Philanthropy

Incorporating Philanthropy into Your Financial Plan

Tools, techniques, and philosophies you can use today

 

Key Takeaways:

  • While corporate tax deductions for giving are limited, corporate social responsibility is on the rise.

  • Making giving into a family activity can also be helpful in preparing heirs for the responsible use of wealth.

  • Make sure your advisor understands your family’s values and goals. Philanthropy is not just about tax and estate planning.

 

Purposeful philanthropy is the art of thoughtfully, intentionally and purposefully integrating the passion, spirit, and commitment of philanthropy into the fabric of our family system. With record numbers of boomers reaching retirement age and with a new generation of younger people looking to make gifts with social impact, the landscape of philanthropy has changed dramatically.

If you are a decision-maker or influencer at your company, consider this: Corporate giving grew by 12 percent over the past year to nearly $18 billion—but represented just 0.7 percent of corporate profits. Is that really enough? What needs to change to incent corporations to share more with those in need?


Experts say corporate tax deductions for giving are limited. This is part of the reason for lower giving rates. But corporate social responsibility seems to be on the rise, and shareholder/consumer pressure is the best way to raise corporate awareness about community involvement and responsibility.

Also, experts say charities need to do a better job of addressing the ROI a corporation receives when it is a strong donor. For instance, some companies donate heavily to education in every community in which they have a presence. They do this for two reasons:

·         First, they believe a strong community and an educated workforce are good for them.

·         Second, they want to be identified as a good, responsible member of the community. They view corporate philanthropy as a way to build good will.

The impact conversation needs to happen with businesses. Philanthropy does not have to be about giving it away, but instead can really be a two-way street.

Americans as a group historically give around 2 percent of their incomes to charity. Is that likely to change pro or con as record numbers of boomers enter retirement years and a record amount of wealth will transfer into other hands over the next 15 years?


Philanthropic experts say affluent families that make giving into a regular activity are better positioned to prepare heirs for the responsible use of wealth. The family members can explore giving options and report back. This can not only teach giving wisely, it can also bring the family closer together.

Whether you are not you give at least 2-percent of your income to charitable causes, the “percentage of income” ratio can be a poor metric. Instead, measure giving as a percentage of your assets. Americans have less cash than any other asset class today, and until Americans and their financial advisors understand this, the percentage won’t change. There are many more effective ways to give that are simply underutilized.

Biggest misconceptions about philanthropy

·         First, many more people would give if they knew they right way to do so, especially from a tax-advantaged way. If you don’t have experience with planned giving and you advisor is not able to help you, see if he or she can point you to a planned giving specialist within their network.

·         Second, it’s all about tax savings and estate planning. In reality, the key to unleashing your family’s generosity and increasing its satisfaction around the impact of giving lies in understanding your most deeply held values and interests. Make sure your advisors understand those values, too.

 

Ask about smart gifts such as Charitable Remainder Trusts, Charitable Lead Trusts and Donor Advised Funds, etc.

Follow these three lessons from donors on effective giving:

1. Give with a warm hand. Donors who have the most impact and feel the greatest satisfaction are, first of all, ALIVE. They are actively, directly and personally deciding the use of their funds, matching their most compelling interests to the compelling needs of the institutions that best address causes they are [concerned] about.

2. Give with a warm heart. This, of course, is about the passion donors feel for the cause, the mission, their personal quest. It’s core DNA for them; it embodies both the soul and heart of their values. My gift is for the benefit of ________, where it is essential for each person to fill in that blank, however [he or she chooses].

3. Give with a cool head. Give smart, not just with your heart. Use your advisors and encourage them to talk to each other on your behalf. If you want your giving to achieve balance, use your smart parts. Be strategic, and understand how and why to give, not just when. Invest in your philanthropic plan. Not just with CRTs, CLTs, CGAs, insurance, all the rest that pay at death, but with a stream of more modest gifts that can start up your plan while you are alive.


Conclusion

Planned giving is one of the most impactful things you can do with your hard-earned wealth. Just make sure you do your homework about where you decide to give, how you give, and who helps you give. You and your family will be glad you did.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Incorporating Philanthropy into Your Financial Plan, Part 1

Smart giving strategies for every economic climate


Key Takeaways:

  • As record numbers of boomers approach retirement age, their focus shifts to distribution of assets rather than accumulating wealth.

  • Affluent millennials look for ways to have impact rather than just give away dollars.

  • Do your homework before you give.

  • A Donor Advised Fund (DAF) is a perfect giving tool for all economic climates. Sock away money in the good years, and give from it in the lean years.

