The Wealth Counselor
Three Charitable Giving Solutions to Consider for Year End
Strategies Your Clients Can Use Right Now
It may seem too early to talk about year-end planning. But the 2017 Tax Cuts and Jobs Act set many changes in motion for charitable giving. Whether a clients’ charitable giving stems from a concern for those who are less fortunate, the desire to support a particular cause, or an endeavor to gain recognition in their community, the changes to the income tax deductions will likely impact the charitably inclined.
The increase in the standard deduction ($12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples) means far fewer people will itemize (a requirement to obtain the charitable deduction). Additionally, the $11.18 million estate tax exemption per person means far fewer people have taxable estates now than before the act came into effect. Because of the general reduction tax in tax liability after the Tax Cuts and Jobs Act, charitable planning no longer has the same tax-saving benefit it once did.
Even against these headwinds, there remain actionable solutions you can implement with your clients to maximize their charitable giving results. When you share these solutions with charitably-minded clients, you enhance the value you provide and deepen your relationships.
1. Bundle Gifts Together
Another option is to use a donor-advised fund (DAF) if a client isn’t 100% sure about which charities they want to support. These are similar to the private foundations established by the very wealthy, but they’re a more practical way to prepay gifts for people across the wealth spectrum. In a DAF, the client makes an irrevocable donation and receives an immediate tax deduction. Their gift then grows tax-free in the DAF. The client can then, at a later time, choose which charitable organizations to make grants to from the funds in the DAF.
2. Use IRA Rollovers and Other Retirement Plans
Instruct your client to designate a charity as a beneficiary on retirement plan assets (and leave life insurance or other property to family or non-charity beneficiaries). The charity will pay no income tax on the retirement plan or IRA proceeds, retaining the full value of the charitable gift. Let your clients know that donating their IRA value to a charity means bypassing loss of the IRA’s value through income tax as well, and they are likely to see the value in this resourceful strategy.
During life, there are planning opportunities too. Clients over 70 ½ can use the IRA to charity rollover to avoid the entire income tax deduction issue since funds directly given from an IRA to a charity are not added to taxable income. This way, the client gets an income tax benefit whether they itemize or not because the direct distribution to the charity effectively bypasses your client’s tax return.
3. Use Charitable Lead and Remainder Trusts
For your clients who are interested in starting or continuing their charitable giving efforts, the Tax Act has likely caused a fair bit of confusion and concern about a loss of tax benefits. By using these strategies, we can collectively help realign your clients giving plans with the new legislative realities caused by the Tax Act. We are here to help and collaborate as key players on your clients’ planning team.
Law Offices of J.R. Hastings • 1003 Third Street, San Rafael, California 94901 • 415-450-6692