November 13, 2024 • 29 mins
Are you maximizing the tax benefits of your charitable donations? In this episode of Wealth Is In The Details, Peter Raskin dives into the topic of charitable giving, exploring how to frame philanthropy within your financial plan. Learn about the three types of givers and discover tax-efficient strategies such as donor-advised funds and charitable remainder …
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(00:01):
Welcome to the Wealth is in the Details
podcast.
In this podcast, financial planner, Peter Raskin, helps
families and business owners understand and prepare for
their wealth journey.
Along the way, thoughtful and detailed planning can
provide clarity and confidence as clients confront a
multitude of financial decisions.
Listen in as Peter shares stories and insights
(00:22):
into people's wealth journeys.
Now let's get into today's podcast.
Peter, your topic today is charitable
giving.
How do you frame this issue when you're
helping clients with their financial planning needs?
Patrice, I I think clients fall into 3
camps when it comes to philanthropy.
Camp 1,
(00:42):
and and there's lots of people in this
camp, is that they don't really think about
it. That they may give, you know, something
each year, but it just isn't a priority,
and and they're giving
usually
isn't much, you know, relative to their net
worth or their income.
You know, and many of these folks that
we talk to, they, you know, they tell
us that charity starts at home and that's
(01:04):
perfectly fine. So that's camp 1. Camp 2
are those folks that really do
somewhat focus on it. They give each year,
and they have specific causes and organizations. They
really feel strongly about it.
It could be their religious organization,
their local arts
(01:25):
institution, you know, art music.
Could be public radio or medicine or
hospitalization
or or or, you know, social service agencies.
So there's a lot of people in camp
2, I think, that just do it automatically
each year and it's not in not an
insignificant part of their budget.
And then, then the camp 3 families are
(01:46):
really those that, that wanna make a difference
and impact their communities. And, and these, these
families are typically,
I'd, I'd say older.
They've got, they're, they're wealthier
and they've, they've given a lot of thought.
They're really passionate about, you know, giving back
and they spend some time thinking about it
each, each and every year. So those are
(02:07):
the are the are the 3 camps. You
know, as far as I'm concerned, I'm I'm
not I don't wanna judge anyone whether they're
falling into camps 1, 2, or 3. That's
not
productive.
I would say that there are
are many folks that fall into camps
1, 2 and 3 for certain charities. You
know, they may feel real passionate about,
(02:29):
a hospital
or a disease that they want to give
to. And and that's their true passion, but
they give to a lot of other charities
as well. So, you know, everyone has different
motivations and goals.
And and my job as as a planner
is to really help our clients reach those
goals. You know, certainly not reach my goals
and aspirations, but it's all about them. Mhmm.
(02:50):
So that's how I think I see this
issue being framed.
What do you think motivates your clients
to give charitably?
It's hardly ever just one thing,
and
and more often, it's kinda circumstantial.
It it can it's really so personal. You
know? May maybe they or a loved one
has been helped or or cared for by
(03:12):
an organization,
or there's a,
a physical place in their in their in
their history, in their family that gave them
incredible joy and they want it preserved. Or,
you know, maybe they just value the work
an organization does. You know, there there's there's
all sorts of non philanthropic
reasons that that that motivates people
(03:35):
and influences where they give.
You know?
Some some of these non
philanthropic reasons are are really, you know, dare
I say,
selfish.
And there's not when I say that, I
don't mean that is a a negative. You
know? It may make them feel good. True.
You know? So there's nothing nothing wrong
(03:56):
with with giving if it makes you feel
good.
You know, I believe that
your charity your charitable giving should be a
a win win win. You know, good for
the giver.
They're getting something out of it. Certainly good
for the organizations
that's receiving the gift and good for
the organization's
constituents, if there are any. So,
(04:16):
you know, feeling good isn't a bad thing.
I think I think tax planning is a
great motivator.
You know, many, if not most people give
you charity like the idea that they're receiving
a tax benefit for making the gift.
And we'll spend some time today chatting about
how to maximize those tax benefits, because that's
an important part of of gift gift giving.
(04:38):
You know, is is the giving about your
community? Is it about your social life? Is
it about, you know, prestige in your community?
And all these things are are important to
people. You know, there's a recent charitable organizations
have have different levels of giving. You know,
they have plaques on their walls
and they invite larger donors to special events.
You know, it it helps givers feel like
(05:00):
they belong,
that they're part of a group of like
minded people.
And again, there's nothing wrong with that. I
think there's
nothing wrong with feeling good about
about giving. Mhmm. And then and then another
motivation is, you know, is it an expression
of your family or or your community's values?
You know, some families believe giving back is
(05:21):
an important family value, and
and then there are those
those that are are part of religious organizations
where where they even gather together to pool
their funds and make larger gifts. You know?
I think members of these groups can can
can learn. They can they can discuss. They
can connect
with others. So it's it becomes more of
(05:42):
a social,
you know, giving from a social perspective.
And it feels good.
And then, you know, the to me, these
are all legitimate important reasons to to give.
Right. Right.
Now you did mention tax planning,
as an important motivator. And we are getting
into the, you know, the final quarter of
(06:02):
the year, the calendar year anyway.
Is this a good time to start thinking
about charitable planning or should you have been
doing it before beforehand? Well, I I I
think it's all all depends. I think, you
know, it is the calendar is a great
motivator and and can drive some of the
strategies we'll we'll talk today. And and
tax planning around
(06:24):
charitable giving is can be pretty complex. Mhmm.
So from that perspective, I think it's always
helpful to start early,
and then you can fully engage and understand,
what that's all about. And so what I'd
like to do today
is to,
give our listeners certain examples
that will help them learn about these options.
