How to be a Smart Giver

| By Jayme Meredith

We all give because we want to do good things in this world. But there are opportunities to do good things and receive tax benefits too. An example of smart giving would apply to you if you’re over 70½ and you’re giving to charities, which is great. You’ve been successful and now you’re giving back. However, you should probably be making those distributions from your traditional IRAs as a qualified charitable distribution. 

If you’re giving to charity and the amount is below the standard deduction threshold, you’re almost certainly not able to deduct that gift. So consider something like a Donor Advised Fund. A Donor Advised Fund is much less complex than a private foundation and is easy to set up. It allows you to maintain your gifting schedule, if, for example, you give $5,000 or $10,000 a year.

$5,000 or $10,000 a year are substantial gifts, however, those amounts might not be enough to itemize, under the current tax code, if you don’t have a mortgage or a lot of other deductions. The charity is still happy, but you’re not able to maximize that gift. A DAF would provide greater tax efficiency, especially if you have highly appreciated assets. For example, if you bought Apple or Microsoft ten or twenty years ago; you’re not going to want to pay the capital gains on those. Now you could gift those securities straight to the charity of your choice.

Qualified Ideas for Qualified Charities 

You might not know this, but every once in a while, companies will spin off subsidiaries and issue small amounts of shares in the subsidiary, which you might have never heard of, to shareholders of the parent company. Those shares may be more volatile than the parent company and have a higher selling cost, but they might also be ideal candidates to donate to your favorite charity. You receive the benefit of the stock’s value without the cost of liquidating. 

They get the money. Charities often receive discounts on brokerage services so the recipient might be able to sell the stock at a lower expense than you. And if they are a large organization, they can accumulate all those little pieces into a larger lot and efficiently dispose of that. So, smart giving would involve gathering odd little pieces in your portfolio that don’t make sense to sell and donate them to a qualified charity.

What is a qualified charity? If you donate something to your local band boosters, they are not a qualified (or certified) charity. Religious, educational and charitable organizations are examples. I have received calls from organizations that claim to benefit the police or the fire department. When I ask them if they are a 501(c)(3) they usually hang up on me. In fact, I had someone get pretty worked up on the phone saying not every charity has a 501(c)(3), to which I said, “Well, technically, to be a charity you have to.” 

You’ve got to be very, very careful when you receive unsolicited solicitations because there are people who prey on unsuspecting people. We are all receiving emails and it’s all too easy for unscrupulous people to spoof an organization’s email to make it look like it’s coming from your favorite charity. Anybody could make a phone call, too, and say, “Hey, I’m with an adoption shelter and our cages are full. Can you send me a thousand dollars?” Know that a legitimate charity understands how this all works. You can look at their website. If they have their mailing address on the website, (most will) then you can feel more confident about sending them a check. 

There are high-quality organizations out there – like the Pittsburgh Foundation – that will help people identify top-tier charities. United Way is an excellent one. They have pre-screened charities. You can rest assured that your gifts are going to be well taken care of through organizations such as those. 

Preventions and Cures

Once in a while we’ll have a client that gets misled into writing a check. When they get burned, it’s often too late to do anything about it. We consistently monitor accounts for red flags and take a big picture approach to protection by recommending additional precautions to our clients.

There is a new precaution that FINRA and the regulators created a few years ago called a “Trusted Contact.” By design, it is someone who can help the financial firm help you, if needed. It allows us to reach out to that trusted contact should we suspect something is amiss, especially with older clients. 

Of course, we cannot discuss account balances or take trading instructions, but we can reach to that trusted contact with anything from the client not showing up for an appointment and unable to be reached, to alerting the children that Mom or Dad is taking substantial, uncharacteristic distributions from their account. We do this all in effort to get them some help.

We advise everyone industry wide to complete a Trusted Contact form. It’s not a Power of Attorney; it doesn’t provide account access, nor does it give authority to do anything other than having a conversation ensuring everything is OK with the account holder. And that’s smart.

At Hefren-Tillotson we believe life should be simple. Our MASTERPLAN® takes all that we’ve been talking about here into account, such as charitable gifting, how to maximize your gift, the destination of your gift, and the legal documents required. 

The MASTERPLAN® process takes an in-depth look at your financial situation from the budget to legal documents, your accounts to your goals and objectives. In three weeks to a month’s time we build a plan for your family to achieve your goals and objectives using realistic scenarios and proven financial philosophies. If you have not had a plan or a review of your financial path recently, we should probably talk.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.