Giving Smarter (Oct, 2022)
The following valuable information was presented at a seminar in October, 2019. The ideas presented here are techniques that can be used in all charitable giving whether it is to church, the Legacy Fund, Red Cross, or any other 501-c3 organization. These techniques can help simplify your giving as well as make your giving more tax efficient. The information applies to current giving and/or estate plan giving and has taken into account the tax changes made in the 2018 tax update.
If you have any follow-up questions or comments on any of these methods please feel free to contact John Wickeraad (916-316-6943 or john.wickeraad@gmail.com). He will help get you in contact with the right person if he cannot answer himself).
The ideas/techniques covered are:
- Online giving
- IRA – Required Minimum Distribution
- IRA – directing your IRA to Charity as beneficiary
- Donating Appreciated Assets
- Donor Advised Funds
- Skip-year giving
- Family Charitable Trust
- Charitable Remainder Trust
- Charitable Lead Trust
- Directing Memorial Funds
- Additional Giving Strategies (Thrivent members, matching, beneficiaries)
#1 – Using the online donation method.
This allows you to set up to have your donations done automatically weekly, monthly, or annually. After a one-time setup your giving can occur automatically until you decide to change it. Use the online giving tab under “giving” on the lcrchurch.org home page. All giving is easily tracked and reported to you for tax purposes (unlike a loose cash donation). If you pledge it makes it easy to make sure you are on track to meet your pledge. It also simplifies record keeping for the church. Watch for more information in the next few months on a phone app to allow for electronic giving.
#2 – Donating Required Minimum Distributions (RMD) from your IRA to a charity.
For those who are 72 or older and have an IRA you are familiar with the Required Minimum Distribution that must be taken by December 31st of each year. (There is SECURE 2.0 act being considered in congress that would raise this to 73 for 2022) These RMDs are treated at taxable income but they can be donated instead. These donated distributions are called a Qualified Charitable Distribution (QCD). NOTE: you are eligible for a QCD when you turn 70 ½. You can even set-up to have QCD made quarterly from your IRA to a charity (or multiple charities) if desired so your donations can happen automatically. To get the full tax benefit the RMD must go directly to the charity so please work with your IRA custodian. This can be an extremely effective way to reduce your taxable income as well as not paying taxes on the distribution. If you have not taken your entire RMD for this tax year consider using some or all of remaining RMD for a charitable distribution. It is possible for the donated QCD to be greater than the RMD as long as the QCD does not exceed $100k. You should work with your IRA custodian and tax preparer on determining what makes sense for you and setting up the QCD properly. If you have an inherited IRA and are 70 ½ or older you can also donate the RMD from this inherited IRA in the same manner as your own IRA. NOTE: The tax benefits apply to a Traditional IRA not a Roth IRA, in general it is not advantageous to donated from your Roth IRA. Here is a link that provides some more useful information about donating RMDs to charities: https://www.fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/qcds
If you are planning on leaving some of your estate to a Charity a very tax efficient way of doing so is to have list the charity as a beneficiary on your traditional IRA. If you are married you would probably want your spouse listed as the primary beneficiary and the charity as the secondary. You can leave a % of the IRA to the charity if you do not want to leave all of it. Or if you have multiple IRAs you can decide which one is the right overall portion of your estate that you would want to donate. If you leave an IRA to your children, they would need to pay taxes on the IRA distributions – the IRA distributions are not covered under the estate tax limits. By leaving an IRA to charity rather than other assets your children would pay less taxes. If you want to leave your IRA to multiple charities a great way to do this is to set-up a donor advised fund and then have the donor advised fund be the IRA beneficiary. Then you have control within the donor advised fund to leave specific %s to different charities and you can leave a certain % for your child/spouse to continue your legacy of giving for years if desired.
#4 – Donating appreciated assets.
