Gift-giving is top of mind during the holiday season—from perfect stocking stuffers to “wow” presents nestled beneath the tree. It’s also a time when many families thoughtfully consider how to make a long-term impact through charitable giving and legacy planning. We consulted the experts at Argent Trust Company for advice on leveraging tools like charitable lead trusts, donor-advised funds, and gifting appreciated assets to maximize the impact of strategic giving.
With the right strategy, holiday gifts can truly last a lifetime—and beyond.
How can families involve their children in estate planning during the holidays?
The holidays provide an excellent opportunity, when families are typically together, to sit down and discuss intentions and ideas around money. Every situation is unique: for some senior family members, charitable gifting is of key importance after their death; for others, it’s about providing financial security for some or all family members; and for others, it’s focused on generational wealth transfer and protecting assets for spendthrifts, those with special needs, or addiction issues. The wonderful thing about trusts is that grantors can use them as blank canvases to outline their wishes, providing for future generations while also establishing guardrails to ensure funds are not squandered.
Is the end of the year the best time for charitable giving?
Imagine the budgeting challenges of a scenario where 2/3 of one's income (from work or investments) was paid in November and December annually. Giving throughout the year can really benefit a charity's cash flow.
What should we know about gifting appreciated assets?
Whether it's during the holiday season or any other time of the year, the tax benefit is the same. If your securities have appreciated since you purchased them, you will incur capital gains if you sell them. By donating appreciated assets directly to a charitable organization, you will avoid paying taxes on the gains due if you sold the assets and donated the proceeds from the sale. Additionally, you can take a charitable deduction for the asset's fair market value on the day of your donation.
What are the advantages of making charitable donations directly from an IRA or retirement account?
For retired individuals or couples with money in traditional IRAs, making charitable donations directly from their retirement accounts is not just a good option; it's also a convenient one. Using a qualified charitable distribution, an investor aged 70 and a half or older can give up to $100,000 a year to a 501(c)(3) charitable organization directly from their IRA. If the investor is over 72 years of age and required to take required minimum distributions (RMDs) from their IRA, a qualified charitable distribution from the IRA can fulfill the annual RMD requirement. The distribution is not considered part of the investor's adjusted gross income for tax purposes when the distribution goes directly to the charity of the donor's choice. Thus, the RMD is satisfied and no taxes are due.
What are some considerations for families trying to determine what is “fair” asset distribution?
Each family unit is as unique as the activity that generates its wealth. Consider the following real-life scenario:
A couple has three children: one is a self-made multimillionaire, one is a minister, and one is an adult with special needs and limited earning abilities. In determining how to divide wealth “fairly,” some would say the answer is simple: all children receive assets in equal amounts, whether in trust or given outright. For others, the decision is more complicated. Consider:
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Giving money outright to the self-made millionaire might increase their taxable estate and cause significantly larger estate taxes.
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Giving money outright to the minister would allow his family to have a more comfortable lifestyle without the stress of fewer resources for college funding, retirement planning, etc.
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For the child with special needs, a Special Needs Trust is often the best choice. This trust can offer the flexibility to provide additional support for the child while still allowing them to qualify for governmental programs, providing a sense of security and hope for their future.
What is a charitable lead trust?
A charitable lead trust is an irrevocable trust that, under the terms of the trust document, distributes assets (gifted to the trust) at a specified rate to named charities for a specified number of years. At the end of the term, the assets return to the grantor or the named remainder beneficiaries (i.e., heirs or children of the grantor).
The trustee of the charitable lead trust receives the gifted property, which could be cash, marketable securities, closely held business interest, or another asset. The gift is irrevocable as the donor is no longer in control of the assets or disposition of the asset.
What are the benefits of a charitable lead trust?
One of the key appeals of a charitable lead trust is that the donor can receive deductions on certain taxes. The lower the federal interest rate, the lower the 7520 rate – and the greater the potential tax savings, which could be either current income tax or future gift or estate tax.
Additionally, because of the way it is structured, a charitable lead trust can be an ideal solution to support for an extended period of time the charities that are near and dear to your heart – and still provide for your heirs and loved ones at a later date. And, if managed prudently, the value of the remaining assets could be worth more than what was initially contributed.
A donor-advised fund can also be used in combination with a charitable lead trust. The donor can specify that the donor-advised fund is the charitable beneficiary, which allows the donor to have input over the funds during and after the term of the charitable lead trust.
Tell us more about donor-advised funds…
Charitably minded investors can open and fund a donor-advised fund with cash or other assets and then later decide when the money will be distributed and to which charities. Although the donor relinquishes control of the funds permanently, they receive a tax deduction for the gift immediately, even if they haven't chosen a recipient yet. A useful strategy in some circumstances is to place multiple years of future charitable contributions in a DAF in one calendar year in order to optimize the tax benefit of deducting charitable contributions.