Making Lemonade? Charitable Giving Strategies in 2018 and beyond

Fri, 03/16/2018 - 9:15am

About this blog:

  • Sarah Ruef-Lindquist

    Sarah Ruef-Lindquist, JD, CTFA

    Sarah believes sound, thoughtful planning is a gift we give ourselves, our families and our community.

    She is a lawyer and seasoned non-profit executive who has worked with dozens of organizations, individuals and families as a philanthropic advisor and senior trust officer. She holds the Certified Trust and Financial Advisor certification and FINRA Series 7 and 66 registrations through Commonwealth Financial Network. Sarah and her husband live in Camden. The Financial Advisors of Allen and Insurance Financial are Registered Representatives and Investment Adviser Representatives with/and offer securities and advisory services through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Allen Insurance and Financial, 31 Chestnut Street, Camden, ME 04843. 207-236-8376.

The Tax Relief and Jobs Creation Act that was signed into law at the close of 2017 is touted as the most extensive tax reform legislation since the 1986 Tax Act that I came to know early in my professional career as a lawyer and philanthropic advisor. In the 1986 Act, there was a lot we took for granted in the itemized deduction world, including the once sacred charitable income tax deduction for itemizers. Essentially loosing that deduction because of the dramatic increase in the standard deduction has become cause for concern for the charitable sector. I’ve written before about why that might be misplaced, but I want to focus here on what strategies have not changed in that legislation that still are powerfully tax efficient giving strategies that support annual funds and planned giving alike.

For those age 70 ½ or older with IRA’s they can give up to $100,000 total to charity or charities in any given year without having to recognize the income tax that would otherwise be payable on distributions. Why? Because a direct Qualified Charitable Distribution (QCD) can be excluded from income. That’s a significant amount of potential philanthropy. A donor could take advantage of the QCD method to make annual gifts, or a larger planned gift. I often advise clients who are eligible to do this kind of gifting even when itemizing the gifts for a deduction is an option, because it’s potentially more tax efficient.

When one receives a distribution from their IRA and then makes a gift from the proceeds on which they will be taxed, they may increase their Adjusted Gross Income in a way that exposes one to a higher level of income tax on Social Security Benefits. They may also bump themselves into a higher income and/or capital gains tax bracket. One of the best features of this strategy is that donors can use their Required Minimum Distribution (RMD) that they must otherwise withdraw from their IRA to make these gifts. The result? That income that was put aside without tax will become a charitable gift without deducting any tax, which many people find compelling.

If you are age 70 ½ or older, or work in development and have donors in this age demographic, consider the QCD option and what it could mean for you or your organization’s donors. As with all gifting strategies, be sure to obtain competent, independent legal and tax advice before making a significant charitable gift.