If you have appreciated assets (stocks/property) that you have owned more than one year you can donate the assets and avoid paying the capital gains on those assets. This is a much more tax effective way of giving than selling the asset and donating the proceeds on those assets. Another really effective way of giving is to combine this with #5 or 7 below (Donor Advised Funds, or Charitable Family Trust) – you can donate the appreciated assets to the Donor Advised Funds and then distribute the resulting funds to multiple charities and if desired over multiple years. Donating assets to a donor advised fund can be much easier than donating those assets to potentially several charities. Both the church and Endowment Funds are set-up to easily take appreciated stock as a gift. For other assets please contact someone on the Endowment Committee or church Finance to discuss. Funding a Charitable Remainder Trust or Charitable Gift Annuity with appreciated assets is a great combination as well.
#5 – Using a Donor Advised Fund.
Donor advised Funds are a relatively new giving tool that really simplifies charitable giving. A Charitable donor-advised fund account is a simple, tax-smart investment account for charitable giving. There are 3 steps:
- Open up and account and contribute cash, appreciated assets/investments (contributions are tax deductible just like other qualified charities)
- Invest the contributions in one of the investment choices
- Recommend grants to qualified US public charities of your choice at any time.
There is a minimum amount required to contribute when you initially open up the account – with Schwab it is $5000.
Note: At this time RMDs from IRAs are not allowed to be contributed to a donor advised fund.
Advantages/Benefits of using donor advised Fund (DAF)
- Contributions to donor advised fund are tax deductible so it simplifies your taxes – all tax-deductible donations are to one place
- Your donor advised fund can stay invested and grow to be able to grant more $s down the road
- No special tax or accounting or reporting – it actually simplifies your tracking your tax-deductible charity giving.
- Extremely low overhead cost – Schwab and Fidelity are doing this primarily as a service
- Most charities are already set-up in the system so very easy to find charity and recommend grant.
- Charity gets a check in the mail after you recommend a grant. Very simple for the charity.
- Can contribute several years of donations in one year and then recommend the grants to the charities of choice over next several years. Allows you to take advantage of itemizing deductions with larger charitable donations in one year – or to offset a larger bonus/income in one year.
- Can set-up automatic monthly grants to a charity (like church).
- Very easy to contribute appreciated assets to donor advised fund and they will provide all the proper tax documentation.
- Giving through your donor advised Fund can be part of your estate planning. Can set-up charities as grant recipients and/or to have spouse/child become the successor to recommending grants for remaining portion of the fund.
- Having a donor advised fund be the beneficiary of IRA can be a great way to avoid taxes on IRA and to set-up multiple charities for receiving a donation as part of your estate planning. You can also involve your children in the giving to encourage them to be more involved in charitable giving.
- Your grants are not required to be reported or publicly available (unlike a Family Charitable foundation). Most DAF allows grants to be anonymous if you want.
Here is a link for more information on the Schwab donor advised fund: http://www.schwabcharitable.org/public/charitable/home
#6 – Skip-year giving
With the tax changes in 2018 it is more common to be take the standard deduction and no longer itemizing. It is possible to group multiple years of donations into a single year which would allow you to itemize for that year and then in other years take the standard deduction. To allow the charities to see a more regular contributions consider using a Donor Advised Fund or other mechanism to allow the contributions to be made in one year and the charity to receive gifts in subsequent years. The larger year of donations can be timed with the last year before retirement or with other medical expenses to maximize the benefit of a large itemized deduction.
#7 – Set up a Family Charitable foundation
A Family Charitable Foundation is an option to create a framework for managing a family-based legacy of giving. It can be a way for you to involve your family in your philanthropic ambitions. Most advisors only recommend considering a Foundation if the contribution to the foundation is more than $250,000-500,000. Setting up and administrating a family Foundation can be complex and you should consult a CPA or lawyer. A Family Foundation must grant 5% of the assets each year and the grants must be reported and made available to the public. For most people the donor advised Fund provides a much more attractive solution due to the complexities in setting-up, administration, and reporting requirements. Donor Advised Funds can also be more attractive because the charitable tax deductions can be greater.