The latest Giving USA data shows that charitable donations rose for the fifth consecutive year to nearly $360 billion—passing its pre-recession peak and likely to continue the upward trend.  Researchers indicated that another recession could hurt giving slightly, even though the number of aging boomers coming into liquidity events should offset a downturn to some extent.

As more and more boomers turn 65 every day, the focus shifts to distribution of assets rather than to thinking solely about accumulation of wealth. Giving is a function of individual capacity, which too often is a perception rather than an actual quantified ability.

Giving is not just for boomers and retirees

More and more wealthy younger people are giving generously earlier in their lives. Are millennials really more charitably inclined than boomers and Gen Xers, or are we just hearing more about the good deeds of extremely wealthy tech entrepreneurs?

Experts on philanthropy say that millennials have a more overt concern about the world around them. The problems of the world are very much “front and center” for them because of the Internet and its social media outlets. That said, millennials look for ways to have impact rather than just give away dollars.

Is charitable giving really tied to the economy and financial markets?

Many experts believe there is a tremendous linkage between levels of giving and the types of giving and investment and economic cycles. Charitable giving rises in good times, and, sadly, falls when times are tough. A study of charitable giving during recessions since 1967 found that giving during recessions dropped by slightly more than 1 percent on average, while it rose significantly during the good years. This poses a serious dilemma for charities that don’t have endowments to help cushion the drying up of charitable giving during the lean years. It also creates strategic challenges for family foundations and individual philanthropists who during the lean times see greater need in the human services arena.

We know of one family that was faced with having to reduce its commitment to environmental causes during the economic blizzard of 2008-09. As the family’s wealth and its foundation capital recovered dramatically post-crisis, they are giving even more today they did prior to 2008 to environmental causes they support.

As for good and bad years in the economy, a Donor Advised Fund (DAF) is a perfect tool. Sock away money in your good years, and give from it in the lean years. For donors approaching retirement, the same logic applies. Fund the DAF during your highly taxed working years, get the deduction then, and in your retirement years, make gifts from the DAF. For those who are more technically minded, or if you are the owner of a closely held business or commercial real estate, gifting such property to a DAF can be a smart move. Such transfers can be part of a business exit plan if you have philanthropic goals and want to become more involved in your community post-exit.

How can people of means to have a more “balanced portfolio” of giving?
The most effective philanthropy needs to be driven not by balance but by three things: head, heart and mind. And not necessarily in that order.

Giving to arts and culture has always been strong. People strongly support a wide range of causes that they’re passionate about--and there is some status assigned to supporting the arts. Giving to human services is a challenge with program effectiveness and real change. While arts received larger portions of giving, a balanced portfolio is generally not advised. Much of the giving research indicates that depth, not width, is advisable for donors. More impact can be achieved, more data evaluated by narrowing focus.

We know from the world of business how critical sustainability is to long-term success. Why should it be any different within the realm of charity? It’s imperative that philanthropists and foundations look critically at the sustainability of the organizations and projects they are funding. Failure to think “sustainably” creates a great risk charitable dollars won’t have as much impact or as lasting an impact as the giver might hope.

Purposeful philanthropy is the art of thoughtfully, intentionally and purposefully integrating the passion, spirit and commitment of philanthropy into the fabric of your family system. When you encourage each member of your family to participate in giving that honors the individual values and interests of your family members, there is an almost inevitable balancing that will occur in the grant-making and giving process.

A good next step for a donor hoping to be more strategic and impactful in giving would be exploring a Community Foundation and books such as, Inspired Legacies by Tracy Gary or Give Smart by Tierney and Fleishman.

Philanthropy is not necessarily about giving away to charities. It is about having impact. It is about the sustainability for your children and grandchildren of the world you live in. It is about the recognition that every dollar you invest is impact investing because it is impacting something.

Conclusion

In Part 2 of this series, we will discuss charitable tools, techniques and philosophies that you can use today to add value to your planned giving goals.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Can I do a Qualified Charitable Distribution from my IRA?

Charitable contributions are a common financial goal.  One of the easiest and most tax efficient ways to do this is to do a Qualified Charitable Distribution (QCD) from your IRA.  In order to do this, you must meet specific requirements which include age, dollar amount, and the type of charities you can contribute to.  Read below to see if you qualify for making a Qualified Charitable Distribution from your IRA.

Do you have a traditional IRA, inherited IRA, inherited Roth IRA, SEP IRA, or SIMPLE IRA that is subject to an RMD?

If you do not have a required RMD, you will not be eligible for a QCD.  If you do have to take an RMD from any of the IRA types listed above, move on.

Are you at least 70.5 at the time you plan to make the Qualified Charitable Distribution?

