Working With Clients to Develop an Effective Gifting

A well-developed philanthropy plan should be a core part of your client’s overall financial plan.

By Andrew Crowell

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As the calendar year begins to wind down, many investors start to think about charitable donations and yearend gifting. The horrific devastation wrought by hurricanes Harvey and Irma has even further highlighted attention on timely charitable giving.

All too often, however, the busyness of life gets in the way of thoughtful gift planning, and donations are rushed at the last minute simply to meet a tax deadline instead of being strategically planned to maximize both the deduction and philanthropic benefits of the gift. For clients with philanthropic priorities and interests, a welldeveloped philanthropy plan should be a core part of their overall financial plan.

Clarifying priorities

The gift-planning process itself can be a tremendously rewarding exercise. Whether done as a family or individual, clarifying the purpose, importance timing and type of philanthropic priorities can be extremely meaningful. What types of causes or organizations are important to the individual or family? Are there specific programs within those entities of particular interest, or do they just support the general work? Do they wish to be personally involved with the organization or the spending oversight? Do they have the desire or ability to begin donating now, or will their gifts be posthumous? Do they want recognition for their gift or do they wish to remain anonymous?

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A charitable lead trust can be an efficient way to help a charity and transfer assets for estate- and gift-tax purposes.

Identifying goals and purposes

These are just some of the many important questions that should be addressed as part of a philanthropy program. Identifying the goals and purposes behind the philanthropy first enables a more specific discussion of the types of assets and techniques that are the most appropriate.

Gifting highly appreciated assets like shares of stock rather than simply giving cash can accomplish multiple objectives, including avoiding capital-gains taxes, rebalancing an investment portfolio and supporting a worthwhile organization.

• Holders of an IRA account who have attained mandatory distribution age of 70½ but do not need or want to take the annual taxable income can consider a Qualified Charitable Distribution (QCD). Made permanent in late 2015, this provision allows an IRA holder to make a direct gift from an IRA to a charity. The distribution can be used to fulfill the required minimum distribution (RMD) and help the charity, but this contribution does not also count as an itemized deduction.

• Does your client want to help a charity and also still need income? In this instance, a strategy like a charitable gift annuity or a charitable remainder trust may be appropriate. Both of these techniques generate income for the donor and leave what’s left in the trust to a charity upon the donor’s passing.

• Alternatively, perhaps your client wishes to reduce taxable income and still desires to support their favorite cause while also efficiently transferring valuable assets to their heirs. A charitable lead trust (CLT) can help accomplish these multiple objectives. A CLT is a charitable giving vehicle that makes lead payments to a charity for a term of years or the donor’s lifetime and then pays the remainder of the trust to one or more persons, typically family members of family trusts.

The legal and tax nuances surrounding CLTs are quite complicated; so expert counsel should be sought from a CPA or a tax expert in order for you to be able to thoroughly explain the benefits and/or drawbacks to your client. Properly planned and executed, a CLT can be an efficient way to help a charity while also transferring assets for estate and gift-tax purposes.

• Perhaps your client’s goal is to donate a portion of what’s left of a personal estate after death. In this instance, a bequest or designating a charity as the beneficiary of your IRA may be worth considering.

Tax reform under debate in Washington has led to uncertainties surrounding the future of personal income-tax rates and possible limits on itemized deductions. There has been increased interest in donor-advised funds and private foundations as giving vehicles.

Assuming a new tax plan lowers the top federal tax rate beginning in 2018, this could make 2017 potentially more attractive for taking deductions rather than waiting. Further, tax-free distributions from an estate to a private foundation may be eliminated entirely under the new plan.

Additionally, one can make a compelling case that while interest rates are low but expected to rise over time (and by extension the IRS “7520 rates,” which are used to value annuities and the deduction value of many types of charitable gifts), there are many compelling reasons for advisors to start speaking with clients to revisit or begin their philanthropy planning now.

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Andrew Crowell is vice chairman of D.A. Davidson & Co.’s Individual Investor Group.

Information contained herein is from sources we consider reliable, but is not guaranteed, and we are not soliciting action based upon it. The opinions expressed are those of the author, based on interpretation of data available at the time of publication of this article, and do not constitute tax advice. Investors should consult their financial and/or tax advisor before implementing any investment plan