You may note that the question was framed as a “how to” rather than “should I”, an honest reflection of our bias toward giving. A number of years ago, we made a commitment as a firm to give to charitable organizations that we select each year in honor of our clients, in place of giving them holiday gift baskets, etc. Because we so sincerely appreciate our clients, we believe that this practice is actually more representative of their personal values as well as our own, and we receive a great deal of positive feedback about it every year.
Yesterday, I was reading an article in the O magazine (Oprah, May 2019) wherein Oprah interviewed Melinda Gates about her charitable and philanthropic activities. You may or may not be aware that Bill and Melinda Gates have committed to use the vast majority of their substantial fortune toward charitable endeavors. It is well worth a read, or you can watch a video of the interview here: http://www.oprah.com/own-super-soul-sunday/melinda-gates
Allow Your Heart to be Broken:
In the article, I was particularly struck by the dialogue between Oprah and Melinda where they discussed how you have to let your heart break- and that you allow that empathy to guide you to ask yourself the question: “What is this calling me to do?”. They referenced Melinda Gates’ new book entitled The Moment of Lift: How Empowering Women Changes the World, wherein she discusses not only the inspirational stories about the people she has encountered in her travels and philanthropic work, but some of the harsh realities that many women still face such as:
- 130 million girls worldwide still do not get to attend school
- Complications during pregnancy and childbirth remain the leading causes of death among girls age 15-19
- Though poverty has declined, more than 700 million still subsist on about $1.90 per day
While these are issues that I care deeply about, there are of course many, many others throughout the world, that I think speak to each of us individually, and thereby lays a burden of action upon us to do what we can to support and address those needs.
Because charitable giving is a value that we and so many of our clients share, we have identified several different mechanisms for charitable giving that enable us to make the most out of charitable gifts.
Donor Advised Funds:
One of these mechanisms is the use of a Donor Advised Fund/Charitable Gift Fund. We utilize the Schwab Charitable Giving Plan since our managed accounts have Schwab as the custodian. The DAF works similar to a foundation in that the fund itself will “vet” the charities and ensure that they are all recognized non-profits or have 501(c)3 status with the IRS. Our clients benefit because they can gift appreciated stock, as well as cash and thereby increase the value of the gift as a tax deduction, and not have to recognize taxable gains they would incur if they were to sell a stock to then gift to charity. There are a number of other benefits to using a DAF, but I won’t take the time to go into those now.
Qualified Charitable Distributions:
The second extremely effective giving tool, which has become all the more important with our recent tax law changes, applies only to those who have reached age 70 ½ and have a tax-sheltered account, such as an IRA, etc. For individuals in this group, most already know that they must take what are referred to as Required Minimum Distributions at least annually. The charitable giving technique that we strongly encourage is to take at least a portion of that required distribution, and have the custodian make a check out to the charity, rather than as a distribution to you. In most cases, custodians will make the check out to the charity of your choosing, add “A Gift from Bob and Joanne Jones” on the memo and then send the check to you. It is then your responsibility to get it to the charity.
Why do this, rather than just have the custodian send you the money and you write the check? Because all of the money distributed to you from an IRA is taxable, whereas if it is made out to a charity it is not taxed at all! This far outweighs the benefit you may or may not be able to claim on your tax return as a “charitable contribution”, which because of the massive increases in the standard deductions, often results in no additional deduction for you. And after all, wouldn’t you rather contribute to a charity vs. the IRS???
It is important that you retain the records from these types of distributions that are officially called Qualified Charitable Distributions for your tax records, as most custodians will list them as “distributions” on your end of year tax documents, and won’t make a distinction about those that are made out to a charity. Your tax preparer needs to know that those were charitable gifts so you are not taxed on it.
I think the vast majority of us have at least the wish and the will to give what we can. We just want you to have the tools to help you make the most of the charitable gifts that you make, as we work toward lifting up those in most need of our help, the ones that speak to you personally. We have the opportunity and privilege to give because so much has already been given to us.