Those under 70.5 will not be eligible to make a QCD.  This means even if you have an inherited IRA subject to RMDs, the QCD may not be available to you.  If you are over age 70.5, move on.

Is the IRA actively receiving any employer contributions (SEP IRA or SIMPLE IRA)?

If you answered “yes”, you unfortunately will not be eligible for the QCD.  If you are not still receiving employer contributions, move on.

Is the recipient a private foundation or donor-advised fund?

Qualified Charitable Distributions can not be done through a private foundation or donor-advised fund.  If your intended charity is not private or donor-advised, then you will be able to make a QCD.  The amount of the QCD cannot be greater than $100,000 per year ($200,000 for married couples).

Qualified Charitable Distributions have to be done correctly, else they can have large tax consequences.  Check out this flowchart to learn more.

If you have questions regarding Qualified Charitable Distributions or other general retirement planning advice, please give us a call at 303-440-2906 or click here to schedule a time to speak with us.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Charitable Gift Annuities

It’s worth the time and effort to get up to speed on CGAs

Key Takeaways:

  • A CGA enables individuals or married couples to make a gift to a charity in exchange for an income stream that will last for the lifetime of the last survivor.

  • A CGA is a tax-advantaged way to give to worthy causes and retain predictable income. Most CGAs are in the form of cash or marketable securities, but there are many other variations.

  • The deduction is available in the year of the gift and can be carried forward for five additional years if you can’t utilize it currently.

A Charitable Gift Annuity (CGA) is a split-interest gift in which the donor makes a gift, but retains a right to an income stream. Most CGAs are very straightforward; individuals or married couples make a gift to a charity in exchange for an income stream that will last for the lifetime of the last survivor. Most gifts are made in cash or marketable securities and provide immediate income to the donor.

CGA basics

First, every state has regulations regarding CGAs issued by in-state nonprofits and often in the state of nonresident donors. The CGA is a contract between the charity and the donor, and that contract, much like a commercial annuity issued by an insurance company, becomes a general obligation of the charity. This means that all the assets of the charity are available to pay the annuity income to the donor. This alone has kept many smaller charities from offering gift annuities to their donors. However, there are now organizations such as the Charitable Giving Resource Center (CGRC) that provide turnkey gift annuity programs for small organizations. Assistance includes calculation, administration, financial stability and money management resources for organizations that are too small to handle all those responsibilities themselves.

There is a nonprofit association of organizations called the American Council on Gift Annuities (ACGA) that provides guidance on gift annuities and gift annuity rates. While charities may establish their own gift annuity rates, those that don’t utilize the ACGA rates will be required by their state to hire an independent actuary to perform the necessary calculations. The ACGA rates are meant to provide a remainder balance of 50 percent of the original gift to the charity at the death of the last survivor. This means that the charities have immediate access to some amount of the donated property that they can use for their charitable purposes.

For the donor, perhaps the greatest benefit of a CGA is the ability to make a gift to a favored organization. This should always be the first part of any conversation you have with your advisors.

Tax benefits

There are a number of economic and financial benefits as well. First, there is an income tax charitable deduction for the calculated benefit to charity. The deduction is based on the net present value of the future gift. The deduction is available in the year of the gift and can be carried forward for five additional years if the donor is not able to utilize it currently. In addition to the income tax deduction, there is a possible deferral of capital gains tax. Donors who choose to give appreciated property in exchange for their annuity will not realize the immediate gain on disposition that would normally be due upon sale. The capital gains tax will be stretched out over the lives of the income beneficiaries and paid as they receive income. In fact, one of the attractive benefits of the CGA is the nature of the income. Effectively, there is the possibility of three different tiers of income with each annuity payment:

  1. Ordinary income, which is the presumed interest rate applied to the gift.

  2. Capital gains tax based on the appreciation of the property over its cost at the time of the gift.

  3. Return of capital that is free of tax.

These factors can create a very attractive “after tax” income for some donors.

Further benefits come in the area of estate planning. Assets given to charity are normally out of the estate for estate tax purposes. And though there is a retained income, since that income ceases at death it essentially removes the gifted asset from the taxable estate. While most estates won’t face federal estate tax because of the current exemption being so high, it is important to remember that many states impose their own estate tax and impose it on far smaller estates.

Other applications and considerations

While we’ve covered the very basics of CGAs, there are many other things to know from the perspective of income flexibility and asset transfer. Most CGAs provide income that begins immediately upon the completion of the transfer of the asset to charity. However, it is possible to establish an annuity or series of annuities that will be deferred for a period of time. It is also possible to structure annuities that increase the payment amount over time. There are many reasons why you might consider these options. Planning for retirement is the first thing that comes to mind, but providing income to pay for a grandchild’s college tuition is also a common reason. The possibilities seem endless.

