Generous to a Fault
Several times in my career, I've helped people who are so generous with charities that I worry about them running out of money.
Can Someone Be Too Generous?
I’m not sure how true it is, but I’ve heard some wealthy families, even in the Twin Cities, have suffered from being too charitable to where they deplete resources and run into trouble. Believe it or not, I’ve helped people with their names on famous places as donors who had trouble making ends meet!
A Margin of Safety and Tax Optimization
Like everything in life, the stock market is uncertain. While being long-term optimists, we must also be pragmatic and acknowledge that we can’t predict the future. We must take reasonable steps today to ensure we cover the basics.
Recently, I was helping a great person who continues to make aggressively large charitable gifts to causes they care about deeply. It is uplifting to witness such bountiful giving and it is fun for me to help optimize the charitable contributions. Tax planning and optimization can add significant value to the giver and the recipient. While not everyone can make massive gifts to charity, strategies such as Roth Conversions can save many investors on taxes. In the case of this big-hearted individual, however, there was an interesting opportunity that is becoming more compelling.
Tax-Savvy Strategies
Individuals who routinely give to charity, or even those who just make large intermittent donations, may want to consider a charitable trust or charitable annuity. These vehicles provide income for life then give the money to the charity when that individual passes away.
This strategy fulfills job number one – which is to always keep a roof over my client’s head and ensure there is a fridge full of groceries while still allowing the client to be as generous as they wish. The second objective is also achieved – leaving a large sum to the client’s preferred charities.
What’s great about the income from a charitable gift annuity is that it is tax-free. A charitable trust, while not tax-free, still offers big tax deductions that can reduce the client’s tax burden.
We Are Here to Help
Please let us know if you want to brainstorm or talk to your accountant or attorney, and this also can help with Minnesota and federal estate taxes.
Thanks for taking a look!
Tom