Charitable Contributions and Tax BenefitsMay 1, 2018
By Jeremy Reif, CRPS®, Financial Advisor and Owner of Point Wealth Management
I have had the privilege of working with many clients who have reached a point in their life where they have invested their money and done well with it, been able to enjoy their preferred lifestyle, and have blessed their children financially. But they want to go further. They want to donate to charities to create a legacy and find self-fulfillment. The problem is, once you give away a large portion of your estate, it’s permanent. Many people are afraid to take the plunge even if they have noble charitable intents. Is there a way around this?
Maximize And Minimize
My job is to help you maximize your charitable gifts while minimizing your taxes. Some of the common fears people have about charitable donations are that they don’t want to make a mistake or give up control of their money. They want to know what a charity will do with the funds. Some are worried that they will eventually need that money for retirement. While these are legitimate concerns, planning properly is a solid solution.
Strategy Is Key
Just as with your initial financial planning, strategy can go a long way. I work with attorneys and other members of your financial team to create tax planning strategies that incorporate trusts or donor-advised funds as a way to minimize your taxes. Here are some ideas:
Gifting Your RMD
A simple example that takes advantage of tax benefits and minimizes your taxable income involves the Required Minimum Distributions (RMDs) you are required by law to withdraw from your retirement accounts when you turn 70½. But what if you don’t need that money for living expenses? Current tax law allows you to gift your RMD directly to a charity and avoid paying taxes on the distribution.
Charitable Remainder Unit Trusts
A more complicated strategy is for those who own real estate and have depreciated their asset. Many individuals own investment property, such as a duplex, and don’t sell due to the potential taxes that will be owed on the property. To get around these taxes, you could establish a Charitable Remainder Unit Trust (CRUT) and bypass the majority of the taxes on the sale of your investment. As an added bonus, you also get a current tax write off for the charitable contribution. You don’t give up the principal from the sale of the property until you pass away, thus the name “remainder trust.” The remainder of the assets that were not used for your own income during your lifetime then pass on to charity.
Charitable Lead Trust
What if you want the tax benefit today but don’t want to disinherit your heirs or beneficiaries?
Charitable Lead Trusts could be an answer. Charitable Lead Annuity Trusts (CLATs) and Charitable Lead Unit Trusts (CLUTs) are designed for the wealthy to give to charity today and for a set number of years, but the remainder reverts to the beneficiaries. These trusts are extremely complicated and require the assistance of an experienced professional.
Finally, if you need the tax deduction in the current tax year but don’t know what charities you want to give to, you could open a donor-advised fund (DAF). DAFs are like a philanthropic savings account. You put money into it for the purpose of giving to charity but you can let it sit there awhile until you are ready to give.
What Solution Is Right For You?
By now you can see that you have plenty of options to pursue your charitable goals while giving your finances a leg up. If you are ready to help create a charitable giving strategy to boost your tax benefits and maximize your money, schedule a call and meet me virtually.
About Jeremy Reif, CRPS®
Jeremy Reif is an independent financial advisor with more than a decade of experience in the financial services industry. He is also the owner of Point Wealth, LLC, an independent financial planning and investment management firm. With advanced credentials and training in retirement planning and financial planning, Jeremy focuses on helping individuals and families pursue financial independence. Regardless of the services he’s providing, he focuses on talking openly about financial planning, the industry, common questions about retirement planning, and more to help everyday investors gain more confidence in their financial opportunities. Based in Wausau, Wisconsin, Jeremy serves clients throughout the state and can work virtually with clients throughout the country. To learn more, visit http://pointwealthmanagement.com and connect with Jeremy on LinkedIn.
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