The Power of Giving

By David Holloway

During lunch with my father around 30 years ago, he suggested that I give serious consideration to intentional giving on a regular basis. Assuring him I’d think about it, the reality was this: I was in my mid-thirties with a five-year-old (and another one on the way) amidst a job change and with variable income. In short: no way.

Weeks later, Dave Ramsey, a newly syndicated radio talk show host (now worth over $200 million) was speaking about the wisdom of giving.

Prompted twice, further exploration seemed prudent.

While the term giving is often associated with monetary giving, generosity can be practiced by giving time to a person or organization, or providing a needed skill that is not easily replicated. This discussion will deal primarily with monetary giving and some potential tax benefits.

Why consider giving?

Health benefits: Giving makes you feel better.

As you help someone or give a gift, your brain secretes “feel good” chemicals such as:

• Serotonin (which regulates your mood).
• Dopamine (which gives you a sense of pleasure).
• Oxytocin (which creates a sense of connection with others).

Cortisol on the other hand is considered a “stress hormone.” Elevated levels of cortisol over time can have negative health impacts including hypertension and diabetes. One study found cortisol output was attenuated on days when respondents volunteered compared to days when they did not volunteer.

Tax planning benefits

Along with health benefits, there are numerous tax and estate-planning benefits derived from charitable giving.

• Cash gifts: Easiest to do, simply donate cash to a charitable organization you wish to support. Itemize deductions and you can deduct up to 60% of your adjusted gross income using charitable donations, but you may be limited in some cases.
• Appreciated assets: Gifting of highly appreciated stock or real estate can be considered. In most cases, the donor will receive the current value of the asset as a donation and is relieved of the capital gains tax burden.
• Know someone who’s retired? While most IRA distributions are taxable, gifts made to a charity directly from an IRA (who’s owner is at least age 70.5) are considered a non-taxable distribution.
• Cars, boats, airplanes, etc.: Many organizations accept gifts-of-use assets, and you qualify for a charitable deduction. In the Inland Northwest, Union Gospel Mission accepts vehicles, and the tax benefit is described as follows:

*If your car sells for more than $500, you claim the sales price as your deduction, including improvements made by UGM Motors, with the exception of major repairs, like an engine swap or transmission rebuild. Deductions from the sales price would be itemized on the donor’s 1098C form.

Planned charitable giving and estate planning benefits

These methods of giving are used when tactical giving situations arise or are part of an estate plan to mitigate current year tax or estate-tax liabilities. To emphasize the importance of engaging planning strategies, a reminder that Washington state currently levies taxes (10-20%) on estates valued at more than $2,193,000 when the surviving spouse passes. Ouch!

• Donor-advised funds: Funding a DAF is a great way to receive a current year deduction (in case of high tax liability year) and control timing of charitable distributions. Contributions are made into the DAF and the donor then recommends amounts and timing of distributions to supported charitable organizations. DAFs are low cost and simple to administer.
• Charitable remainder trusts: Planned giving where assets are transferred into a trust for the benefit of a charity, and the donor retains an income stream from the trust for a period of time or until death. Ultimately the trust assets go to the specified charity.
• Charitable lead trust: Assets are transferred into a trust that provides income to a charity for a set period, then ultimately passes to the donor’s heirs.
• Gift annuities: A contract between a donor and charity where the donor gifts money, securities, or possibly other assets to a charity. In return, the donor is eligible for a partial tax deduction and a specified lifetime income stream.
• Private foundations: A similar strategy to the donor-advised fund, but the donor incorporates and funds a private non-profit foundation. Transferred assets are then invested and certain levels of gifting are required of the foundation annually. A private foundation can be a useful tool for future generations to continue a founder’s charitable intent. Administrative and corporate filing duties can be cumbersome.

Other trusts such as irrevocable life insurance trusts, generation-skipping trusts, and grantor-retained annuity trusts are designed to shield assets from estate tax and are not primarily designed for charitable intentions.

Ready to go?

Always a good idea to employ the advice of a CPA, and in cases of trusts, a tenured tax and estate attorney.

Verify the charity you want to support is using resources wisely:

For tax deduction purposes, be certain the charity is a qualified 501c(3) organization. Check with the secretary of state where the charity is headquartered.

Most charitable organizations are required to file a Form 990-PF. This IRS form will show how the entity is directing their income and expenditures. Verify funds are being used for mission specific work, and not overly burdened by administrative costs. You can find 990-PFs here.

Use a research group like Charity Navigator or BBB Wise Giving Alliance. These organizations provide a rating system for many qualified charities.

Gifts to charities you feel strongly aligned with will be remembered far more fondly than most of the other spending you do.

Questions?

Northern Capital Management advisors are certified financial planners with extensive experience working with medical professionals.

You may reach us by utilizing our WSMA member contact form.

The WSMA is a client of Northern Capital Management and Northern Capital Retirement Services and receives compensation for promoting our services. As a result of the compensation arrangement there is an inherent conflict of interest. Review the disclosure.

David Holloway is a financial advisory with Northern Capital Management. This article is brought to you by WSMA’s preferred partner, Northern Capital Management, providing WSMA members financial planning and wealth management support tailored to the unique needs of the physician community.