Here is a good article describing a Private Family Foundation and comparison to a donor advised Fund.
http://www.fidelitycharitable.org/guidance/philanthropy/private-family-foundation.html
#8 – Charitable Remainder Trust
A charitable remainder trust is a tax-exempt irrevocable trust created to reduce taxable income of individuals by first distributing income to their beneficiaries of the trust for a specified period of time and then the “remainder” of the trust to a qualified charity. This type of charitable planning allows those to fulfill their desire to be charitable while still generating income and reducing their taxable income. Multiple gifts can be made to a Charitable Remainder Trust.
#9 – Charitable Gift Annuity
A charitable gift annuity is a contract between a donor and a charity. As a donor, you make a gift to charity using cash, securities or possibly other assets (minimum gifts as low as $5,000). In return, you become eligible to take a partial tax deduction for your donation, plus you receive a fixed stream of income from the charity for the rest of your life and/or the life of your spouse. A portion of the payments you receive will also be tax-free based off your life expectancy table.
#9 – Charitable Lead Trust
A charitable lead trust is a type of irrevocable trust created to reduce a beneficiary’s potential tax responsibility upon inheritance. This type of trust “leads” by donating payments to a charity for a specific amount of time. After these payments have been made, the remaining balance is paid out to the beneficiaries. This type of planning will have potential tax benefits both with income and estate taxes, while fulfilling one’s charitable wishes.
#10 – Additional Giving Strategies
You can gift to a charity from almost any account as a beneficiary, the charity can be a Donor Advised Fund, a Charitable Family Trust, Church or the Legacy Fund or other charities. Designating a charity as a beneficiary of a Traditional IRA can be a very tax efficient way to leave a legacy.
Directing memorial Funds
You can choose where memorial gifts go. By default, gifts to church will go to the general fund. If you want the memorial funds to go to a specific ministry within the church you can ask them to be used in that manner. The ministry area could be an area that was special and meaningful to the person. Another option could be to direct the memorial gifts to one of the Perpetual Endowment Funds: Legacy Ministry Fund or Resurrection Life Fund. This allows the gifts to be invested and the giving to continue in perpetuity and provide support to areas that are consistent with Resurrection ministry within the church, community, and world.
- Action teams – you can sign up for 2 action teams per year. Each Action team will get free t-shirts and $250 to spend for the service or community project. The application and overhead to do an action team has been reduced and it is very quick and easy to do this.
- Thrivent Choice $ - Each quarter members may get a notice of having the ability to designate where some of the money that Thrivent is giving to charities will go. We have some members that regularly direct this money to Church general giving or a specific fund at Church – like the Legacy Fund. This extra contribution is very much appreciated. If you want the Thrivent Choice $ to go to a specific ministry like the Legacy Fund within the Church you must contact the church treasurer and tell them the amount and where you would like it to go. Please refer to the Thrivent specific tab under the giving tab on the http://www.lcrchurch.org/ website
Take advantage of matching when giving
If your work or other organization will match donations you can effectively double your impact. Sometimes you can make the grant from a Donor Advised Fund and still have the gift matched.
Other resources
- Legacy Team Members: Marilyn Lapkass, Kathryn Starbuck, Jane Stevens, Mark Duerre, Mark Billeci
- http://www.lcrchurch.org/ (Giving Tab also see November Newsletter)
- Evangelical Lutheran Church in America: www.elca.org
- Pastor Derek or Pastor Ralph
- Advent Capital LLC
- Your financial or tax advisor
- Charity Navigator, Give.org, & Guidestar – websites that help compare and analyze charities
- Schwab article on Tax-Smart Philanthropy – covers many of the same techniques listed above: https://www.schwabcharitable.org/maximize-your-impact/tax-strategies
**The content in this workshop is for educational purposes only. We recommend always meeting with your CPA or Attorney before making any estate changes or tax planning. Information within this presentation is not meant to provide tax or legal guidance.New Paragraph