How customers can offer and protect their assets at the same time


Customers can open their hearts and continue to circle their financial wagons: charitable giving, well structured, can protect wealth.

“I have several clients who have done estate tax planning and have met what they want to give their children in trust. Most of these clients [then] gravitate towards allocating the balance of their estate to charity, ”said Clay Stevens, director of strategic planning at Aspiriant.

The techniques can integrate charitable giving into a client’s estate plan while protecting the estate, but it depends a lot on the family’s wealth preservation goals, added Adrienne Hart, head of philanthropic advice at Rockefeller Capital. Management.

Effective charitable tools for preserving wealth include private foundations, Donor Advised Funds (DAFs), or shared interest trusts such as Charitable Master Trusts and Charitable Residual Trusts. The latter trusts allow clients to make donations to charities and individuals while receiving a charitable deduction for some or all of the assets contributed, Hart said.

DAFs can also work well with a strategy of “pooling” donations, grouping donations from years into a given year so that a taxpayer’s itemized deductions can be used as a standard deduction for a year. Such a strategy works well in a high income tax year where the taxpayer is in a higher marginal tax bracket.

Private foundations, often a preferred option for establishing a charitable legacy, have weaknesses. “Creating a private foundation involves creating an entity under state law and under the jurisdiction of the state attorney general, as well as rather complicated tax returns,” said Mary Kay Foss, CPA at Walnut Creek, California. “Tax forms are available for public inspection and can lead to a lot of solicitations from charities wishing to donate from the foundation. The tax deduction can also be limited with a private foundation. “

Clients who wish to donate their money only after having benefited from it face a big financial problem: no income tax deduction for the donation of assets on death.

“To the extent that the client has enjoyed assets (especially valued marketable securities), we will donate them annually to charity as long as the client can use the deduction to offset other income,” Stevens said. . “There are income limits on how much you can deduct in a year, so we want to manage that number and offer more in years where the client has a higher adjusted gross income. “

For clients who are worried about accidentally giving too much, to the point of impacting their lifestyle, “we can consider a charitable remainder trust to convert their valued assets into an annuity payment to clients over their lifetime.” Stevens added. “This is a tax-exempt entity, so it allows the liquidation of valued assets without immediate income tax.”

Donating valued assets to charity is an effective giving strategy, but clients sometimes mistakenly understand that capital gains on assets are simply deferred and ultimately passed on to the recipient, not completely eliminated. The tax treatment also differs depending on the length of time the property is held by the client. “If the valued securities are held for less than a year, only the cost of the securities is considered a charitable deduction,” Foss said.

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