(06:47):
And I and I've given you a list,
so let's
so let's go through it. Alright. In fact,
you've given me 5 specific situations.
I'll describe them, and then we'll talk about
possible giving strategies. Okay?
Fantastic. Alright. Here we go.
Sam and Sally are in their early forties.
Both are professionals, joint income, $200,000
(07:10):
with 2 young kids.
They have lots of day to day living
expenses, and they're trying to save for college
and retirement,
and they wanna take family vacations twice a
year. Now they've worked out a budget. They
believe they can give $1,000
a year to a variety of charities. They
wish they could do more, but they don't
have really any charitable passions right now,
(07:31):
and their cash flow really doesn't allow for
it. What do you see here?
Yeah. It's I I see a very typical
situation,
especially for a younger couple, but but but
for any age group.
You know, I wanted to give this example
because I think a lot of our our
listeners can relate. You know, this current this
couple is is definitely in camp 1 as
far as my definition.
(07:51):
Mhmm. Philanthropy
just isn't isn't a huge priority for them.
And
I think it's hard for it to be
a priority Yeah. Where they are in life.
You know, I think just important recognition that
they probably won't receive any tax benefits from
giving that $1,000 per year.
And and that's because they're they're not likely
(08:11):
itemizing
their deductions. You know, if their property taxes,
which
if the the and state taxes, if those
don't if those total in excess of $10,000
right now, it's capped.
The deduction is capped at $10,000.
If you add in mortgage interest and and
their total charitable deductions,
(08:32):
they probably
their total deductions probably don't exceed the standard
deduction,
which is a little more than $29,000.
And so they're they're they're gonna take the
standard deduction,
and therefore, they're really not getting any additional
deduction for making that charitable gift. And so
(08:52):
there's nothing wrong with that. They they just
wanna give. They wanna give back. And,
if their budget is $1,000, then that's what
they will do.
Okay.
All right. Jim and Julie are 55
and they plan to continue working for at
least another 10 years.
They earn 400,000
per year and they're on target to meet
(09:12):
their retirement goals. They've been good savers
and they have a stock that has an
unrealized gain of about $50,000
It has a market value about $60,000
They like the stock. It's treated them well,
but they're concerned it is a larger share
of their portfolio than they would like. They
also have about
(09:33):
$60,000 in cash they want to invest.
They don't have any other major financial obligations
on the horizon.
They give about 10,000 per year to their
church, and their deductions, including charitable gifts, total
about $25,000
per year. Peter?
Yeah. So this is another situation where the
from a tax perspective where the client isn't
(09:54):
able to itemize.
They're gonna take advantage of that standard deduction
of that $29,000.
Their their total deductions
are are are are 25,000.
So
they they're just they're not gonna do anything
more than the standard standard deduction.
Right. So they're not gonna receive any tax
(10:14):
benefits
for for for their charitable giving.
Also, the this highly
appreciated stock position,
really should be paired back to to reduce
the overall portfolio risk, and and they recognize
that.
So so here are 2 strategies kinda paired
together to help them meet that goal.
(10:35):
One thing they could do
is they could gift the stock
outright, just transfer the $60,000
stock
to a public charity called a donor advised
fund.
Now let me just describe what a donor
advised fund,
is. It's it's a charitable organization.
(10:55):
A lot of, a lot of financial institutions
offer these donor advised funds.
A a a someone can
establish this kind of account,
transfer either cash
or highly appreciated
securities
or assets into the donor advised fund.
(11:16):
They can get a current deduction for the
market value
of whatever they've contributed to the donor advised
fund.
And then,
they can make
they they will make a they they will
ask
this donor advised fund to to make a
grant,
to to make a disbursement to
a a charity of their choice. Now it
(11:38):
has to be a,
a a 501c3.
It's gotta be a a a legitimate charity,
and then the chair the donor advised fund
will make that contribution
directly to the charity.
Now that they've given if they give the
$60,000
gift
of stock to the donor advised fund, their
(11:58):
their deductions are now gonna exceed the standard
deduction,
and they'll be able to reduce their taxable
income because it's their their total deductions are
higher than the standard deduction.
And and they can they can continue to
make annual charitable contributions
via the donor advised fund.
So while there may be no attach additional
(12:20):
tax benefits,
they've because because they've received them all upfront.
You know, this could be like 6 years
worth of annual giving.
So so their single stock will be sold
with when it's in the donor advised fund,
they'll avoid any capital gains tax.
They can then diversify
in a basket of of mutual funds or
(12:41):
exchange traded funds or individual stocks if they
want. And then they can
kind of make distributions annually,
to the charities that that they want.
So that's that's kind of step 1. And
then step 2 is they can invest this
$60,000
in a diversified
portfolio, you know,
(13:03):
in their existing portfolio that that may own
lots of different kinds of securities.
And in that way, we've we've done 2
things. We've diversified.
We've,
taken full advantage of the of the tax
deduction,
and they're still doing charitable giving. So it's
really a a great great tool and vehicle.
And that's a great win win win right
(13:24):
there that you're talking. Yeah. I think so.
Hi. This is Catherine Breuw from the Raskin
Planning Group. Apologies for the interruption.
Thanks so much for listening to Wealth is
in the details. We hope you're enjoying it
so far. If you have any questions or
would like to talk more about this topic,
please visit our website at www.raskinplanning.com.
(13:46):
Look for the podcast show notes and connect
with us via social media.
Alright. Scenario number 3. Eric and Elizabeth are
60.
