Four Strategies Sometimes Overlooked to Help Your Clients Boost Their Charitable Giving

By Stan Leavitt, CFP, CRPC

Managing Director, Private Wealth Advisory, FuturePoint Wealth Advisors

If philanthropy is part of your client’s financial strategy, you may want to revisit some basic methods of giving that go beyond traditional monetary donations. Recent changes in the tax landscape may also be a reason to take another look at how you are advising your clients to give financially. The following are four popular strategies that can work for your clients:

1. Gift highly appreciated stocks or other assets

If your clients hold stocks or other investments that have gained substantial value, you may consider liquidating the asset to make a charitable donation. Doing so most often results in a taxable gain. One potentially more efficient way to maximize the value of your client’s donation is to have them give appreciated stock or investments directly to the charity. The charity would receive an asset it can continue to hold or sell immediately, and your client would avoid the taxable gain. Additionally, the market value of the stock or investment at the time the gift is made would normally be deductible from their adjusted gross income if they itemize their deductions (subject to income-based limitations). It is a good practice to check with the charity to ensure they accept donations of stock or other investments.

2. Maximize donations through your employer

Workplace giving campaigns are becoming increasingly popular. Many employers offer the convenience of making contributions through payroll deductions, allowing clients to give systematically with each paycheck. In addition, many employers match a certain donation amount, which can add to the impact of your client’s gift. If your clients have access to these or other workplace giving programs, check to see if the charities they care about are eligible to receive this type of donation.

3. Make a charitable individual retirement account donation (QCD)

If your client has reached age 70 ½, they are eligible to make a Qualified Charitable Deduction (QCD). Clients looking to donate to charity can transfer funds directly from their IRA to a qualified charitable organization and shift up to $100,000 out of their individual IRA each year. Many clients do not need or want to take their required minimum distribution (RMD), but failing to do so is a costly mistake. That’s where the QCD can do double duty. The IRS states, “Your qualified charitable distribution can satisfy all or part of the amount of your required minimum distribution from your IRA.”1 So clients who are charitably minded can exempt their required minimum distributions (RMDs) from taxation through direct charitable giving. It’s especially pertinent given recent tighter rules on itemized deductions. It’s also important to properly report your QCD at tax time, and under certain circumstances, the IRS may require an extra form. Lastly, clients need to choose their charity carefully. QCDs only apply to charities granted tax-exempt status by the IRS. This generally includes nonprofit groups such as churches, charities and other 501(c)(3) organizations. When in doubt, visit the IRS online tool to confirm nonprofit status.2

4. Establish a charitable trust

Another way to consider gifting assets is through a charitable trust. Trusts can help manage highly appreciated assets in a more tax-efficient manner while in some cases allowing clients to split assets among charitable and non-charitable beneficiaries. The timing of each gift and the flexibility wanted dictates the type of trust that works best. With a charitable lead trust, a charity is funded with income from assets placed in the trust for a specified time period. After that time, the remaining assets revert to other named beneficiaries, such as the client’s heirs. In a charitable remainder trust, the reverse occurs. The trust makes regular income payments to the client or another beneficiary. After a period of time specified in the trust, the remaining assets are directed to the named charities. An alternative option to establish your own charitable trust is to use a charity gift annuity. This also allows clients to receive regular income payments by donating appreciated stock or investments which can avoid taxable gains, and normally allow the client to receive an immediate deduction from their taxes if they itemize their deductions (subject to income-based limitations).

Ameriprise Financial Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Investment advisory products and services are made available through Ameriprise Financial Services LLC, a registered investment adviser.

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