Legacy Course Review: Article #6
Charitable Giving
Source: Apartment News Magazine
By Timothy Gorman
Real Estate Broker/CPA/Entrepreneur
We have reached the midway point in our ten-week Estate and Legacy Planning class. This series is designed to be both engaging and practical, offering comprehensive insights while ensuring participants leave with a solid framework for their estate plans and actionable steps for themselves and their advisors. As we dive deeper into the core subject matter, the information and interactions become increasingly valuable. On a side note, I’ve delivered many “Crash Courses” lasting 2-3 hours that aim to encapsulate the basics of each component of estate planning. However, I’ve found that a deeper, more extended approach allows for a far more effective learning experience when it comes to truly building your legacy.
In this article, we’ll focus on Week 5: Charitable Giving. We’ll cover a variety of topics, including:
- Impact investing: Blending philanthropy with investing
- Tax benefits of charitable giving
- Expanded charitable trusts and annuities
- Donor-Advised Funds (DAFs) and charitable case studies
Joining us for this session were four guest speakers: Kelly Clyde, Certified Financial Planner; Anthony Vultaggio and Kathleen Hurt, charitable donations experts with the OC Catholic Foundation; and Todd Wohl, a specialist in valuation, brokerage, and auctions of real estate, business assets, and partnership interests. The conversation was both broad and deep, with one of the main goals being to “disinherit the government” (a phrase borrowed from Kelly Clyde) by minimizing taxes and transferring more of your wealth to your heirs and worthy causes.
We started by debunking misconceptions surrounding charitable giving and its role in estate planning. The three most common misconceptions include:
- Complexity: Charitable giving can be straightforward with the right guidance.
- Pressure: True philanthropy is based on your comfort, not external expectations.
- Financial Impact: Strategic giving can enhance tax efficiency and overall financial outcomes.
Incorporating charitable giving into estate planning aligns with financial and legacy goals while helping to reduce estate and income taxes. It offers dual benefits: supporting causes you care about and leaving a meaningful legacy, all while enjoying tax advantages.
We discussed impact investing as a way to align financial goals with philanthropic values. By selecting investments that support causes while still achieving financial returns, you can make a positive social or environmental impact through your estate planning.
Involving family in charitable decisions is crucial for passing down values and using philanthropy as a tool for teaching financial literacy. Encouraging multi-generational participation can help build a lasting family legacy.
By incorporating philanthropy into your legacy, you can align your charitable giving with your personal values and goals. Creating a philanthropic mission statement can guide your giving and help ensure a meaningful, lasting impact.
There are significant benefits to utilizing these strategies, whether you’re focused on lowering your current income (to enjoy immediate benefits rather than waiting until after your passing) or reducing your estate value to avoid federal limits, which are set to drop from $13.6 million to around $5-7 million in 2026. Tax deductions, credits, and benefits include: Claiming income tax deductions for donations, avoiding capital gains tax by donating appreciated assets and reducing estate taxes through charitable bequests
We took a deeper dive into some popular trusts used for charitable giving, including:
- Charitable Remainder Trusts (CRTs): These provide income to the donor or beneficiaries, with the remainder going to charity.
- Charitable Lead Trusts (CLTs): Essentially the inverse of CRTs, where the charity receives income now and the remainder goes to your heirs.
- Charitable Gift Annuities: Donors receive a fixed income in exchange for a charitable gift, often used with cash or cash equivalents.
- Retained Life Estates: Donors transfer property ownership to a charity but retain the right to use it for life, benefiting from avoiding probate and potential tax advantages.
- Donor-Advised Funds (DAFs): These are charitable accounts managed by a sponsoring organization, offering immediate tax deductions while allowing you to recommend distributions to charities later, acting like a charitable checkbook.
- Qualified Charitable Distributions (QCDs): Tax-efficient transfers from IRAs to charities for donors over 701⁄2, an excellent option to avoid double taxation with these accounts.
We reviewed several case studies that highlighted the interplay between these options and others, such as DSTs, Gift Annuities, and Bargain Sales. The key takeaway is that even for those who may not be particularly charitably minded, these strategies can make sense. For those who do wish to give to charity, they are practically a no-brainer.
To wrap up, Todd Wohl emphasized the importance of accurate valuations and aligning your goals with your appraisers. He pointed out that ten appraisals could yield different results. If you don’t take the time to understand and communicate your goals, your appraisal may not work as effectively as it should. Todd also discussed valuing and selling partial interests in property or businesses. Remarkably, up to 75% of assets over $5 million are owned jointly by multiple investors. Understanding how to value and sell your share is crucial. Remember that the managers of the operating agreement are not fiduciaries for your benefit; they represent the entity. It’s essential to have resources on your side to achieve the best value!
In the next article, we’ll cover Week 6: Insurance and Investment options. Far beyond simple asset protection. How using these tools can have a positive impact on your legacy and estate plan.