And for years, they've been high income earners
earning between $500,750,000
each year. They have been passionate philanthropists
giving between $40,050,000
(14:07):
per year, and they wanna continue this. They've
been good savers
with more than $3,000,000
in IRA and 401 k accounts.
Elizabeth is selling her business, and she will
receive about 1,200,000
in 2024
and 600,000
per year for 3 years beginning in 2025.
Most of the proceeds from the business sale
(14:29):
will be taxed as long term capital gains,
and they both plan on retiring at the
end of 2024.
Peter?
Yeah. This is a, an interesting situation.
You know, high income,
and in 2024,
their income is gonna really be quite significant
(14:49):
from a tax standpoint.
So so when we did our planning with
them, we we we make a lot of
projections. We do what we call financial planning
modeling,
and and we've confirmed that that Eric and
Elizabeth are have accumulate accumulated enough
financial assets that they can really meet all
of their
retirement income and charitable goals for for themselves,
(15:12):
for their families,
for their family. You know, they're they're really
in a good place.
I think taxes are gonna be an important
issue for them in in 2024. As I
mentioned,
the sale of of the business
is gonna elevate their income to the point
where they'll be taxed at approximately
almost 30%. It's 29%
on the first $1,000,000
(15:32):
of gain,
plus an additional 4% in Massachusetts
on on gains
in excess of a million.
That we we this is a new a
fairly new,
tax law in Massachusetts.
And so we call it the millionaire's tax.
So so they're gonna have an additional tax
(15:54):
in in, in 2024.
And they'll still be in a fairly high
tax bracket in 2025 and 2026
as as the sale as the as their
income continues to,
they receive income from the sale of the
business. Right. But but they plan on retiring.
So their income is gonna be significantly less.
So we discussed,
(16:16):
how they could use a donor advised fund
to their advantage
by making one large charitable gift in 2024.
So in this large gift, it could be,
let's say, $250,000
which is a significant gift.
And that would be the equivalent to to
5 years worth of gifts
(16:36):
of, you know, $50,000
per year.
Right?
And the advantage of this is that that
it could reduce their 2024
tax bill
by more than $80,000.
So by by front ending their charitable deductions,
anything that they are not
anything that they're able to reduce their income
(16:58):
by, they're able to avoid
that extra 4%
Massachusetts
millionaire's tax.
And so that's
that's pretty significant. Yes.
And so they were really excited about
about that saving tax, saving additional tax,
but also,
(17:20):
they were excited about bringing their their their
young adult kids. And these are kids in
their late twenties. So so they're they're adults,
but but bringing them into the this charitable
decision making process
and and helping them learn about philanthropy,
you know, and and helping them
maybe make just making deciding on who who
(17:40):
they want,
to receive
charitable gifts from this donor advised fund. So
I think it had
this planning
strategy has has some,
has multiple advantages for them. Has some long
term advantages too if the kids keep it
going. Yeah. Exactly. Then they could add to
it in the future. Right.
(18:00):
Alrighty then.
David is age 73,
and he's recently widowed.
His IRA is valued at 1,500,000.
He doesn't need the income from this account
because he has sufficient pension and Social Security
income, plus adequate income from his non retirement
investment accounts
and real estate. These will all meet his
(18:21):
goals.
These non retirement investment accounts and his real
estate have significant
unrealized capital gains.
He has sufficient long term care insurance to
pay for most of his long term care
needs.
His 2 children are independent,
and he's helping fund his grandchildren's
college education accounts.
He wants to make a sizable gift of
(18:42):
$500,000
to his alma mater because that's where he
met his wife more than 50 years ago.
Well, that's so sweet.
Yeah.
He's a sweet, sweet, sweet person. Yeah.
In conversation
with him and and when we did his
plan, we we we found he's he's just
fine. He these are these are in a
sense,
(19:03):
he's got excess assets. So giving the $500,000
is doable. It meets his goals. Mhmm.
And but but as we're as we're talking,
it it became
clear to to me as a planner
that his least valuable asset is his IRA.
And when I say least valuable,
(19:23):
I'm just thinking about the tax lien on
that on that asset.
All the withdrawals are taxed as regular income,
and his re required minimum distribution
is starting in 2024. So the government is
forcing him to take money out, and it's
taxes regular income.
And he's a single taxpayer. He's
(19:44):
now he's no longer filing jointly, and he
kinda moves up into a 35% marginal federal
tax bracket
and then pays Massachusetts tax
a a 5% on on these distributions from
his IRA.
So the tax is is is fairly significant.
And when he's die when he dies,
(20:04):
his children will inherit whatever's remaining in his
IRA,
and then they must take required minimum distributions
from the IRA.
And the IRA must be fully liquidated by
the 10th year of David's death.
So it kinda forces
money out, and it could be taxed at
a fairly high tax bracket if the kids
(20:24):
are, you know, making a decent income. Mhmm.
So so when his kids inherit
these
his his nonretirement
assets and his real estate,
they'll receive a step up in basis,
unlike the IRA. Right.
That means
they are going to be able to sell
those securities without any capital gains tax. So
(20:47):
in a sense, the nonretirement
assets are more valuable to the kids
than the IRA assets.
So it's a it's a
I wanted to go into that detail because
it's an important part of the story.
So
because David's older than 70a half,
he should consider making a qualified charitable distribution
(21:09):
from his IRA.
And he can transfer
a a bit more than a $100,000
per year from his IRA directly to his
alma mater.
And, this distribution isn't taxable to David, and
it counts toward his required minimum distribution.
And since the IRA is a 100% taxable
when it's distributed to David or to his
(21:30):
kids, the QCD
is in effect a tax deductible contribution to
charity.
