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Make Charitable Giving a Win-Win Part Of Your Wealth Plan

You can do a lot of good while getting a good tax break, but the details of the setup are important, and so is how you communicate your wishes to your heirs.

There are tremendous breaks and incentives written into the tax code for charitable giving, and you don’t have to be wealthy to take advantage of them. But they’re most successful for people who truly have a charitable bent — those who sincerely want to see some of their money go to the charity or charities they care about.

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That’s because most charitable-giving strategies require a fair amount of planning, paperwork, and set-up and maintenance costs. The tax benefits being what they are, though, it’s worth the effort.

They include:

  • You can sell highly appreciated assets — real estate, stocks, etc. — within a trust and preserve the full fair-market value instead of losing money to capital gains taxes.
  • When an asset is sold, there are income tax benefits upfront, based on the value of the gift you’re making to charity, and possibly in the future, depending on how the gift is set up and if it includes an income stream.
  • Generally, once you set up your fund or trust, the value of the donated assets comes out of your estate, reducing the amount of money your estate must pay in taxes when you die. That’s helpful because while the exemption for federal income taxes on estates is $5.49 million, several states start taxing estates at limits much lower than that. Oregon’s estate tax, for example, kicks in at $1 million.
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The biggest disadvantage to some of the more common forms of charitable giving is that you are, in a way, disinheriting your children. Basically, the charity gets their inheritance. But fear not: There are strategies for “re-inheriting” them — including using the income stream you’ve created within a trust to pay for life insurance premiums. So you can give to your favorite charity and still provide for your heirs — a win-win.

There are many kinds of charitable-giving vehicles: donor-advised funds, pooled-income funds, charitable trusts, life-estate agreements, private foundations and more. When making your choice, you’ll want to consider both the tax implications and how much flexibility you’ll have as a donor — especially if you’re the type of person who likes to have a say in how your money is spent.

It’s important to use a qualified financial professional who can help you plan out your finances, assets, allocations, legacy plans and charitable giving. Planning your finances the right way is vital and is not a do-it-yourself project. With much of your future riding on your income, relying on a professional with adequate experience is a must.

It’s also a good idea to communicate your wishes to your children or any other family members who might be affected by your plans. A conversation now could avoid turmoil down the road, especially if they are expecting to inherit specific assets.

For some families, philanthropy is a way of life, passed down from one generation to the next. But if it’s new to your family, you’ll want to be clear about what you’re doing and why.

Obviously, this is a complicated matter. If you’re considering making charitable giving part of your wealth plan, consult with a specialist — better yet, a team of specialists, including a financial professional, a tax attorney and an estate-planning attorney with experience in charitable contributions.

They can walk you through any complex legal matters, and around any obstacles that could get in the way of your success.

Kim Franke-Folstad contributed to this article.

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About the Author

Donald B. Bergis, Investment Adviser

Founder and President, Regent Wealth Management

Don B. Bergis is the founder and president of Regent Wealth Management. He has spent more than 15 years as an adviser, specializing in preserving the wealth his clients have accumulated and growing it responsibly. Don is the co-author of "Victory: The World's Leading Experts Reveal Their Secrets for Winning in Health, Wealth & Success in the New Economy," and he can be heard on the nationally syndicated "Financial Symphony" radio broadcast. Investment advisory services offered through Global Financial Private Capital, an SEC-Registered Investment Adviser. SEC registration does not imply a certain level of skill or training. Regent Wealth Management and GFPC are not affiliated entities. One or more individuals at Regent Wealth Management are investment adviser representatives of GFPC and [may] receive[s] [JA1] compensation in exchange for soliciting investment advisory services provided by GFPC on behalf of Regent Wealth Management clients.

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