Although we have discussed gifts only of cash and marketable securities because they are the most common assets used, almost any other asset can be utilized. With only 10 percent of American wealth held in liquid assets, freeing up illiquid resources might make the best approach. CGAs can be created with gifts of artwork, real estate, cash-value insurance policies, distributions from qualified plans such as IRAs, closely held stock and almost any other asset you can think of. The rules that govern each of these assets vary, and advisors must become familiar with them in order to provide the most appropriate recommendations to their clients.

Conclusion

While CGAs can be remarkably simple on the surface, they encompass many disciplines and have many variations. Contact me any time to see how this powerful planning tool-and its many nuances--can help you better serve your charitable desires, as well as your estate and income planning needs.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

What Constitutes a Charitable Gift?

4 key tests

Key Takeaways:

  • Regardless of its size or its benefit to a charity, any transfer that does not meet the definition of a charitable gift for tax purposes will generate no charitable deduction.

  • Giving money to a specific person—no matter how badly he or she needs it—is not considered a charitable gift for tax purposes.

  • For tax planning purposes, make sure you know the difference between the date a check is written for a charitable gift, the date the check is sent and the date it is actually received.

 

Understanding what a charitable gift is--and when a charitable gift is made--seems obvious. However, this simple concept can become quite complex. Charitable gifts can generate income tax deductions. Applying that knowledge requires knowing what constitutes a charitable gift for tax purposes. Regardless of its size or its benefit to a charity, any transfer that does not meet the definition of a charitable gift for tax purposes will generate no charitable deduction.

So let’s begin by looking at what a charitable gift is for tax purposes and then consider examples of transfers that are not charitable gifts for tax purposes.

A deductible charitable gift occurs when the donor delivers money or valuable property to a charity or agent of the charity. That’s it. There is nothing particularly complicated about the definition (except perhaps the phrase “agent of the charity,” which simply means a representative of the charity). How then could things possibly become complicated when starting with such a simple definition?

Examples of gifts that don’t qualify for tax deductions:

  1. The first example of an action that is not a charitable gift for income tax purposes is a promise to deliver money or valuable property in the future. A promise is not a gift. Even if the promise is a legally enforceable written contract, it is still just a promise. So, it is not a gift—at least not yet. Once the promise is fulfilled and the donor actually delivers money or valuable property to the charity (or agent of the charity), then—and only then—the definition of a gift is met.

  2. Another example of an action that is not a completed gift is when a donor gives money or valuable property to the donor’s agent (i.e., the donor’s representative) with instructions to deliver the gift to a charity or an agent of the charity. Because the money or valuable property is still in the hands of the donor’s representative, it has not yet become a completed gift. Once the money or valuable property is given to the charity (or the charity’s representative/agent), then—and only then—is there a deductible charitable gift.

  3. Another example that does not qualify as a charitable gift for tax purposes is when the donor delivers money or valuable property to the charity but still retains prohibited control over the money, even after the transfer to the charity. This retained control prevents the gift from being deductible until such time as the retained interests expire or are also given to the charity. This area is a bit more complicated because there are specific retained interests that are permitted by the tax code. Nevertheless, the general rule is that if a donor retains rights to control the money or get the money back, such a transfer is not (or at least not yet) a charitable gift.

  4. The last example of a transfer that is not a deductible gift is when a donor delivers money or valuable property to a charity for delivery to a specific person. A person is not a charity. Any person, even a person in serious financial or medical need, is not a charity. Giving money to a specific person is not a charitable gift for tax purposes. This fundamental rule cannot be avoided by simply giving money to a charity with the requirement that the money must then be delivered to a specific person. Such a transfer is treated as if it were a direct transfer to the person. Since a person is not a charity, the transfer is not a deductible charitable gift.


Conclusion

As with so many things in life, timing is everything when it comes to tax-efficient charitable giving. If you or someone close to you has concerns about the tax implications of their planned giving, please don’t hesitate to reach out. I’m happy to help.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Identity Crisis

There is no one-size fits all strategy for gifting or transferring assets. Make sure your advisors know your unique needs and motivations

 

  • Before you can ask your advisors for help, take some time to think about what’s most important to you and your family about giving back.

  • Sometimes volunteering time is more fulfilling than donating money. Make sure you and your advisors are in sync when it comes to mapping out your philanthropic and life goals.

  • There is no magic formula for deciding how much to donate vs. how much to pass on to your heirs. A skilled advisor can help you set the appropriate criteria.