Mhmm.
So since David's IRA will be reduced from
1 and a half 1000000 to a 1000000,
he'll he'll make this $100,000
gift over 5 years.
His future RMDs will also be less.
And so this this strategy
(21:53):
allows more
nonretirement
assets to pass to the kids with a
step up in basins
step up in basis. It meets his charitable
goals. He's satisfying his income needs.
Again, it's a win win win. Alright. And
that step up in basis really means a
lot for the kids. I'll tell you. It
does. Exactly.
Yep. Alright. Number 5.
(22:14):
Fred and Fiona are 71.
They've been good savers, have adequate resources.
They want to make a sizable charitable gift
to a large, well established museum.
They want to make this gift now, but
they're concerned they can't afford the loss of
the capital asset.
They have $500,000
each in IRA accounts
(22:34):
and $1,000,000
in non retirement
investment accounts.
Peter. Yeah, I think this is another interesting
situation.
Here they're
obviously they're passionate givers,
but they they may not have the resource
resources to make large outright gifts, and they
may not feel comfortable doing that.
(22:54):
They wanna retain some of the income from
this from these assets.
So,
they might be really good candidates for what
we call a split interest gifting strategy.
And there are lots of options that that
we can explore, so I'm not gonna go
into all the details here. But I can
I can give a couple of examples?
(23:15):
You know, Fred and Fiona can transfer up
to
$53,000
each from their IRAs
directly to a charitable gift annuity.
And this transfer,
similar to a qualified charitable
distribution,
(23:35):
is tax free
to,
to to them.
And the museum
will then turn around and promise to pay
them
a lifetime worth of income
each year,
which is based on their initial age, the
year that they make
the gift and the initial deposit amount.
(23:59):
So just for an example, and these are
just I'm just giving you an example to
put some numbers on the page. The income
might be 5% of $53,000
per year. So not not terribly significant, but
it helps.
And so that that out of that $53,000
that's,
$26.50,
$2,650
annually
(24:19):
from the charitable gift annuity,
back to Fred and Fiona.
So it makes the gift more palatable. If
they both were to do this, you know,
that would be giving them in excess of,
you know,
$53100
per year,
which is which You could take them. Makes
it easier. Makes it easier. Make it Exactly.
(24:41):
Yeah. Yeah. So so it's just important that
Fred and Feiner know that that the distribution
from the charitable gift annuity is fully taxable
since it's never been taxed, and they're receiving
that as as really as as as income.
So,
when Fred and Fiona die, whenever that is,
when they both die,
the income will stop
(25:02):
and the museum
will receive whatever's left. Okay.
So you're splitting your the interest. That's why
we call a split interest gift. They retain
the income
and the charity
receives the remaining,
asset, whatever is whatever is, distributed,
when they both die. Mhmm.
So there's another option here, and this is,
(25:25):
they can do something very similar
with their non retirement portfolio.
So for example, if they have highly appreciated
securities,
in their non retirement account, let's say they're
worth
$100,000
they can make a gift to a charitable
remainder trust
that also pays them an annual income.
(25:48):
And again, when the donor dies,
the remaining balance of the of this charitable
trust
will transfer
to the museum.
So so Fred and Fiano, they won't have
any capital gains taxes due on the transfer
because they've they've made a gift
of highly appreciated stocks to the trust.
The trust
doesn't have to pay tax because it's a
(26:10):
a charitable entity.
They don't have to pay tax or capital
gain taxes on that on that,
those assets that were transferred in.
And they also can receive a partial tax
deduction
on the gift, which is based on their
age, the interest payment,
and the value of the initial gift.
So so it's not a full tax deduction,
(26:32):
but it helps. It makes it makes it
a little bit more affordable.
So it allows Fred and Fiona to feel
good today. They've made a gift.
They enjoy the benefits of being a a
major giver to a a a charitable institution
that that that's really important to them, and
they retain an income
that that helps them meet their personal goals.
(26:56):
So many options here. Yeah. And there's and
there's many more that we haven't discussed.
There's also limitations,
tax deduction limitations that need to be considered.
But that that's for a another conversation or
or a conversation if anyone our listeners have
any specific questions,
(27:16):
to go through.
And it really sounds like you're you know,
you've got several
several balls in the air here resolving several
multiple issues,
charitable giving, tax planning, cash flow planning, legacy
planning, and that's just a couple of them.
Yeah. Yeah. I think that's right. You know,
we we
we have to start with an initial plan.
(27:36):
And we have to understand, you know, what
makes our clients tick? What are they what
are they trying to do?
And that's part of the discovery process,
you know, understanding what they want, how they
want it, and when they want it. You
know, it's complex,
but you you have to really start with
a plan.
And then these solutions
(27:57):
are uncovered based upon their specific needs.
Alright. Well, Peter, how can someone reach you?
The best way to reach us is through
our website,
raskinplanning.com.
Our contact information's right there and
glad to talk specific, glad to talk in
general
about planning. But, I think that the charitable
(28:20):
conversation is one that,
is really fun for me to have.
And,
you know, it's very technical, but it's also
can be inspiring.
Yeah. Very upbeat and inspiring. I agree.
Yeah. Exactly. With all these options out there,
if you have any questions about charitable giving,
Peter Raskin is here.
Also, remember to follow this podcast. Wealth is
(28:42):
in the details
and share it with others. I'm Patrice Sikora,
and thanks for being with us. Thank you
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Welcome to the Wealth is in the Details
podcast.
In this podcast, financial planner, Peter Raskin, helps
families and business owners understand and prepare for
their wealth journey.
