When Charity Meets Strategy: The Hidden Vehicles of Philanthropy

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Giving Smarter: Innovative Paths to Charitable Giving – Jason Warner Tax Senior Associate

Charitable giving transcends simple generosity when approached strategically. In this enlightening conversation with tax senior associate Jason Warner, we uncover powerful charitable vehicles that can transform your giving impact while optimizing tax benefits.

Many donors default to writing checks to their favorite organizations without realizing there are more sophisticated options available. Jason walks us through four key charitable strategies that high-net-worth individuals and business owners should consider. Donor-advised funds offer flexibility and immediate tax deductions while allowing contributions to grow tax-free before distribution. Charitable remainder trusts provide income streams to donors while ultimately benefiting chosen charities. Charitable lead trusts work in reverse, benefiting charities first before transferring remaining assets to heirs—an excellent tool for multi-generational wealth planning.

For those over 70½, Qualified Charitable Distributions from IRAs present a straightforward yet powerful giving approach, allowing up to $108,000 in annual charitable gifts while satisfying Required Minimum Distributions without increasing taxable income. Jason highlights the significant advantage of donating appreciated assets rather than cash—the most common mistake donors make—which provides a double tax benefit through full-value deductions and avoiding capital gains tax.

Whether you're a high-net-worth individual looking to maximize philanthropic impact or a business owner seeking to integrate charitable giving into your tax strategy, this episode delivers practical insights for strategic philanthropy. Remember, success begins with knowing what counts. Ready to optimize your charitable giving strategy? Call 413-739-1800 to connect with our expert team today.

To learn more about MP CPAs visit:
https://thempgroupcpa.com/
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413-739-1800

Episode Transcript

Speaker 1 (00:01):
Welcome to the Knowing what Counts podcast, the
place where expert guidancemeets smart financial decisions.
Whether you're a high net worthindividual or a thriving
business, the experts at MPCPAsare here to help you protect and
optimize your wealth.
Let's get started, becausesuccess begins with Knowing what

(00:22):
Counts.
Because success begins withknowing what counts.

Speaker 2 (00:26):
Charitable giving isn't just about generosity.
It's about strategy.
Let's explore smart ways tomaximize your impact while
optimizing tax benefits.
Welcome back everyone.
I'm Sofia Yvette, co-host andproducer here in the studio with
Jason Warner, tax seniorassociate at MPCPAs.

(00:47):
Jason, how's your day been sofar?

Speaker 3 (00:49):
It's going well.
How are you?

Speaker 2 (00:52):
Doing well also, Jason.
So can you introduce yourselfto the audience and tell them
more about your role at the firm?

Speaker 3 (01:01):
Yes, so, as you mentioned, my name is Jason
Warren.
I've been with the firm forjust under six years.
I'm a senior tax associate andin my role, I work closely with
a diverse portfolio of clients,ranging from individuals and
small businesses to largecorporations, whether it's
reviewing their returns oroffering strategic advice on
minimizing tax liabilities.

Speaker 2 (01:24):
So, jason, many people are charitably inclined
just to write a check to theirfavorite charity.
What are some of the lesserknown charitable vehicles that
people may not be aware of?

Speaker 3 (01:38):
Yeah, so I mean writing a check is certainly the
easiest and the moststraightforward, but there are
actually several lesser knowncharitable vehicles that can be
more strategic, both for thedonor and the charity.
The first is the donor advisedfund, which we spoke about a
previous podcast.
When you contribute stock orappreciated assets, you can take
an immediate tax deduction andyou can recommend grants to

(02:00):
charities over the years.
The second is going to be acharitable remainder trust, and
there are actually two types ofcharitable remainder trusts.
The first one is going to be aCRAT or a charitable remainder
annuity trust.
In the CRAT, the donortransfers assets into an
irrevocable trust that they setup and the trust pays the donor

(02:24):
or the non-charitablebeneficiary a fixed annual
income at least 5% of theinitial value of the
contribution for up to 20 yearsor the lifetime of the
beneficiary.
The remainder then goes to oneor more of the charitable
organizations.
You would get a charitablededuction in the year that you
fund the trust and, based on theprojected value of the

(02:46):
remainder, would go to thecharity.
There are no additionalcontributions after you make the
initial one.
The second would be the CRUT.
The CRUT is similar to the CRAT.
The CRUT stands for CharitableRemainder Unit Trust.
The difference is how they paythe income and how they handle
the trust assets.
So in a CRUT the annual payoutis based on a fixed percentage

(03:10):
of the value versus a fixedannual payout, and this is based
on the trust assets, and theassets would then get revalued
each year.
The difference is there are noadditional contributions are
allowed, so there is a littlebit more flexibility.
The third are the charitablelead trusts.
There's two types of leadtrusts as well the charitable

(03:33):
lead annuity trust, also knownas a CLAT.
This would be the donortransfers assets into an
irrevocable trust and the trustpays a fixed annual amount at
least 5% of the value to one ormore charities for a set number
of years or for someone's life.
The payment stays the same eachyear and the remainder goes to
the heirs.