 

Giving time and money to causes you support is one of the most powerful freedoms that wealth provides. But, just showing up to volunteer without a plan or just writing checks when the pleas flood into your mailbox, can leave you feeling unfulfilled with a trail of missed tax-saving opportunities in your wake.

Giving can be done effectively at any age, but as Boomers age out of careers, many are finding fulfillment in giving back to their community by volunteering. Also, with children typically grown and out of the house, Boomers generally have more capacity to give. If that sounds like you, use this period to begin to convert dormant assets into planned gifts and also to help increase community involvement.

One of the key findings in the latest U. S. Trust study is that affluent Boomers want to give more than they currently do, but they need help discovering what they are passionate about. A good advisor knows how to tap into your passions and values by asking the right questions about your financial and life goals—on an ongoing basis.

No two people (or families) have the same motivation to give. It’s important that your financial advisors don’t apply a one-size-fits-all approach to your philanthropic goals.

What research says about how and why we give

Both Fidelity Charitable and U. S. Trust conducted extensive national surveys about charitable giving trends among the affluent and soon-to-be affluent. Here are just a few of the ways that successful people differ when it comes to giving back:

Fidelity found that women tend to be more committed and strategic in their giving. They tend to volunteer more time, ask more questions about the financial aspects of their gifts and generally feel that giving to charity is a very satisfying aspect of having wealth. According to Fidelity, women tend to be more spontaneous; captured by a cause, a movement, or an empathetic response.

Parsing even further, Fidelity research indicated that Millennials seemed particularly motivated to give more than just money to the causes they believe in. Why these reactions occur is not entirely understood, but industry observers see both Millennial men and women wanting to see results and to measure the impact of their giving. The younger age cohort also seems to desire hands-on experiences and involvement, more so than other groups, sometimes even leading their own efforts ala Zuckerberg/Chan of Facebook fame.

Much has been written about how Millennials are re-shaping giving and our firm works very hard to understand the different populations we serve.

Further, different gifts make sense at different ages. In fact, some younger donors may not even qualify to implement a Charitable Remainder Trust (CRT)—a common tax-advantaged way to give to charities and beneficiaries--because the trust won’t qualify under the 10 percent remainder test.

The 10-percent minimum remainder value test says that all CRTs must have a remainder value that is equal to, or greater, than 10 percent of the funding amount.  If a CRT fails the 10 percent test, it does not qualify as a charitable trust and loses all the favorable tax treatment that a qualified CRT enjoys.

In terms of giving their time, U.S. Trust found that HNW volunteers are highly motivated to respond to needs (51% agree) and by the belief that their service makes a difference (49% agree). Other important motivations include: Personal values or beliefs (39% agree), concern for a particular cause or group (32% agree), and concern for the less fortunate (28% agree). Researchers found that women were significantly more likely than men to indicate that “responding to a need” is a top motivation for volunteering

Researchers also found that women and younger individuals were significantly more likely than other cohorts to say that education was a top public policy concern of theirs and they were more likely to express confidence in a nonprofit organizations’ ability to solve societal or global problems. According to U.S. Trust, African Americans were also more likely than other groups to give to religious organizations and both women and African Americans of both genders were more likely than other groups to give to women and girls’ causes and/or organizations. U.S. Trust also found that women and younger donors were more likely to give to causes that support animals and K-12 education. Younger individuals were significantly more likely to make giving decisions independently of their partners/spouses.  Finally, younger donors were significantly more likely than other groups to donate online or through crowdfunding.


If you don’t agree with all of the generalizations about giving patterns above, that’s okay. Just make sure your advisors do NOT assume you want to give along the lines of the findings in these widely cited reports about philanthropy and volunteering.

Conclusion

If philanthropy is truly one of America’s great freedoms, then it is incumbent upon your advisors to help you best enjoy that freedom. Make sure your advisors have a deep understanding of your life goals, family values and causes you support so they can help you structure the smartest way for you to give with the maximum impact. Contact us any time if you or someone close to you has questions about planned giving or legacy building ideas.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

The Power of Giving the “Right” Assets to Charity, Part 2

Don’t overlook real estate and privately owned business interests              

Key Takeaways:

  • Cash is always appreciated, but there are better assets to give charitably.

  • Charitable gifts of appreciated marketable securities can provide dramatically enhanced tax benefits.

  • Real estate and privately owned businesses may offer the greatest overall charitable tax benefits.

In Part 1 of this article, we explored how gifts of assets other than cash—primarily appreciated marketable securities--can provide a tax advantaged way to support the causes and organizations you believe in.