Along the way, thoughtful and detailed planning can
provide clarity and confidence as clients confront a
multitude of financial decisions.
Listen in as Peter shares stories and insights
(00:22):
into people's wealth journeys.
Now let's get into today's podcast.
Peter, your topic today is charitable
giving.
How do you frame this issue when you're
helping clients with their financial planning needs?
Patrice, I I think clients fall into 3
camps when it comes to philanthropy.
Camp 1,
(00:42):
and and there's lots of people in this
camp, is that they don't really think about
it. That they may give, you know, something
each year, but it just isn't a priority,
and and they're giving
usually
isn't much, you know, relative to their net
worth or their income.
You know, and many of these folks that
we talk to, they, you know, they tell
us that charity starts at home and that's
(01:04):
perfectly fine. So that's camp 1. Camp 2
are those folks that really do
somewhat focus on it. They give each year,
and they have specific causes and organizations. They
really feel strongly about it.
It could be their religious organization,
their local arts
(01:25):
institution, you know, art music.
Could be public radio or medicine or
hospitalization
or or or, you know, social service agencies.
So there's a lot of people in camp
2, I think, that just do it automatically
each year and it's not in not an
insignificant part of their budget.
And then, then the camp 3 families are
(01:46):
really those that, that wanna make a difference
and impact their communities. And, and these, these
families are typically,
I'd, I'd say older.
They've got, they're, they're wealthier
and they've, they've given a lot of thought.
They're really passionate about, you know, giving back
and they spend some time thinking about it
each, each and every year. So those are
(02:07):
the are the are the 3 camps. You
know, as far as I'm concerned, I'm I'm
not I don't wanna judge anyone whether they're
falling into camps 1, 2, or 3. That's
not
productive.
I would say that there are
are many folks that fall into camps
1, 2 and 3 for certain charities. You
know, they may feel real passionate about,
(02:29):
a hospital
or a disease that they want to give
to. And and that's their true passion, but
they give to a lot of other charities
as well. So, you know, everyone has different
motivations and goals.
And and my job as as a planner
is to really help our clients reach those
goals. You know, certainly not reach my goals
and aspirations, but it's all about them. Mhmm.
(02:50):
So that's how I think I see this
issue being framed.
What do you think motivates your clients
to give charitably?
It's hardly ever just one thing,
and
and more often, it's kinda circumstantial.
It it can it's really so personal. You
know? May maybe they or a loved one
has been helped or or cared for by
(03:12):
an organization,
or there's a,
a physical place in their in their in
their history, in their family that gave them
incredible joy and they want it preserved. Or,
you know, maybe they just value the work
an organization does. You know, there there's there's
all sorts of non philanthropic
reasons that that that motivates people
(03:35):
and influences where they give.
You know?
Some some of these non
philanthropic reasons are are really, you know, dare
I say,
selfish.
And there's not when I say that, I
don't mean that is a a negative. You
know? It may make them feel good. True.
You know? So there's nothing nothing wrong
(03:56):
with with giving if it makes you feel
good.
You know, I believe that
your charity your charitable giving should be a
a win win win. You know, good for
the giver.
They're getting something out of it. Certainly good
for the organizations
that's receiving the gift and good for
the organization's
constituents, if there are any. So,
(04:16):
you know, feeling good isn't a bad thing.
I think I think tax planning is a
great motivator.
You know, many, if not most people give
you charity like the idea that they're receiving
a tax benefit for making the gift.
And we'll spend some time today chatting about
how to maximize those tax benefits, because that's
an important part of of gift gift giving.
(04:38):
You know, is is the giving about your
community? Is it about your social life? Is
it about, you know, prestige in your community?
And all these things are are important to
people. You know, there's a recent charitable organizations
have have different levels of giving. You know,
they have plaques on their walls
and they invite larger donors to special events.
You know, it it helps givers feel like
(05:00):
they belong,
that they're part of a group of like
minded people.
And again, there's nothing wrong with that. I
think there's
nothing wrong with feeling good about
about giving. Mhmm. And then and then another
motivation is, you know, is it an expression
of your family or or your community's values?
You know, some families believe giving back is
(05:21):
an important family value, and
and then there are those
those that are are part of religious organizations
where where they even gather together to pool
their funds and make larger gifts. You know?
I think members of these groups can can
can learn. They can they can discuss. They
can connect
with others. So it's it becomes more of
(05:42):
a social,
you know, giving from a social perspective.
And it feels good.
And then, you know, the to me, these
are all legitimate important reasons to to give.
Right. Right.
Now you did mention tax planning,
as an important motivator. And we are getting
into the, you know, the final quarter of
(06:02):
the year, the calendar year anyway.
Is this a good time to start thinking
about charitable planning or should you have been
doing it before beforehand? Well, I I I
think it's all all depends. I think, you
know, it is the calendar is a great
motivator and and can drive some of the
strategies we'll we'll talk today. And and
tax planning around
(06:24):
charitable giving is can be pretty complex. Mhmm.
So from that perspective, I think it's always
helpful to start early,
and then you can fully engage and understand,
what that's all about. And so what I'd
like to do today
is to,
give our listeners certain examples
that will help them learn about these options.
(06:47):
And I and I've given you a list,
so let's
so let's go through it. Alright. In fact,
you've given me 5 specific situations.
I'll describe them, and then we'll talk about
possible giving strategies. Okay?
Fantastic. Alright. Here we go.
Sam and Sally are in their early forties.
Both are professionals, joint income, $200,000
(07:10):
with 2 young kids.