(03:54):
The other type of charitablelead trust is a CLUT.
That stands for charitable leadunit trust.
Similar to the CLAT, the donortransfers assets into an
irrevocable trust and they pay afixed percentage amount versus
a fixed annual amount to one ormore charities for a set number
of years.
The payment changes each yearand the remainder goes to the

(04:17):
heirs.
So the gift tax is calculatedupfront based on the present
value of the remainder.
Trust is calculated upfrontbased on the present value of
the remainder trust, and if thetrust assets outperform the
hurdle rate, the excess growthpasses to heirs without any
additional tax.
Both charitable lead trusts canbe structured as grantor or
non-grantor trust, and if agrantor trust, then, oh sorry,

(04:42):
am I able to?
When we restart, do we have torestart the whole thing?
No, so the fourth vehicle I'mgoing to discuss is a qualified
charitable distribution.
This one's a little bit morestraightforward.
It's a direct transfer of yourfunds from your individual
retirement account that'spayable directly to a qualified
charity.
This allows IRA owners that areage 70 and a half or older to

(05:06):
donate up to $108,000 per yeardirectly to a charity, and they
can exclude that amount fromtheir taxable income, and this
will satisfy RMD requirementswithout increasing any taxable
income.

Speaker 2 (05:21):
So, jason, what's the difference between giving cash
and appreciated assets likestocks or real estate?

Speaker 3 (05:28):
So giving cash is very simple and straightforward.
You just write a check or givecash to the qualified charitable
organization and you can deductthat amount up to 80% of your
AGI in that year.
This is ideal for recurring,smaller donations.
Giving appreciative assets,such as stocks or real estate,
is a little more complex butbeneficial.

(05:49):
If you have assets that haveappreciated over the years and
you donate them, you can get adeduction for the full fair
market value, and this would beideal for larger, one-time
donations.

Speaker 2 (06:00):
What's the difference between charitable remainder
trusts and charitable leadtrusts?

Speaker 3 (06:06):
I'd say the simplest way to think of the difference
is they operate in oppositedirections.
With the charitable remaindertrust, the charity receives the
remainder after the individualsare paid.
But with the charitable leadtrust, the charity receives the
payments first and then theheirs receive the remainder.

Speaker 2 (06:23):
Who is the ideal candidate for setting up a
charitable remainder trust or acharitable lead trust?

Speaker 3 (06:31):
So the charitable remainder trusts are best for
individuals who want to generateincome from appreciated assets
without triggering any immediatecapital gains tax and who are
looking for an immediate taxdeduction to charity lead.
The charitable lead trusts arebest for individuals who want to
support a charity now withannual payments and do not need
the income from assets duringthe trust term.

(06:52):
This is typically for high networth individuals engaged in
multi-generational wealthplanning.

Speaker 2 (07:00):
What's the biggest mistake people make when giving
to charity from a taxperspective?

Speaker 3 (07:07):
The biggest mistake that we would see is giving cash
when appreciated assets wouldbe better.
So you miss out on avoidingcapital gains tax and you may
get a smaller deduction if youjust give cash or you sell the
stock and then give that cash.
Donating appreciated assets canprovide you with a double tax
benefit, so you would be able todeduct the full value and you'd

(07:27):
be able to avoid capital gains.

Speaker 2 (07:30):
How can small business owners integrate
charitable giving into their taxstrategy?

Speaker 3 (07:35):
So there's multiple types of businesses.
You have C corporations, whichcan deduct charitable
contributions up to 10% of theirtaxable income.
You have S corporations orpartnerships, who will pass the
deduction through to the ownersand they can claim it on their
personal returns.
Businesses can also donateinventory or services or they

(07:56):
could transfer a portion oftheir business interest into a
CREP before the sale, and thatwill help defer or eliminate
capital gains tax.

Speaker 2 (08:06):
What steps should someone take if they are
interested in setting up one ofthese types of charitable
vehicles?

Speaker 3 (08:13):
Well, first I would identify what your charitable
goals are, such as what causesyou care about, and if you want
to give now, wait or you cangive it both.
Second, I would consult with afinancial advisor or a tax
professional to furtherunderstand the implications and
requirements, to ensure you arechoosing the right vehicle.
And then, third, I'd work withan attorney to draft up the

(08:35):
legal documents, and you couldset up the trust by doing that.

Speaker 2 (08:40):
Well, Jason, thank you so much for sharing those
helpful insights with us today.
We'll catch you later.
Have a fantastic rest of yourday.

Speaker 3 (08:50):
You as well, thank you.

Speaker 1 (08:52):
Thanks for listening to the Knowing what Counts
podcast.
Ready to optimize your wealthand protect your future, visit
thempgroupcpacom or call413-739-1800 to connect with our
team of experts.
Remember, success is aboutknowing what counts.