So much of what we know has now changed under the Tax Cuts and Jobs Act. For years, Americans tracked their charitable contributions to use as a possible deduction when itemizing on their tax return. With the new increase in the standard deduction, many taxpayers may now find using the standard deduction option to be more advantageous than itemizing deductions. So, the question becomes…
“If my client is no longer itemizing, how can they continue supporting their favorite charities while best meeting their financial goals?”
It is the duty of a trusted advisor not only to escort their clients through the tax maze, but also to make sure that their financial, estate, and philanthropic plans are working in tandem to enhance each other. Making that connection between the philanthropic goals of your client and determining the most effective tax-wise giving tactics can be a difficult task. When faced with this feat, the following three “must do” steps will help guide your clients through making thoughtful and tax-smart decisions.
- Define their philanthropic goals.
Clients often want to engage their family while setting these goals and may even want to create a mission statement together stating the parameters for their giving. Several online tools, such as Charity Navigatoror the BBB Wise Giving Alliance, are available to assist donors with narrowing the field of charities to the ones that are most efficient with their resources. You may also contact the organizations your client is exploring to gather information about the nonprofits’ current efforts in need of funding. With these combined resources your client will have an easier time making the most informed decision possible when selecting a charity.
- Determine the appropriate asset(s) to donate.
Using a full balance sheet approach to charitable giving, your client can often donate an appreciated asset to help equalize their portfolio. Gifts of stock, bonds and cash are the most common, but often complex assets such as real estate or privately held business interests are more advantageous. Since these assets require multiple levels of consideration and often include costs to the donor, thoughtful planning will ensure which assets can generate the best possible outcomes for the client and their goals.
- Decide the right vehicle to facilitate the gift.
Many donors are used to donating cash to charities, but gifts of complex assets can be a very tax-effective alternative. In cases where the charity does not accept complex assets, the use of a Donor Advised Fund (DAF) might be an appropriate choice. The donor would receive one tax receipt from the DAF and would be able to make grant requests to all their favorite qualified public charities, regardless of their size or ability to accept complex assets. The donor could also consider making a larger gift to the DAF now, and decide to distribute the funds at their convenience. By bundling multi-year gifts, the donor can take full tax advantage of the deduction in the year they contribute to their DAF account.
Another vehicle to be considered is a life income gift – a Charitable Remainder Trust or a Charitable Gift Annuity (CGA). The CGA is a contract directly with the charity which exchanges the asset for a current income tax deduction and a tax favored income stream for life. In either situation, you can assist with the transfer of securities, cash can be wired, or a check can be issued. using a more complex asset might have the greater impact on your client’s financial circumstances.
With year-end in sight, having timely discussions with your clients about how the new tax laws can still support their philanthropic goals is paramount. Using complex assets to fund a gift – either an outright gift, a gift to a DAF or a life income gift – may take time and coordination among your client’s multiple advisors – so make sure to start these conversations now.
No matter the asset or the giving vehicle, creating a philanthropic plan outlining the mission, goals and timing is critical to meet the needs of your clients. For more information on the free Charitable Estate Planning resources and services offered by the American Heart Association visit www.heart.org/plannedgiving.
American Heart Association Charitable Estate Planning representatives will be attending the Financial Planning Association Annual Conference this October. If you would like more information or have questions about this topic, please stop by Booth #318 to speak to a representative.
Tip:The recent tax changes make it the perfect time for your clients to review their wills, trusts, and beneficiary designations. Read Tax Law Changes and Youand Planning Under the New Tax Rules, to help you in through this planning process.
John W. Cullum, CFP® is a Charitable Estate Planning Senior Advisor at the American Heart Association. John has been a CFP® since 2003. As a seasoned advisor, John focuses in assisting advisors as they work with their clients in achieving their philanthropic goals.