They have lots of day to day living
expenses, and they're trying to save for college
and retirement,
and they wanna take family vacations twice a
year. Now they've worked out a budget. They
believe they can give $1,000
a year to a variety of charities. They
wish they could do more, but they don't
have really any charitable passions right now,
(07:31):
and their cash flow really doesn't allow for
it. What do you see here?
Yeah. It's I I see a very typical
situation,
especially for a younger couple, but but but
for any age group.
You know, I wanted to give this example
because I think a lot of our our
listeners can relate. You know, this current this
couple is is definitely in camp 1 as
far as my definition.
(07:51):
Mhmm. Philanthropy
just isn't isn't a huge priority for them.
And
I think it's hard for it to be
a priority Yeah. Where they are in life.
You know, I think just important recognition that
they probably won't receive any tax benefits from
giving that $1,000 per year.
And and that's because they're they're not likely
(08:11):
itemizing
their deductions. You know, if their property taxes,
which
if the the and state taxes, if those
don't if those total in excess of $10,000
right now, it's capped.
The deduction is capped at $10,000.
If you add in mortgage interest and and
their total charitable deductions,
(08:32):
they probably
their total deductions probably don't exceed the standard
deduction,
which is a little more than $29,000.
And so they're they're they're gonna take the
standard deduction,
and therefore, they're really not getting any additional
deduction for making that charitable gift. And so
(08:52):
there's nothing wrong with that. They they just
wanna give. They wanna give back. And,
if their budget is $1,000, then that's what
they will do.
Okay.
All right. Jim and Julie are 55
and they plan to continue working for at
least another 10 years.
They earn 400,000
per year and they're on target to meet
(09:12):
their retirement goals. They've been good savers
and they have a stock that has an
unrealized gain of about $50,000
It has a market value about $60,000
They like the stock. It's treated them well,
but they're concerned it is a larger share
of their portfolio than they would like. They
also have about
(09:33):
$60,000 in cash they want to invest.
They don't have any other major financial obligations
on the horizon.
They give about 10,000 per year to their
church, and their deductions, including charitable gifts, total
about $25,000
per year. Peter?
Yeah. So this is another situation where the
from a tax perspective where the client isn't
(09:54):
able to itemize.
They're gonna take advantage of that standard deduction
of that $29,000.
Their their total deductions
are are are are 25,000.
So
they they're just they're not gonna do anything
more than the standard standard deduction.
Right. So they're not gonna receive any tax
(10:14):
benefits
for for for their charitable giving.
Also, the this highly
appreciated stock position,
really should be paired back to to reduce
the overall portfolio risk, and and they recognize
that.
So so here are 2 strategies kinda paired
together to help them meet that goal.
(10:35):
One thing they could do
is they could gift the stock
outright, just transfer the $60,000
stock
to a public charity called a donor advised
fund.
Now let me just describe what a donor
advised fund,
is. It's it's a charitable organization.
(10:55):
A lot of, a lot of financial institutions
offer these donor advised funds.
A a a someone can
establish this kind of account,
transfer either cash
or highly appreciated
securities
or assets into the donor advised fund.
(11:16):
They can get a current deduction for the
market value
of whatever they've contributed to the donor advised
fund.
And then,
they can make
they they will make a they they will
ask
this donor advised fund to to make a
grant,
to to make a disbursement to
a a charity of their choice. Now it
(11:38):
has to be a,
a a 501c3.
It's gotta be a a a legitimate charity,
and then the chair the donor advised fund
will make that contribution
directly to the charity.
Now that they've given if they give the
$60,000
gift
of stock to the donor advised fund, their
(11:58):
their deductions are now gonna exceed the standard
deduction,
and they'll be able to reduce their taxable
income because it's their their total deductions are
higher than the standard deduction.
And and they can they can continue to
make annual charitable contributions
via the donor advised fund.
So while there may be no attach additional
(12:20):
tax benefits,
they've because because they've received them all upfront.
You know, this could be like 6 years
worth of annual giving.
So so their single stock will be sold
with when it's in the donor advised fund,
they'll avoid any capital gains tax.
They can then diversify
in a basket of of mutual funds or
(12:41):
exchange traded funds or individual stocks if they
want. And then they can
kind of make distributions annually,
to the charities that that they want.
So that's that's kind of step 1. And
then step 2 is they can invest this
$60,000
in a diversified
portfolio, you know,
(13:03):
in their existing portfolio that that may own
lots of different kinds of securities.
And in that way, we've we've done 2
things. We've diversified.
We've,
taken full advantage of the of the tax
deduction,
and they're still doing charitable giving. So it's
really a a great great tool and vehicle.
And that's a great win win win right
(13:24):
there that you're talking. Yeah. I think so.
Hi. This is Catherine Breuw from the Raskin
Planning Group. Apologies for the interruption.
Thanks so much for listening to Wealth is
in the details. We hope you're enjoying it
so far. If you have any questions or
would like to talk more about this topic,
please visit our website at www.raskinplanning.com.
(13:46):
Look for the podcast show notes and connect
with us via social media.
Alright. Scenario number 3. Eric and Elizabeth are
60.
And for years, they've been high income earners
earning between $500,750,000
each year. They have been passionate philanthropists
giving between $40,050,000
(14:07):
per year, and they wanna continue this. They've
been good savers
with more than $3,000,000
in IRA and 401 k accounts.
Elizabeth is selling her business, and she will
receive about 1,200,000
in 2024
and 600,000
per year for 3 years beginning in 2025.
Most of the proceeds from the business sale
(14:29):
will be taxed as long term capital gains,
and they both plan on retiring at the
end of 2024.
