A cornerstone of wise planning is giving. Giving helps remove the love of money from us; which, scripture teaches, is the root of all evil. Compassion and help for those less fortunate than ourselves is a core attribute of Stewardship. We cannot be good stewards of the resources with which we have been blessed unless we allocate some of those resources to be given away.
What works have been laid upon your heart? What ministries do you feel compelled to participate in? Is it feeding or providing shelter for the poor? Do you get excited when your finances help to engage kids in before and after school programs? Do you prefer to see your resources go to assist life affirming organizations or church outreach, or perhaps supporting missionaries? However you’re wired and whatever passions are upon your heart, how well do you strategically incorporate charitable giving into your overall financial planning?
Giving should be birthed from the commitment you have toward certain ministries and institutions that harmonize with your beliefs and share your vision for serving humanity. We all receive untold numbers of solicitations from various ministries almost on a daily basis. Don’t allow these solicitations to diffuse your focus on the ministries and institutions you really want to help. Don’t be afraid to discard those that don’t suit you. While all will tell you any donation is welcome, I believe it is best to select your top ministries and give as much as you can to those. Start local, and then go global if you have capacity to do so. Consider more than giving monetarily, most ministries are in need of volunteers. A few hours a week can make all the difference in the world!
Giving is a life-long pursuit and one that can continue even when you are called from this life!
Many of you are already giving to your favorite causes, but are unaware that there are simple programs recognized in the tax code that can be utilized which will make giving a more strategic part of your overall retirement, income and estate plans. Charitable planning is NOT only for high-net-worth individuals! There are simplified charitable programs that allow you to benefit your chosen charities and receive both tax deductions AND income benefits for you, your families, and beneficiaries.
There are a variety of charitable planning programs available and these include:
1) The traditional gift annuity, offered by charities for over 100 years, can create an immediate or deferred lifetime payout for up to two individuals.
2) The charitable bargain installment sale, provides an immediate or deferred structured payout to the family for a set term or number of years.
3) The donor advised fund is an outright gift that generates systematic grants to your selected charities over a number of years and allows you to create
a charitable legacy for your family.
When using one of these programs you can benefit from an immediate charitable income tax deduction. The deduction is reported on Schedule A of the itemized tax return and can be utilized to reduce your Adjusted Gross Income (AGI) by up to 50% (or 30% if the asset funding the charitable program was appreciated securities or real estate). If the tax deduction is large enough that it cannot be utilized fully in the first year, then the remaining amount can be carried forward for up to 5 additional years. Typical examples of individuals who can utilize these tax deductions are:
· Folks who are currently taking Required Minimum Distributions that they neither want nor need.
· Folks who earn enough in social security, pension and other investment income that they are making quarterly tax payments.
· Families who experience an unusual year of inflated income due to the sale of a business, real estate, or other type of windfall.
· Families who are in the Alternative Minimum Tax (AMT) bracket. Charitable deductions are one of the few tax deductions allowed that can actually move a client out of the AMT bracket.
· Individuals who would like to unlock or re-characterize their qualified money in a tax-advantaged manner.
· Annuity owners who would prefer not to pass along an IRD (Income with Respect to the Decedent) asset with large taxable gains to their heirs.
When funding a charitable program with appreciated securities, there is a double blessing, so to speak. Not only do you benefit from the immediate charitable income tax deduction, but depending on the program, either all or a portion of the capital gains taxes you would otherwise have to pay is eliminated.
An illustration of how this type of planning can accomplish your goals is demonstrated in a case we recently were blessed to work on with one of our clients. Interested in tithing a portion of their estate to charity, this client donated a lump sum to a Foundation we work with. The Foundation in turn, made an immediate contribution to several charities which were designated by the client. In return for their donation the client has an opportunity to receive a tax deduction on a portion of the amount given to the Foundation.
In this case, our client designated the same charities to receive the income from the donation beginning in seven years which will last for twenty years. This was a charitable bargain sale with a deferred pay-out. If instead, they personally need the income, they can change the income recipients to themselves and even start the income stream sooner, if need be. In lieu of designating charities to receive income they could have chosen a family member to receive the payout. In this case, it is their desire to continue to fund kingdom work even after their passing, and this vehicle allows them to do just that.
Charitable giving programs help you accomplish something important – and at the same time, help you save significant amounts on taxes. This improves cash flow and greatly reduces the net cost of giving. We’d enjoy having a conversation with you to explore how this type of program might fit your needs.
Call our office today.
C. Mark Ostrowski, MSFS, is the Founder and President of The Stewardship Group, Inc.