If I asked you to make a $100 contribution to XYZ Charity, and you had the means to do it, what would first come to mind?
I’m guessing you would reach for your checkbook or credit card. And there is absolutely nothing wrong with that. But depending on your circumstances, there may be other ways to give that are more effective.
People who believe in the mission of a nonprofit organization tend to think mostly about how much they want to give. That’s an important and personal consideration. But there is another question worth asking:
What should I give?
By strange coincidence, I had conversations this past month with several smaller nonprofits looking for advice on how to start, grow, and manage an endowment. We talked about a number of things, but one topic generated a lot of interest: the many different ways people can give.
Don’t Sell That Stock to Give Cash!
When I meet with clients who support nonprofit organizations, I will often review their portfolio to see if they have a concentrated position or an investment with a low-cost basis. We are usually talking about individual stocks, ETFs, or mutual funds that have appreciated over time.
Rather than selling the investment, paying the capital gains tax, and then donating the cash, there may be a better option: give the shares directly to the organization.
The shares can be transferred in-kind to the nonprofit organization’s brokerage account, which means they aren’t sold first. If the requirements are met, the donor may be able to deduct the fair market value of the gift while also removing an appreciated or concentrated holding from their portfolio. The nonprofit can generally sell the shares without paying capital gains tax.
This can accomplish several things at once. The donor supports an organization they care about, addresses an investment that may no longer fit as well in their portfolio, and potentially avoids realizing the capital gain that would have resulted from selling the investment first.
Is Your IRA Too Big?
For some people, the thought of taking distributions from a large IRA can create a tax headache. Distributions from a traditional IRA are generally taxed as ordinary income, and eventually, taking money out is no longer optional. For most IRA owners today, required minimum distributions, or RMDs, begin at age 73.
But if you are charitably inclined, there is another option worth knowing about. Beginning at age 70½, you may be able to make a qualified charitable distribution, or QCD, directly from your IRA to an eligible charitable organization. A QCD can also count toward your RMD once you are required to take one.
The word directly is important. You can’t take the IRA distribution yourself and then write a check to the charity and call it a QCD. The funds need to go directly from the IRA to the qualifying organization. When the requirements are met, the QCD is excluded from taxable income.
Live Your Life, Leave a Legacy
You don’t have to be Bill Gates or J.D. Rockefeller to leave a legacy gift. If there is a nonprofit organization that is important to you, you can incorporate it into your estate plan.
One of the easiest ways to do this is through a beneficiary designation. You can name a nonprofit as a beneficiary of all or a portion of certain accounts. And it doesn’t have to be an either-or decision between your family, loved ones, and the organizations you care about. You can divide an account among multiple beneficiaries, including the people and organizations that are important to you.
Beneficiary designations can be used with retirement accounts, life insurance policies, transfer-on-death (TOD) accounts, and payable-on-death (POD) accounts.
Before You Write a Check…
There are many other ways to structure charitable gifts, some considerably more complex than the examples I’ve discussed here. But you don’t need to understand every charitable trust or section of the tax code to ask a simple question:
Am I giving the right asset?
Writing a check may still be the right answer. But before making a significant charitable gift, it may be worth talking with your financial, tax, and legal advisors about what you own and the organizations you want to support. A little planning may allow you to support a cause that’s important to you while making a gift in a way that works better with your overall financial plan.
Giving is ultimately about supporting the people, organizations, and causes that matter to you. Good planning doesn’t change that intention. It can simply help you make the most of it.
Plan Confidently.™
Important Disclosure: This article is for educational purposes only and is not intended to provide tax or legal advice. Individual circumstances vary. Please consult with your tax and legal advisors before implementing any charitable giving or estate planning strategy.