Peter?
Yeah. This is a, an interesting situation.
You know, high income,
and in 2024,
their income is gonna really be quite significant
(14:49):
from a tax standpoint.
So so when we did our planning with
them, we we we make a lot of
projections. We do what we call financial planning
modeling,
and and we've confirmed that that Eric and
Elizabeth are have accumulate accumulated enough
financial assets that they can really meet all
of their
retirement income and charitable goals for for themselves,
(15:12):
for their families,
for their family. You know, they're they're really
in a good place.
I think taxes are gonna be an important
issue for them in in 2024. As I
mentioned,
the sale of of the business
is gonna elevate their income to the point
where they'll be taxed at approximately
almost 30%. It's 29%
on the first $1,000,000
(15:32):
of gain,
plus an additional 4% in Massachusetts
on on gains
in excess of a million.
That we we this is a new a
fairly new,
tax law in Massachusetts.
And so we call it the millionaire's tax.
So so they're gonna have an additional tax
(15:54):
in in, in 2024.
And they'll still be in a fairly high
tax bracket in 2025 and 2026
as as the sale as the as their
income continues to,
they receive income from the sale of the
business. Right. But but they plan on retiring.
So their income is gonna be significantly less.
So we discussed,
(16:16):
how they could use a donor advised fund
to their advantage
by making one large charitable gift in 2024.
So in this large gift, it could be,
let's say, $250,000
which is a significant gift.
And that would be the equivalent to to
5 years worth of gifts
(16:36):
of, you know, $50,000
per year.
Right?
And the advantage of this is that that
it could reduce their 2024
tax bill
by more than $80,000.
So by by front ending their charitable deductions,
anything that they are not
anything that they're able to reduce their income
(16:58):
by, they're able to avoid
that extra 4%
Massachusetts
millionaire's tax.
And so that's
that's pretty significant. Yes.
And so they were really excited about
about that saving tax, saving additional tax,
but also,
(17:20):
they were excited about bringing their their their
young adult kids. And these are kids in
their late twenties. So so they're they're adults,
but but bringing them into the this charitable
decision making process
and and helping them learn about philanthropy,
you know, and and helping them
maybe make just making deciding on who who
(17:40):
they want,
to receive
charitable gifts from this donor advised fund. So
I think it had
this planning
strategy has has some,
has multiple advantages for them. Has some long
term advantages too if the kids keep it
going. Yeah. Exactly. Then they could add to
it in the future. Right.
(18:00):
Alrighty then.
David is age 73,
and he's recently widowed.
His IRA is valued at 1,500,000.
He doesn't need the income from this account
because he has sufficient pension and Social Security
income, plus adequate income from his non retirement
investment accounts
and real estate. These will all meet his
(18:21):
goals.
These non retirement investment accounts and his real
estate have significant
unrealized capital gains.
He has sufficient long term care insurance to
pay for most of his long term care
needs.
His 2 children are independent,
and he's helping fund his grandchildren's
college education accounts.
He wants to make a sizable gift of
(18:42):
$500,000
to his alma mater because that's where he
met his wife more than 50 years ago.
Well, that's so sweet.
Yeah.
He's a sweet, sweet, sweet person. Yeah.
In conversation
with him and and when we did his
plan, we we we found he's he's just
fine. He these are these are in a
sense,
(19:03):
he's got excess assets. So giving the $500,000
is doable. It meets his goals. Mhmm.
And but but as we're as we're talking,
it it became
clear to to me as a planner
that his least valuable asset is his IRA.
And when I say least valuable,
(19:23):
I'm just thinking about the tax lien on
that on that asset.
All the withdrawals are taxed as regular income,
and his re required minimum distribution
is starting in 2024. So the government is
forcing him to take money out, and it's
taxes regular income.
And he's a single taxpayer. He's
(19:44):
now he's no longer filing jointly, and he
kinda moves up into a 35% marginal federal
tax bracket
and then pays Massachusetts tax
a a 5% on on these distributions from
his IRA.
So the tax is is is fairly significant.
And when he's die when he dies,
(20:04):
his children will inherit whatever's remaining in his
IRA,
and then they must take required minimum distributions
from the IRA.
And the IRA must be fully liquidated by
the 10th year of David's death.
So it kinda forces
money out, and it could be taxed at
a fairly high tax bracket if the kids
(20:24):
are, you know, making a decent income. Mhmm.
So so when his kids inherit
these
his his nonretirement
assets and his real estate,
they'll receive a step up in basis,
unlike the IRA. Right.
That means
they are going to be able to sell
those securities without any capital gains tax. So
(20:47):
in a sense, the nonretirement
assets are more valuable to the kids
than the IRA assets.
So it's a it's a
I wanted to go into that detail because
it's an important part of the story.
So
because David's older than 70a half,
he should consider making a qualified charitable distribution
(21:09):
from his IRA.
And he can transfer
a a bit more than a $100,000
per year from his IRA directly to his
alma mater.
And, this distribution isn't taxable to David, and
it counts toward his required minimum distribution.
And since the IRA is a 100% taxable
when it's distributed to David or to his
(21:30):
kids, the QCD
is in effect a tax deductible contribution to
charity.
Mhmm.
So since David's IRA will be reduced from
1 and a half 1000000 to a 1000000,
he'll he'll make this $100,000
gift over 5 years.
His future RMDs will also be less.
And so this this strategy
(21:53):
allows more
nonretirement
assets to pass to the kids with a
step up in basins
step up in basis. It meets his charitable
goals. He's satisfying his income needs.
