Where Does Charitable Giving Fit in with Your Legacy Planning?

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It’s coming up toward the end of the year – a time when many folks consider charitable giving. While giving to charity is a great idea year-round, now’s a great time to think about donating and how it fits into your legacy planning.

While giving is good for the heart, it can also be good for your financial picture – yet, many donors don’t leverage charitable giving to ensure maximum impact on both the recipient of their generosity and their broader financial strategy. By thinking about charitable giving as a clear component of your financial plan, you may find ways to create a strategy and goals that means you can give more wisely, which doesn’t necessarily mean giving more.

Leveraging Charitable Giving for Taxes

While very few people likely donate only because of tax benefits, there may be some tax breaks you can reap by giving.*

For instance, you may be able to deduct up to 30% – and in some cases, up to 50% – of your AGI. You will need to itemize your charitable contribution deductions in the year in which you give, regardless of whether your contribution is in cash or other property. You can donate property other than cash to a qualified organization – the IRS generally allows you to deduct the fair market value of that property. And, if estate tax is a concern for you, then you may be able to use charitable giving to reduce the tax liability on what you leave behind.

Another tax benefit may occur through gifting appreciated securities that you’ve held longer than a year. You may be able to avoid paying capital gains taxes since you can receive a tax deduction based on the security’s fair market value. You should consult your financial advisor for more information.

Gifting in Retirement

If you are taking a Required Minimum Distribution (RMD) from an IRA (excepting ongoing SEP or SIMPLE IRAs), then a qualified charitable distribution counts as an otherwise taxable distribution from anyone 70 ½ years old by year’s end and can be excluded from gross income. This means a lower taxable income, which also may reduce the impact to certain tax credits and donations, but while you won’t owe income tax on the distribution, you do not get a deduction.

There are restrictions that apply to donating from your IRA, so you’ll want to consult a professional for more information.

Our Take

There’s a lot to be said for charitable giving, whether it’s now during the season of giving, or continued throughout the year. While most of us don’t give simply for the good of our bank accounts, you should consider that there may be financial benefits and it could make sense to take advantage of them when you are considering charitable planning as part of your legacy plan.

To learn more about charitable giving within your legacy and estate planning, download our free Personal Capital Legacy Planning Guide.

*At the time of this writing, tax reform is being proposed that could change this in the future. Consult a financial or tax professional for the most recent information.

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All legacy/estate planning and charitable giving analysis and insight provided is extended to you as a courtesy for educational purposes only. You should not rely on this information as the primary basis of legacy/estate planning and charitable giving decisions. We are not licensed legacy/estate planning and charitable giving professionals. You should consult a qualified licensed professional regarding your specific situation.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
Craig Birk, CFP®

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