While many of you are aware that you can gift appreciated marketable securities in lieu of cash, the opportunities to secure these enhanced tax benefits are too often missed. Even more frequently missed are opportunities to give real estate and privately owned business interests prior to a sale. These assets often provide even greater tax-leveraged opportunities because the income tax basis for these assets is often lower than the basis of your marketable securities. Thus, there’s a greater built-in gain that is subject to tax upon sale.

For example, real estate that has appreciated in value and that has been depreciated over time will often have a very low income tax basis. A successful business that was started from the ground up may have little to no basis. So, while publicly traded stock worth $500,000 with a basis of $250,000 would generally be considered a good asset to give to charity, a gift of real estate worth the same amount ($500,000) but with a basis of $100,000 would provide even greater tax savings and leverage.

Of course, gifts of marketable securities are significantly easier to facilitate than gifts of real estate and privately owned businesses. And the timing of a sale of marketable securities is generally much easier to control and dictate than a sale of real estate or an interest in a business. However, in the right situations, the additional tax savings and leverage are well worth the extra effort and complexity. For many families, the bulk of their wealth may be tied up in their businesses or real estate investments, and they may not have a significant marketable securities portfolio from which to gift appreciated assets. In those situations, a gift of real estate or an interest in a privately owned business may be your only leveraged opportunity for giving from non-cash assets.

Conclusion 

Charitable giving in general--and giving non-cash assets in particular--can help you mitigate your tax burden significantly while doing more to support the causes you believe in. as always, check with your advisors and the intended recipients of your philanthropy before making your generous gifts.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

The Power of Giving the “Right” Assets to Charity, Part 1

You can donate appreciated marketable securities to your favorite causes in lieu of cash —don’t miss out on the tax benefits you deserve.

Key Takeaways:

  • Cash may be the worst asset you can give charitably.

  • Charitable gifts of appreciated marketable securities can provide dramatically enhanced tax benefits.

  • Real estate and privately owned businesses may offer the greatest overall charitable tax benefits.

 

Charitable gifting of non-cash assets can be especially advantageous in high-income-tax states such as New York, Vermont, New Jersey, Oregon and California.

What is the single biggest mistake that generous and affluent people make when it comes to planning their charitable giving? Giving exclusively in the form of cash.

When it comes to charitable giving, most people think about writing a check or dropping some cash in the Salvation Army’s red kettle at Christmas. This mindset can be unfortunate—and costly. Non-cash assets can be a much better way to give.

First, there are generally enhanced tax benefits to giving certain non-cash assets such as marketable securities, real estate and privately owned business interests, thus enabling you to pay less in taxes and/or give more to your favorite charities and causes.

Second, non-cash assets are where the majority of your wealth probably resides. According to IRS statistics, of all the giving that is done in the United States each year—about $380 billion—80 percent of all giving in the U.S. is simply made in the form of cash. That means only 20 percent of gifts are made in the form of non-cash assets, much of which include tangible personal property such as clothing, appliances, books, etc. that are gifted to organizations such as the local Goodwill.

That’s a huge lost opportunity.

However, if we look at the cumulative composition of wealth owned by families, cash represents less than 10 percent. Therefore, much of the wealth comprising the other 90 percent provides excellent opportunities for charitable giving, but too often is never considered.

Why cash is not king

As mentioned earlier, cash is often the least advantageous asset to give charitably. True, you generally receive a charitable income tax deduction, which may significantly reduce your tax liability. But, certain types of appreciated non-cash assets—such as marketable securities, real estate and privately owned business interests—may provide double tax benefits by securing the same or similar charitable income tax deductions, and helping you avoid capital gains tax that would otherwise be triggered upon the sale of such assets.

A charitable gift of cash is eligible for a charitable income tax deduction against ordinary income tax rates up to 60 percent of your adjusted gross income (AGI). This can be a very significant benefit and incentive for you to give charitably. For example, you can save up to 37 percent on cash contributions to charities for federal tax purposes and may save additional taxes at the state level. In high-income-tax states, with rates as high as 13.3 percent (California), the highest-income taxpayers may be paying almost 50 percent of their income in combined federal and state taxes. In such situations, you may essentially be receiving a matching dollar-for-dollar contribution from the federal and state governments for your charitable contributions. For every dollar you give, you save as much as 50 cents in taxes.

Clearly, our federal and many state tax codes provide generous incentives and benefits to taxpayers who are generous.

However, even greater tax benefits can be secured by giving certain appreciated assets instead of cash. Consider a taxpayer in the highest federal income tax bracket (37 percent) in a state with a 5 percent income tax rate—a 42 percent total tax rate. He’s considering making a $250,000 charitable gift in support of a charity that is building a hospital in Africa. If he simply writes a check for $250,000, he’ll save $105,000 in taxes.

