Why Gifting Should be Part of Your Overall Wealth Strategy

Holidays and tax deadlines can make charitable giving unplanned and difficult to organize. However, with a proper planning strategy, it’s easy to reach giving goals, reap tax benefits, make a positive contribution to society and reward yourself in the process.

Charitable Gifting is a good way to get a tax deduction, and can be a useful strategy for high wage earners. Ideally, you’d want to gift in a year when you have substantial income at the highest taxable rate, so you get the most bang for your buck. An individual can gift either cash or securities, though there are distinct benefits to gifting securities. If a client has an appreciated stock position and is¬†inclined to charitable gifting, it may make sense to gift all or a portion of the stock so that you can get a tax deduction and avoid paying capital gains tax[1].

A Donor Advised Fund, similar to an investment account, is a great vehicle for charitable giving. You can fund with either cash or securities, though it is irrevocable. If you gift an appreciated security you will avoid the capital gains tax on that security and generate an immediate income tax deduction. Any growth in your Donor Advised fund is tax-free, and you can choose which charities or organizations you want to support. One of the main benefits with a DAF is that the timing of the tax deduction and the grant is separate, meaning that you can make the tax deductible contribution into the find at year end, but gift the grant to charities later on. There is also a level of privacy around DAFs if the donor would like it. Please see http://www.schwabcharitable.org/public/charitable/donor_advised_funds for more information.

Donors may also consider a Charitable Remainder Trust, or “CRUT” which is an irrevocable trust that distributes a fixed percentage of assets to a non-charitable beneficiary. After a set amount of time, the CRUT assets are distributed to charity. This way, the client may continue to receive income from the contribution, and generate a charitable deduction. Please see http://www.schwab.com/public/file/P-5271205/Giving_2006_FallWinter.pdf for more information on CRUTs.

In addition to tax benefits, there are psychological benefits associated with charitable donations. Studies have shown that self-esteem increases and symptoms of depression decrease when an individual gives to charity[2]. Gifting can be a win-win!


[1] http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Charitable-Contribution-Deductions

[2] http://psychcentral.com/blog/archives/2013/12/22/how-giving-makes-us-happy/


Disclaimer: *Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide our clients with, securities based financing, residential and commercial financing and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at www.adviserinfo.sec.gov.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

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