THE BIG 3: Top Year-End Giving Strategies

With year-end getting closer and closer, we don’t have a great deal of time to plan complicated gift strategies, but there are three simple ways that we can give big and give strategically before the end of 2019.

#1: Appreciated Securities

Appreciated securities can be one of the quickest and most tax-efficient charitable gift to make. Why is that? I’ll break it down.

The donor receives a deduction equal to the fair market value of the stock
The appreciation is not taxed to the donor, nor the charity.
The value of a donor’s investment account is almost always a great deal larger than their checking or savings accounts.
It’s very easy for the charity to accept and quickly liquidate. All they need is a simple brokerage account to receive the shares.

The deduction can be useful in many ways, including off-setting capital gains tax when rebalancing an investment portfolio or any other significant taxable event. If the donor really likes the stock that was given, there is no reason they can’t use that tax savings to re-purchase the stock. Now, they own the same stock, but with a much higher basis.

#2: Qualified Charitable Distribution

If you know me at all, you know that I’m a HUGE proponent of the QCD or “IRA Charitable Rollover”. It’s a fantastic giving option for those of us who are 70 1/2 or older. According to a report from FreeWill, QCD gifts increased more than 73% from 2017 to 2018. Here’s why people are jumping on this strategy.

December 31 is the deadline for most people 70 1/2 or older to take their Required Minimum Distributions (RMD) from retirement accounts. Those distributions are almost always 100% taxable at the highest income tax rate.
Many people don’t need or want the entire distribution, but are forced to take it every year. It can raise taxes on things like Social Security tax, Medicare premiums, and overall income taxes.
Distributions can be very large – sometimes in the tens or hundreds of thousands.
GOOD NEWS! Those 70 1/2 or older you can ask their IRA administrator to send up to $100,000 per year from their IRA to the charities of their choice. It satisfies that pesky RMD and none of the distribution is taxable to donor or charity.
For the majority of people, a QCD gift is much more financially beneficial than a gift of cash.
With over $10 Trillion sitting in IRAs today, there is no time to waste! Get going!

IRA administrators often do not communicate to the charity who is making the gift. This can be problematic, because charities aren’t able to properly thank donors for these significant gifts and donors feel slighted not knowing why they weren’t thanked. To solve this problem, donors should either contact the charity ahead of making a QCD gift and let them know the amount they plan to distribute OR ask the IRA administrator to include their name in the memo portion of the check.

The clock is ticking and these transactions can take a little time to complete. Charities should be communicating this idea to donors right now. Advisors should be discussing this concept with clients right now. Keep in mind that this opportunity is only available for IRAs – not other types of retirement accounts. For more of the minute details, please see my comprehensive article on this topic.

#3: Donor Advised Fund

Last but not least, it’s the Donor Advised Fund. DAFs have been growing in popularity by leaps and bounds over the past 10 years. This time of year, lots of people are either setting up their first DAF, or deciding how much to contribute to an existing fund. Popularity is soaring for a number of reasons, but here are some highlights.

Donors can contribute virtually any kind of asset to a DAF. The DAF liquidates the asset tax-free, making liquid cash available to grant to virtually any charity of the donor’s choice.
The donor receives a charitable income tax deduction when the asset is given to the DAF. Grants to charities can happen at any time after that. Some people like to grant “fast and furious”. Some prefer the “slow and steady” approach. It’s up to the donor how they want to recommend grants.
Many donors use their DAF to teach younger generations of their family about philanthropy.
I recommend that charities try to identify which of their existing donors have DAFs so that they can have informed conversations about how a grant from that fund could allow that donor to make a significant difference in their mission.

Not all Donor Advised Funds are the same. There are very few rules around how DAFs are regulated, but different DAF providers have different ways of doing things. They don’t all offer the same level of service to donors. Nor do they charge the same administrative fees or have the same grant-making policies.

I recommend that donors consider several different options when opening a DAF, including local and national providers. That way they can decide which is right for them. Do they want a relationship with their DAF provider that will give them a high-level of service and support as well as deep knowledge of local charities? If so, the local community foundation is probably a good choice. Do they prefer a more transactional experience? If so, then a national provider might be best for them.

No matter which provider is chosen, it’s a very good idea to investigate multiple options so that the donor gets the very best DAF experience for them.

You can easily find any community foundation in the nation using the National Council on Foundation’s handy-dandy online locator.

For even more guidance on DAFs, please see my previous two articles below on this topic. I also encourage you to check out the National Philanthropic Trust Annual DAF study and NPT DAF E-book for nonprofits.