Again, it's a win win win. Alright. And
that step up in basis really means a
lot for the kids. I'll tell you. It
does. Exactly.
Yep. Alright. Number 5.
(22:14):
Fred and Fiona are 71.
They've been good savers, have adequate resources.
They want to make a sizable charitable gift
to a large, well established museum.
They want to make this gift now, but
they're concerned they can't afford the loss of
the capital asset.
They have $500,000
each in IRA accounts
(22:34):
and $1,000,000
in non retirement
investment accounts.
Peter. Yeah, I think this is another interesting
situation.
Here they're
obviously they're passionate givers,
but they they may not have the resource
resources to make large outright gifts, and they
may not feel comfortable doing that.
(22:54):
They wanna retain some of the income from
this from these assets.
So,
they might be really good candidates for what
we call a split interest gifting strategy.
And there are lots of options that that
we can explore, so I'm not gonna go
into all the details here. But I can
I can give a couple of examples?
(23:15):
You know, Fred and Fiona can transfer up
to
$53,000
each from their IRAs
directly to a charitable gift annuity.
And this transfer,
similar to a qualified charitable
distribution,
(23:35):
is tax free
to,
to to them.
And the museum
will then turn around and promise to pay
them
a lifetime worth of income
each year,
which is based on their initial age, the
year that they make
the gift and the initial deposit amount.
(23:59):
So just for an example, and these are
just I'm just giving you an example to
put some numbers on the page. The income
might be 5% of $53,000
per year. So not not terribly significant, but
it helps.
And so that that out of that $53,000
that's,
$26.50,
$2,650
annually
(24:19):
from the charitable gift annuity,
back to Fred and Fiona.
So it makes the gift more palatable. If
they both were to do this, you know,
that would be giving them in excess of,
you know,
$53100
per year,
which is which You could take them. Makes
it easier. Makes it easier. Make it Exactly.
(24:41):
Yeah. Yeah. So so it's just important that
Fred and Feiner know that that the distribution
from the charitable gift annuity is fully taxable
since it's never been taxed, and they're receiving
that as as really as as as income.
So,
when Fred and Fiona die, whenever that is,
when they both die,
the income will stop
(25:02):
and the museum
will receive whatever's left. Okay.
So you're splitting your the interest. That's why
we call a split interest gift. They retain
the income
and the charity
receives the remaining,
asset, whatever is whatever is, distributed,
when they both die. Mhmm.
So there's another option here, and this is,
(25:25):
they can do something very similar
with their non retirement portfolio.
So for example, if they have highly appreciated
securities,
in their non retirement account, let's say they're
worth
$100,000
they can make a gift to a charitable
remainder trust
that also pays them an annual income.
(25:48):
And again, when the donor dies,
the remaining balance of the of this charitable
trust
will transfer
to the museum.
So so Fred and Fiano, they won't have
any capital gains taxes due on the transfer
because they've they've made a gift
of highly appreciated stocks to the trust.
The trust
doesn't have to pay tax because it's a
(26:10):
a charitable entity.
They don't have to pay tax or capital
gain taxes on that on that,
those assets that were transferred in.
And they also can receive a partial tax
deduction
on the gift, which is based on their
age, the interest payment,
and the value of the initial gift.
So so it's not a full tax deduction,
(26:32):
but it helps. It makes it makes it
a little bit more affordable.
So it allows Fred and Fiona to feel
good today. They've made a gift.
They enjoy the benefits of being a a
major giver to a a a charitable institution
that that that's really important to them, and
they retain an income
that that helps them meet their personal goals.
(26:56):
So many options here. Yeah. And there's and
there's many more that we haven't discussed.
There's also limitations,
tax deduction limitations that need to be considered.
But that that's for a another conversation or
or a conversation if anyone our listeners have
any specific questions,
(27:16):
to go through.
And it really sounds like you're you know,
you've got several
several balls in the air here resolving several
multiple issues,
charitable giving, tax planning, cash flow planning, legacy
planning, and that's just a couple of them.
Yeah. Yeah. I think that's right. You know,
we we
we have to start with an initial plan.
(27:36):
And we have to understand, you know, what
makes our clients tick? What are they what
are they trying to do?
And that's part of the discovery process,
you know, understanding what they want, how they
want it, and when they want it. You
know, it's complex,
but you you have to really start with
a plan.
And then these solutions
(27:57):
are uncovered based upon their specific needs.
Alright. Well, Peter, how can someone reach you?
The best way to reach us is through
our website,
raskinplanning.com.
Our contact information's right there and
glad to talk specific, glad to talk in
general
about planning. But, I think that the charitable
(28:20):
conversation is one that,
is really fun for me to have.
And,
you know, it's very technical, but it's also
can be inspiring.
Yeah. Very upbeat and inspiring. I agree.
Yeah. Exactly. With all these options out there,
if you have any questions about charitable giving,
Peter Raskin is here.
Also, remember to follow this podcast. Wealth is
(28:42):
in the details
and share it with others. I'm Patrice Sikora,
and thanks for being with us. Thank you
for listening to the Wealth is in the
Details podcast.
Click the subscribe button below to be notified
when new episodes become available.
The information covered and posted represents the views
and opinions of the guest and does not
necessarily represent the views or opinions of OSAIC
(29:03):
FA.
The content has been made available for informational
and educational purposes only.
The content is not intended to be a
substitute for professional investing advice.
Always seek the advice of your financial adviser
or other qualified financial service providers with any
questions you may have regarding your investment planning.
Securities and investment advisory services offered through Ozaic
(29:26):
FA Inc, member FINRA SIPC.
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I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!