Time and again in 2017 we rejoiced as the stock market breached historic highs. We funded our 401(k)s and stashed money into the kids’ 529 college funds. We bought vacation homes or investment property. We loaded money into annuities. Many of us sold appreciated assets, reaping the profits and forking over capital gains taxes.
But some investors in lower Fairfield County did something altogether different with those gains: They gave them away to those in need.
“It certainly is rewarding to help others,” says Peter Oldershaw, who is the chief fiduciary officer at People’s United Bank Wealth Management in Fairfield. “If you’re saying, ‘I’m comfortable with the resources I have and I’d really like to benefit a charity’ that makes a lot of sense. You can know for the rest of your life that you’ve contributed to a worthy cause. That you’ve made a difference.”
Financial planning goes well beyond accumulating wealth, Oldershaw notes. Prudent planning also applies to giving your money away. A few simple steps in a major-giving strategy can not only save great sums in taxes, it can also multiply the impact of your gift.
Consider this scenario: You would like to donate a chunk of money to your favorite charity, and you’d like to do this using some of the Apple stock you bought back in 2002, when the company was still rising from the ashes. Since that time, the stock sputtered then split, and split some more, and now the 100 shares you bought for a split-adjusted $1,650 have multiplied to 1,400 shares, worth $230,000, give or take. To try to fund your gift, you could sell 100 shares at $165 apiece (the price at press-time), netting you $16,500. But, depending on your income, you could pay more than $3,000 in capital gains taxes, leaving the charity short. Or you could do what Oldershaw suggests: Donate uncashed securities to the charity, not incur any capital gains taxes, and get a big tax write-off.
“Instead of you selling the assets and recognizing a very sizable capital gain, you can make a gift and get the charitable deduction at that fair market value.” Plus, the charity won’t have to pay those big capital gains taxes, leaving them with a larger largesse.
If you would rather spread out your major giving across a number of charities, Oldershaw suggests creating a Donor Advised Fund at an organization such as Fairfield County’s Community Foundation. You donate money, stock or other assets and get your tax deduction for the fair market value, and you leave it to the foundation to manage your investment and administer your gifts.
“Entities that create these funds for you take on some of the burden. The reporting, the record-keeping—it’s all done by the organization. It’s so convenient to structure it that way,” Oldershaw says. “Plus, you can bring in other family members to teach about philanthropy. You can all participate as a group.”
An added bonus: The foundation will find worthy nonprofit organizations with missions that match your goals. Donors can establish a fund at FCCF with $50,000 or more, making the gift to a Donor Advised Fund an ideal foil for a year-end bonus that would otherwise up your tax liability.
IT’S YOUR CHOICE
Many families who donate big gifts regularly to nonprofits establish private foundations versus Donor Advised Funds. Each has pros and cons, says Oldershaw.
Private foundations involve more paperwork and cost a family more to administer, for example, than Donor Advised Funds. And the tax deduction is greater for cash, securities and real estate donated to DAFs than for those to private foundations.
Private foundations, though, enable a family to build its endowment and to hyperfocus on its own charitable giving, without regard for another organization’s oversight.
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