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Recent Commentary
Visual Planned Giving - Chapter 2 - A Super Simple Introduction to Taxes
In the second chapter of Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, author Russell James gives a basic introduction to federal income taxes. Mr. James starts by breaking down the two largest forms of income tax, ordinary income and capital gains. As a taxpayer's income rises, so does their effective tax rate. Charitable income tax deductions reduce the amount of money subject to tax, and thus these deductions are more valuable to taxpayers with higher incomes.
Charitable income tax deductions are an itemized deduction, and so taxpayers who take the standard deduction cannot take advantage of it. Still, itemizers can benefit from planned giving by deferring recognition of income taxes.
A separate tax system applies to capital gains on the sale of investments. Capital gain consists of the sale price minus "basis." In general, basis is your cost of acquiring the property, less any allowance for depreciation or amortization. Taxpayers who hold stocks which have risen in value, or developed real estate, for which they have taken depreciation deductions, can face significant capital gains taxes if they sell. Donations of appreciated property provide very attractive tax benefits. The donor avoids paying the capital gains taxes which would have accrued if they sold the property. Furthermore, they can often receive a tax deduction based on the asset's fair market value. When the charity sells the property, it won't pay taxes. In short, a gift of appreciated property results in a much more significant gift than if the taxpayer sold the property, then donated the proceeds to charity.
Mr. James has created a set of 65 videos for his "Complete Charitable Planning Training Series," to help his readers understand Chapter 2 and the entire book.
Sale of a Business
Visual Planned Giving - Chapter 1 - Introduction: The Secret to Understanding Planned Giving
Russell James is truly a bright light in the charitable world. Not only is he a leading researcher and thinker in the area of charitable giving, but he is one of the most generous. He repeatedly offers the fruits of his efforts to our industry, for free. We are honored to present his book, Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, to our readers.
In his first chapter, Russell emphasizes the complexity of planned giving. He identifies multiple issues that contribute to this complexity, including several different tax regimes, state law, federal law, appraisals, business entities, arcane documentation requirements, and more. However, at its core, planned giving can do two things; it can lower taxes and trade a gift for income. Financial advisors and fundraisers should keep these basic principles in mind when considering what planned giving can accomplish.
Due to the plethora of possibilities for trading a gift for income, the issues quickly become cluttered. A donor seeking to reduce taxes and/or trade a gift for income could utilize a CGA, CRUT, CRAT, Flip-CRUT, NIMCRUT, NICRUT, or PIF. However, the core concepts remain the same. Each one of these vehicles allows a donor to lower taxes and trade a gift for income. The advisor or fundraiser should view these structures as options available to meet the donor's needs. In addition to meeting donors' income needs, planned giving can lower taxes. Lower taxes benefit the client since gifts are cheaper; the advisor, because it provides value to the client while maximizing the assets under management; and charity, because it makes large gifts more affordable.
Fundraisers should have a basic understanding of these gift vehicles. This may seem counterintuitive since outright, cash gifts provide instant value to the charity, while the charity may have to wait many years to fully realize the donor's gift in a planned giving arrangement. However, only a small portion of a donor's assets consists of cash. Fundraisers who shun the complexities of planned giving in favor of cash gifts are asking for money out of the smallest bucket since only a small fraction of assets consist of cash.
Planned giving is also an important tool for the financial advisor. Understanding these issues may help the financial advisor attract high net-worth clients since those clients tend to do the most charitable giving. A variety of planning techniques, such as family foundations, donor advised funds, and CRTs, allow the advisor to continue to manage the funds. Moreover, because these entities are not subject to tax, the advisor has more assets under management than if the donor sold the asset and reinvested the cash.
Mr. James has created a set of 65 videos for his "Complete Charitable Planning Training Series" to help his readers understand Chapter 1 and the entire book.
Convenient Giving-
Naming a DAF as the remainder beneficiary of a CRT gives the donor flexibility.