The power of giving marketable securities to charity

Now, instead of writing a check, suppose he selected some of his most highly appreciated stocks from a marketable securities portfolio, gave the stock to charity, and then took the cash he otherwise would have given to charity and repurchased the same stocks (or different investments if desired). If the stocks selected were originally purchased for $100,000, upon sale he would recognize $150,000 in capital gains. Taxes owed upon sale would include a federal capital gains tax of 20 percent, a state income tax of 5 percent and the Obamacare tax on net investment income of 3.8 percent for a total tax rate of 28.8 percent. On $150,000 of gain, this amounts to a tax liability of $43,200.

However, by giving the stock to charity and allowing the charity to sell the stock, the $43,200 of taxes otherwise due upon the sale would be completely avoided. He would receive the same charitable income tax deduction of $105,000 as he would have by giving cash.

So, a $250,000 cash gift would have cost him $145,000 due to the tax savings from the charitable income tax deduction, while a $250,000 gift of appreciated marketable securities would cost him only $101,800. He would save $43,200 more in taxes by simply giving stock instead of cash. The charity ends up with the exact same amount of funding, though some of you may decide to give some (or all) of this additional tax savings to charity as well—for which you will receive an additional charitable deduction. It’s important to keep in mind that gifts of non-cash assets to public charities are deductible up to 30 percent of the giver’s AGI, compared to cash, which is deductible up to 60 percent of AGI (50 percent if a giver makes a combination of both cash and non-cash assets). Of course, gifts exceeding these thresholds may be carried forward to future tax years for up to five additional years.


Conclusion

Charitable giving in general, and gifts of non-cash assets in particular, can help you mitigate your tax burden significantly while doing more to support the causes you believe in. In Part 2, we’ll explore the value of giving real estate and privately owned businesses.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Future of Charitable Planning

Key Takeaways

  • Studies show that one in four affluent people (23%) consulted with at least one advisor about charitable donations last year.

  • A confused donor is an unhappy donor.

  • Always review your goals and check with your advisors before whipping out your checkbook

 

Generally planned giving CRTs (charitable remainder trusts) and CLTs (charitable lead trusts) immediately come to mind. We seldom think about charitable giving in the context of non-charitable trusts, but according to Al W. King III, co-founder and co-CEO of South Dakota Trust Company, the amount of wealth that high-net-worth individuals own in trusts is surprising.

  • “The top 1 percent currently have 38 percent of their assets in trusts, and

  • The next 9 percent have 43 percent of their assets in trust,” observed King.

Some families intentionally incorporate charitable planning and provisions into trusts they create. You can too by:

  • Setting a target value for the trust that will be available for family members with any growth and appreciation above that amount being directed to charity

  • Supplementing distributions to family members who work for a charitable organization

  • Matching beneficiaries’ personal charitable contributions

Families are also discovering strategies to incorporate charitable goals and objectives into trusts that were initially created with no charitable intentions. This is often achieved by changing the trust’s situs (legal jurisdiction), reforming or modifying the trust, or “decanting” in states with flexible decanting statutes that allow trustees to change the terms of an otherwise irrevocable trust, which may include adding discretionary charitable beneficiaries.

Common trusts and trust strategies that are increasingly incorporating charitable goals, objectives and planning include:

  • Dynasty trusts—Because of the long-term nature of these trusts, families often desire to make provisions and provide flexibility for both family and charitable goals and objectives.

  • Existing non-charitable trusts—Irrevocable trusts can sometimes be reformed or modified to allow for distributions to charitable organizations. Depending on the applicable state law governing the trusts, it may be necessary or helpful to change the situs of a trust to a state that has more flexible trust decanting laws.

  • Purpose trusts—Some trusts are created for a specific purpose, often to care for “something” rather than for “someone.” For example, a trust may be created to care for a pet; to maintain family property such as antiques, cars, jewelry or memorabilia; or to maintain a family residence or vacation home. Once the pet dies or the property is sold or otherwise disposed of, the remaining assets might pass to charity.

  • Health and education exclusion trusts—These trusts provide support to beneficiaries over multiple generations for certain education and health-related costs. As long as distributions to cover such costs are made directly to an educational or health care institution, then gift taxes and generation-skipping transfer taxes can be avoided indefinitely. However, in order for the vehicle to qualify as a health and education exclusion trust, one or more charitable beneficiaries must have a substantial present economic interest.

