Planned Giving

Advising The Involuntary Philanthropist

What’s the best asset to give to charity?

by Herbert K. Daroff, J.D., CFP®, AEP®

Mr. Daroff is affiliated with Baystate Financial Planning in Boston, Ma., and is a contributing editor to this magazine. Connect with him by e-mail: [email protected]

Are you currently an INVOLUNTARY philanthropist? Over-paying your taxes? Would you like to be a VOLUNTARY philanthropist instead, and at the same time help yourself financially, help your heirs, and help local charities?

 

Consider these strategies…

During Lifetime

Cash — always appreciated, but may not be the best choice
Public and private securities (stocks, bonds, mutual funds, ETFs, etc.) — RIGHT, you can avoid paying capital gains if you give the appreciated property to charity……

 

and you can continue to receive income for your life (or continue for the life of your surviving spouse) or for a term of years with a charitable remainder or lead trust

  • Real estate — RIGHT, you can avoid paying capital gains if you give the appreciated property to charity, and you can continue to receive income for your life (or continue for the life of your surviving spouse) or for a term of years
  • Retirement Accounts — RIGHT, if you are over 70½, if not, then always appreciated, but may not be the best choice during lifetime unless you can take the charitable deduction on both State and Federal income tax returns
  • Life Insurance — RIGHT, even though the charity needs your current contributions to cover our current operating expenses, charities also recognize the value of planned gifts to help them improve their financial future

At Death

Cash — always appreciated, but may not be the best choice

Public and private securities (stocks, bonds, mutual funds, ETFs, etc.) — always appreciated, but may not be the best choice since your heirs get a step-up in cost basis at your death for asset included in your taxable estate and would receive these assets income tax free, though still subject to estate taxes

Real estate — always appreciated, but may not be the best choice since your heirs get a step-up in cost basis at your death for asset included in your taxable estate and would receive these assets income tax free, though still subject to estate taxes

Retirement Accounts — RIGHT, instead of your heirs having to pay income tax and estate taxes on these assets. Depending on the size of your taxable estate, your heirs could lose nearly 70% to income taxes and estate taxes (INVOLUNTARY philanthropy)

  • For example, in Massachusetts, if your estate is $1,100,000 the estate tax is $38,800. That’s not a 38.8% tax on the last $100,000. It’s about a 3.5% tax on the full $1,100,000.
  • If that last $100,000 were retirement funds, it is likely that the estate tax will be taken from non-retirement funds. Therefore, when the heirs take distributions from that $100,000 of retirement funds, they will incur state and federal income taxes, let’s say $30,000. That’s $68,800 on the last $100,000 in the estate. Alternatively, you could gift that $100,000 retirement account to charity and your estate will pay no estate tax, in Massachusetts.

 

  • Life Insurance — RIGHT, what a great way to leverage your gift to charity (VOLUNTARY philanthropy)◊