Think about your favorite charity. How do you choose to support them each year? Do you write a check for financial support? Or perhaps you choose to volunteer your time by serving on committees and/or Boards. Either way, it’s likely you are contributing some amount of money and time to support a cause you believe in! Are you optimizing the best strategies to make your contributions benefit both the organization as well as you?
Charitable giving not only fulfills the desire to make the world a better place, it can provide considerable tax and estate planning benefits. However, there are multiple ways to make an impact. At Buttonwood, we implement strategy for our clients to maximize their benefits when fulfilling their philanthropic passions. Below are a few successful strategies for exploration.
Charitable Remainder Trusts
Estate planning and tax strategies often go hand-in-hand, especially when it comes to Charitable Remainder Trusts (CRTs). This efficient estate planning approach provides a win-win outcome for you and your family as well as a pre-determined charity of your choosing. The CRT is designed to allow the transfer of property to the trust, provide a charitable deduction to the grantor, avoid capital gains tax on appreciated property, provide an income stream, and ultimately benefit a charity you care about.
If you don’t need the extra income and would like to benefit younger generations, the income provided from the CRT is not restricted. Cash flows can be used for funding 529 college savings plans, the purchase of real estate, and even traditional stock and bond investments. A win for you, your favorite charities, and future generations!
An effective tax strategy for those with affluence and philanthropic passions can be the creation of a private family/business foundation. Private foundations are charitable organizations which are managed and controlled privately. They are income tax-exempt and when property established, donors receive a tax deduction for their contributions.
While tax deductions are beneficial, there are many other ways a private foundation can enhance your multigenerational financial strategy. Private foundations can last for years when set up with sustainability in mind. By establishing a foundation, you have created a family-giving legacy for generations to come. Your foundation can benefit both charities and individuals, while you and your family maintain control over the distributions.
If you would like to learn more about private foundations, please contact us today for a deeper discussion.
For those who want to simply benefit a charity, there are opportunities to make your charitable interests benefit you! Donating stock is one option investors often forget about, or don’t fully understand.
If you have stock that has performed well, this could be a great opportunity to optimize your tax strategy while making a positive impact on the world! By donating appreciated stock, you can eliminate capital gains tax on those shares. Let’s say you purchased shares of stock (or other investment asset) for $5,000 and today they are worth $100,000. If you sold, and then donated the funds to a charity, you would incur a capital gains tax. However, if you were to donate the actual shares of stock to the charity, the appreciation in value is not taxed to the charity, nor to you. As a result, you avoid capital gains tax and the charity receives the full market value of your donation.
Adding Charitable Giving Strategies to Your Financial Life
These are examples of three opportunities available to fulfill your charitable giving interests and benefit you and your family. There are many other unique strategies available. If you are charitably inclined and interested in how you can weave your philanthropy into your financial strategy, please contact us today for an informal conversation.