By Juan C. Ros, CFP®, AEP®, CEPA
Amid the ongoing coronavirus pandemic, it is comforting to read the many positive stories in the press and on social media about people helping each other. We know that right now there are many people and organizations that need help. Nonprofit organizations are stepping up wherever they can to be of service to those in need such as the ones listed on this page or other similar organizations active in your own community. We get questions continually about the best ways to give, and we want to address some of the challenges and changes in legislation that can make giving easier at this time.
The CARES Act recently signed into law contains provisions designed to encourage giving this year as the crisis unfolds. One such provision temporarily increases the deduction limitation on cash gifts to charity. For 2020, donors can give up to 100% of their adjusted gross income (AGI) to charity in cash gifts. Another provision allows taxpayers who are not able to itemize deductions to take up to a $300 “above-the-line” deduction for charitable gifts of cash.
From a tax standpoint, charitable giving is unusually attractive this year particularly with these recent changes in the law and that was the intention of the legislation changes. A donor could theoretically eliminate any tax liability in 2020 by making enough gifts of cash to offset all taxable income. Yet, for many people, the tax benefit has seldom been the principal reason for giving. Instead, believing in an organization’s mission has been the driving force behind giving.1
Indeed, America has always been a generous, philanthropic country. According to the latest available data, Americans gave more than $427 billion to charity in 2018.2
Yet, even the most charitable among us sometimes feel like we cannot donate for one reason or another. Here, we highlight a handful of reasons why people say “no” to making a charitable gift. For each of these obstacles, we describe a solution that offers a path to giving.
Overcoming Obstacles to Giving
Scenario 1: “I do not have the cash right now to donate.”
during the current crisis, holding onto cash is vitally important. However, it
is possible to give other assets to charity instead of cash.
One of the best assets to give is appreciated stock. Even after the recent market downturn, many individuals hold stock positions dating back years that remain highly appreciated. There are additional benefits associated with giving shares of appreciated stock. You would be eligible for a tax deduction at the full fair market value of the stock on the date of the gift, and you would bypass any capital gains you would otherwise have owed.
Example: Jane owns 50 shares of Acme Inc. with a cost basis of $1,000, which are now worth $5,000. If she donates all 50 shares to charity, she is eligible for a tax deduction of $5,000 and does not have to pay capital gains on the $4,000 of appreciation.
Note that if you have stock that has lost value, it is better to sell those shares and donate the cash proceeds to charity. That way you can take advantage of the capital loss to offset future gains.
Charities can also accept other assets such as real estate and business interests. Check with your financial advisor and with the charity regarding any noncash gifts you may be considering.
Scenario 2: “I am worried about income.”
This is a common concern, particularly for retirees on a fixed income. Fortunately, multiple charitable strategies exist that can pay income to the donor and provide a future benefit to the charity.
A charitable gift annuity is a contract between a donor and the charity issuing the annuity. The donor makes a gift of cash or stock. In exchange, the charity agrees to pay an income stream to the donor (or donor and spouse) for life. The charity keeps whatever is left. For retirees who have money sitting in low-interest-bearing savings accounts or CDs, a charitable gift annuity can usually offer attractive annuity rates as well as a charitable deduction to go along with the lifetime income.
A charitable remainder trust functions like a gift annuity in that an income stream from the trust would be payable to the donor and spouse, and whatever remains goes to charity. A charitable remainder trust is more complex than a gift annuity, but it offers tremendous flexibility in how it can be structured to meet a donor’s specific needs.
Scenario 3: “I want to leave it all to my children.”
This is one of the more common obstacles, even among the most philanthropic of us. Understandably, parents who want to leave most of what they have to their children are unsure how to help elsewhere.
One way some have chosen to address this dilemma is to remember family first in an estate and then leave whatever is left over to charity. For most families, the best way to begin is by determining how much will be enough to leave to the next generation. After some consideration, donors may decide to leave a small percentage of the estate, or the balance of the estate (known as the “residue”), to those organizations that they have long supported.
For instance, retirement plan assets like pretax IRAs or 401(k)s make ideal legacy gifts for charities, as these assets would be taxable by heirs but are not taxable to a charity. Then, heirs can receive other tax-favored assets like Roth IRAs and after-tax investment accounts. Your financial advisor and estate attorney can help structure a giving plan, based on the types of assets you have, that does not disinherit heirs but still provides a legacy to your favorite causes.
Thinking Creatively to Help Those in Need
Archbishop Emeritus Desmond Tutu once said, “Do your little bit of good where you are; it’s those little bits of good put together that overwhelm the world.”3 As a nation of generous people, the nonprofit sector relies on our ongoing donations. By thinking creatively, we can find new and inventive ways to maintain our philanthropy and provide help and support to those who need it.
1 “The 2018 U.S. Trust® Study of High Net-Worth Philanthropy.” Bank of America, https://www.privatebank.bankofamerica.com/articles/2018-us-trust-study-of-high-net-worth-philanthropy.html
2 “Giving USA 2019: The Annual Report on Philanthropy for the Year 2018.” Giving USA, https://givingusa.org/giving-usa-2019-americans-gave-427-71-billion-to-charity-in-2018-amid-complex-year-for-charitable-giving/.
3 “10 Pieces of Wisdom From Desmond Tutu on His Birthday.” Desmond Tutu Peace Foundation, October 7, 2015.
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