Tiedemann discusses charitable giving strategies in FA Magazine
Financial Advisor Magazine
By Jeff Stimpson
December 2, 2019
Statistics show that wealthy clients still want to give to charity, and several strategies have become popular in the wake of tax reform.
“The Tax Cuts and Jobs Act hasn’t necessarily caused new giving strategies to emerge, but it has brought renewed attention to techniques that hadn’t been prevalent,” says Stephen Aucamp, managing director and head of business operations for the Washington, D.C., office of Tiedemann Advisors.
“It has become more difficult for most taxpayers to claim a charitable deduction without pre-planning,” notes Tony Oommen, Chicago-based vice president and charitable planning consultant at Fidelity Charitable.
Donations used to be clearly deductible. But since the 2017 tax law nearly doubled the standard deduction for 2019 to $12,200 for individuals and $24,400 for married couples filing jointly, fewer taxpayers itemize deductions. In 2017, 37 million taxpayers itemized, compared with just 12 million in 2018, according to Aucamp.
Yet charitable donations increased to $427 billion in 2018, and Aucamp says “a stunning” 86% of donations came from individuals and private foundations. A possible reason: Some states still allow deductions for charitable contributions.
There are various tactics to generate a deduction from charitable giving: You can bunch contributions to different charities into one year, for example. Or you can make a larger charitable contribution to a donor-advised fund and have the fund contribute over a few years. These moves achieve the same objective of a large charitable contribution in just one year.
And that objective, says Joe Bublé, a partner and tax practice leader at Citrin Cooperman in New York, is to receive the benefit of the standard deduction in some years and the excess of the contribution over the standard deduction—using charitable contributions—in other years.
Jim Brandenburg, a tax partner at Sikich LLP in Milwaukee, recommends donating appreciated stock to charity. “If a long-term investment is used for the donation, no tax cost is triggered, and the investor can deduct the fair value of the property donated,” he says.
With charitable harvesting, a taxpayer donates appreciated securities as part of rebalancing a portfolio. “This strategy provides a deduction for the value of the securities and allows the taxpayer to reset the basis by repurchasing the same securities, if desired,” Aucamp says.
“It’s generally better to donate appreciated capital assets that have been held at least 12 months, rather than cash,” Oommen says. “The best asset to donate is the one with the lowest basis relative to fair market value. An exception to this could be to donate a qualified charitable deduction from IRAs.”
Taxpayers turning 70½ are required to take a distribution from their IRA, but they can instead give that distribution directly to a charity, which counts as a tax-free transfer. This transfer “only applies if the money goes directly from the IRA to the charity,” says Amy Phelan, shareholder at Tonneson & Co. in Wakefield, Mass. In light of the Tax Cuts and Jobs Act, she says, “this option becomes more attractive because you don’t have to itemize deductions to see a benefit.”
The amount of a qualified charitable distribution, limited to $100,000 annually, can be counted toward satisfying the required minimum distribution from the IRA. But donor-advised funds and private foundations are not qualified charitable recipients of IRA distributions under the current QCD statute.
Another option is a charitable lead trust. “A taxpayer contributes assets to a trust which provides for periodic payments to a charity for a specific period of time, after which the remaining assets are held in trust for non-charitable beneficiaries,” Aucamp says.
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