & Cohen Private Wealth Philanthropy

Smart strategies for giving to charity

According to The Blackbaud Institute, Americans gave more than $513 billion to charity in 2021—a 9% increase over 2020.1 That’s pretty impressive.

Thoughtful, advanced planning can extend your legacy of charitable giving beyond your lifetime, creating generations of benefits for the causes you care about. While giving cash donations is lovely, it is possible to use more advanced strategies that can help maximize both the gift and the potential tax benefit. Here are three such strategies to consider:

Leveraging highly appreciated stock

Compared with selling your appreciated securities, paying taxes on the gain and then donating the after-tax proceeds, you may be able to automatically increase your gift and your tax deduction by gifting highly appreciated stock. Consider that if you sell appreciated stock, you may owe capital gains tax on the appreciation. If you give the stock to charity, however, you’ll receive a tax benefit on the appreciated amount without having to sell it.

Additionally, the charity can sell the stock without paying capital gains taxes because charities are tax exempt. Using this strategy, you not only avoid long-term capital gains taxes on the stock, but will also be eligible to receive a charitable tax deduction for the full fair-market-value of the stock at the time of the gift. With this one simple strategy, you can increase your gift to charity AND your tax deduction.

Making a charitable bequest

One very simple and direct way to benefit charity is to leave a bequest—a sentence in either your will or trust stating the amount you’d like to leave to the charity upon your death. Charitable bequests are eligible for the estate tax deduction and will reduce estate tax liability. Consider that, even if your estate lacks liquidity, your heirs may be required to pay estate taxes of up to 40% of the amount that your estate exceeds the federal exemption. While the federal estate exemption is currently $11.7 million per person and may not be an issue for most individuals, several states also have estate taxes. AND, the federal exemption is currently set to be reduced to about $6 million in 2026. A charitable bequest at your death can help reduce the value of your estate and could eliminate state and federal estate taxes completely.

Gifting retirement assets

Retirement assets are great when you are accumulating wealth, but they may be the worst assets to leave to your beneficiaries. As you may be aware, money taken out of qualified retirement accounts is taxed at the ordinary income tax rate of the account owner—this also includes inherited qualified retirement accounts. So, beneficiaries of the retirement account must pay income taxes at their ordinary rate on any distributions they receive IN ADDITION to any estate tax liability. In fact, without proper planning, the IRS may be a bigger beneficiary of your IRA than your named beneficiary.

Also, under the SECURE act, most IRA beneficiaries must now withdraw all funds from the retirement account within 10 years of the account holder’s death. This change in the law:

  • Limits the ability of most individuals to stretch out retirement account distributions
  • Limits the ability to continue investments with deferred taxes
  • Compresses income tax payments over a much shorter period of time


However, because charities are tax-exempt, a charitable organization can withdraw the assets from the retirement account without having to pay income taxes. You may also consider gifting from your IRA during your lifetime in the form of Qualified Charitable Distributions, or QCDs, which are direct gifts to a qualified charity from your IRA. This technique lowers your taxable income dollar-for-dollar in the year the contribution is made.

These are just a few techniques to consider when making a gift to charity, but there are many others. Working together with your accountant and estate planning attorney, your CI Private Wealth Advisor can help determine the appropriate mix of strategies for your situation.

 

1 https://institute.blackbaud.com/the-blackbaud-institute-index/


ABOUT THE AUTHOR

At Stavis & Cohen, we understand the complex nature of the wealth-building and estate considerations that families face - and recognize the importance of timely, personalized and ongoing advice.

We are a Houston-based, private wealth management firm with the experience and culture to deliver a powerful combination of high-tech and high-touch planning to help multi-generational families manage the complexities of their wealth.

What differentiates our firm is our holistic approach. Our holistic approach focuses on all three areas of planning: the accumulation, conservation and transfer of wealth.




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