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Mid-year Reminders for Charitable Giving
As we bid aloha to summer, we have some tips to share as you support your clients’ charitable giving for the coming months, years, and even decades. As always, the team at the Hawai‘i Community Foundation (HCF) is happy to be a resource!
Donating appreciated stock.
We absolutely understand how easy it is to write a check when your client wants to give to charity. However, if you can help them to pause before pulling out their pen, it really does pay off to consider whether appreciated stock would be a better way to give to charity. When a donor give shares of long-term appreciated stock, he or she can be eligible for a charitable tax deduction at the fair market value of the shares. Then, if it is a 501(c)(3) charity that subsequently sells those shares, it will not be hit with capital gains tax. By contrast, if a donor were to sell those shares and give the proceeds from the sale, the donor would have a lot less cash to work with. Please reach out to HCF anytime to learn more about how easy it is to take advantage of this tax-savvy giving technique.
Planning ahead for business exit.
If your client owns all or part of a private business, keep in mind that charitable giving can factor into your client’s eventual exit strategy. Your client could be sitting on substantial unrealized capital gains if the business has grown a lot over time. Upon a sale, capital gains tax will be triggered, reducing the proceeds your client gets to keep. No capital gains tax will apply, however, to the sale of a portion of the business owned by a donor advised fund or charity. Plus, your client can be eligible for a charitable income tax deduction in the year of the transfer based on the fair market value of the shares—not the cost basis, as would be the case if he or she transferred the shares to a private foundation. Keep in mind that a strategy like this only works with careful planning, so be sure to contact the HCF team well in advance of setting a plan in motion.
Take advantage of the QCD.
A Qualified Charitable Distribution (QCD) is a very smart way to support charitable causes. If your client is over the age of 70 ½, he or she can direct up to $105,000 from their IRA to certain charities, including a field-of-interest, designated, unrestricted, or scholarship fund at HCF. If your client is subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. Through a QCD, you avoid income tax on the funds distributed to charity.
Review IRA beneficiary designations.
As you and your clients review their assets and how they are titled, perhaps in connection with an annual financial and estate plan review, pay close attention to tax-deferred retirement plans such as 401(k)s and IRAs. Typically, clients name their spouse as the primary beneficiary of these accounts to provide income following their death or to comply with legal requirements. But as you and your client evaluate whom to name as a secondary beneficiary of these tax-deferred accounts, don’t automatically default to naming children or a revocable trust. You and your client may determine that naming a charity is by far the most tax-efficient and streamlined way to make gifts to your favorite causes upon your death and establish a philanthropic legacy. A bequest like this avoids not only estate tax, but also income tax on the retirement plan distributions. That’s why non-retirement fund assets may be better-suited to pass to children and grandchildren.
Embrace a holistic approach to philanthropy.
When you work with HCF, charitable giving is easy, flexible, and rewarding. As the hub of your charitable giving, HCF offers a wide range of fund types, services, and ways for your clients and their families to get involved with the community they love. Many of our fund holders use a donor advised fund (DAF) to organize annual giving to charities. We can also help clients establish a designated or field of interest fund to complement the function of their DAF. A designated fund allows donors to support a specific charity over the long term, while a field of interest fund focuses donor support on a particular area of community need by leveraging HCF’s expertise. We’d also be honored to work with you and your clients to structure a bequest to charity in their estate plan to support important causes beyond their lifetime.
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