Charitable Gifting Strategies

Many care deeply about giving to their families, communities, and charities. Often investors give spontaneously to assist those in need or provide gifts to beneficiaries with traditional monetary gifts. While cash can be an easy and convenient vehicle to support your favorite nonprofits, there are other gifting strategies that may help the value of your generosity and also provide tax advantages. A few strategies worth considering are:

1.Gift Highly Appreciated Stocks or Other Assets. If you hold stocks or other investments for more than one year that have gained value, you may consider gifting the appreciated stock directly to a qualified charity. The charity receives the asset to hold or sell. The market value of the stock at the time the gift is made is generally deductible from your adjusted gross income (AGI) if you itemize your deductions (subject to income-based limitations). Make sure to check with the charity to ensure that they accept this type of donation before implementing this financial strategy.

2.Establish a Charitable Trust. Charitable trusts can help you manage highly appreciated assets of various types in a more tax-efficient manner while, in some cases, allowing you to split assets among charitable and non-charitable beneficiaries. The timing of each gift and the flexibility you want dictates the type of trust that works best. With a Charitable Lead Trust, a charity is funded with income from assets placed in the trust for a specified time period. After that time, the remaining assets revert to other named beneficiaries, such as your heirs. In a Charitable Remainder Trust, the reverse occurs. The trust makes regular income payments back to you or another beneficiary. After a period of time specified in the trust, the remaining assets are directed to the named charities. These trusts have specific rules and are generally established through a tax professional and financial advisory team. An alternative option is to choose a Donor-Advised fund, which allows you to make a donation that may be immediately deductible from taxes but gives you the flexibility to recommend gifts to charities spread out over a period of years. Work with your attorney, tax professional or financial advisor to discuss your particular situation.1

3.Make a Charitable Individual Retirement Account (IRA) Donation. If you have reached age 70?, or wish to wait until the age at which you are required to take distributions from your traditional IRA each year, but you don’t need the money to meet your essential and lifestyle expenses, you may prefer to gift to the storehouse while also reducing your tax bill. An alternative is to take advantage of the Qualified Charitable Distribution rule. It allows you to transfer funds directly from your IRA to a qualified charitable organization. This is a tax-efficient way to shift up to $100,000 in 2023 or up to $105,000 in 2024, out of an IRA. You may avoid having to claim income (and subsequent tax liability) since you would not receive the required distribution. If you have not yet reached the age at which you are required to take distributions, you may want to consider this strategy as part of your retirement plan. To determine when required distributions will start for you (based on your birth year), visit IRS.gov.2

As you implement your giving strategies, consult with your financial advisor and tax advisor. These advisors can help you evaluate the choices to help ensure the gifts you make are most effective for your goals and consistent with your overall financial plan.