Laura Peebles, former tax director of the national office of Deloitte and a consultant to Charitable Solutions, shared these nuggets of wisdom gained from nearly four decades in the charitable planning arena:

  • The donor’s charitable intent determines whether a gift is made. However, the tax benefits can influence the fulfillment of the giver’s charitable intent in terms of the asset that is ultimately given, when the asset is given, and the manner and structure through which the asset is given.

  • A confused donor is not a happy donor.

  • Some tax aspects of charitable giving don’t have good answers, some don’t have inexpensive answers and some don’t have any answers at all.

Charitable giving with retirement benefits

According to author and attorney Natalie Choate, an estate planning and retirement benefits consultant, advisors and many charitably inclined people are well-aware of the substantial tax advantages of giving retirement benefits to charity, particularly in a testamentary capacity. In addition to avoiding any estate tax liability that might otherwise apply, the charity also avoids tax on “income in respect of a decedent” that would otherwise result in the imposition of income tax on retirement benefits received by the owner’s children or other heirs.

In some cases planning charitably with retirement benefits can be quite simple; for example, if a charity is named as the sole retirement plan beneficiary. However, other planning scenarios can involve complex issues and obstacles that must be carefully navigated. For instance:

  • When there are charitable and non-charitable beneficiaries of the same plan

  • When using formula bequests in beneficiary designations

  • When leaving retirement benefits to charity through a trust or estate

  • When using disclaimer-activated gifts to charity.

 

Conclusion


A recent study by U.S. Trust and the Philanthropic Initiative found that one in four wealthy individuals (23%) consulted with at least one advisor about charitable donations in the past year. In addition, nearly 70 percent of charitable remainder trust donors reported learning about the planning vehicle from their advisors.

These trends indicate a growing opportunity for investors and their advisors to have a regular dialogue about charitable methods that meet personal planning goals. Call us at 303-440-2906 if you or someone close to you would like to incorporate a strategic and regular giving strategy into your overall financial plan.



Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Start Your Own Charity

Don’t let a lack of available charities stymie your charitable passions (and tax savings opportunities)


Key Takeaways:

  • If you are passionate about a particular cause and there is no charity that supports it, you can start your own charity.

  • Charities can be set up to support overseas causes as well.

  • Self-started charities can be especially beneficial for those planning to donate over $10,000.

 

Let’s say you are at the stage in life when you want to start giving back in a more consistent and meaningful way. The only hurdle: There is no existing charity that supports the exact causes or initiatives you feel most strongly about. In the past, you’d have to take your checkbook elsewhere.

The good news: With the right planning, you can start a charity to support exactly the causes you care most about--anywhere in the world. There are many charities that are registered in the U.S. that support overseas causes. For instance, Help for Animals India, a charity based in Seattle, was started to help the animals of India. Many alumni groups also set up nonprofit organizations to support the educational institutes at which they studied.

Having said that, while such nonprofit organizations can be formed, the ultimate use of funds is determined by the board of trustees. Under U.S. rules, a domestic charity can’t be committed to give to a particular foreign organization. It can be formed with the intention of supporting a specific organization, but the U.S. board of trustees must make an independent determination that the overseas organization in question qualifies under U.S. rules.

So what does it take for you to set up your own U.S.-based charity, and what should you look out for?


Types of organizations that qualify

According to IRS regs, an organization may qualify for exemption from U.S. federal income tax if it is organized and operated exclusively for one or more of these purposes:

  • Religious.

  • Charitable.

  • Scientific.

  • Testing for public safety.

  • Literary.

  • Educational.

  • Fostering national or international amateur sports competition.

  • The prevention of cruelty to children or animals.

Examples include:

  • Nonprofit old-age homes.

  • Parent-teacher associations.

  • Charitable hospitals or other charitable organizations.

  • Alumni associations.

  • Schools.

  • Red Cross chapters.

  • Boys’ or girls’ clubs.

  • Churches.

To qualify, the organization must be a corporation, community chest, fund, foundation or other entity with articles of association. A trust is a fund or foundation and will qualify. However, an individual or a partnership will not qualify.

Set-up process

Step 1: The basics
The basics include:

  • Identifying a cause.

  • Selecting a name and checking with the state corporation office to see whether the name is available.

  • Formulating the mission statement.

Step 2: Incorporation
You and your advisor(s) will need to draw up articles of association and bylaws. The organization must be set up under a state not-for-profit statute. Experts strongly recommend using an attorney experienced in the formation of nonprofit organizations to do this. File the articles of association with the state corporation office.

Step 3: Tax formalities
First the charity will need to get an employer identification number (EIN). This ID is similar to an individual’s Social Security number.

Then you must apply for federal and state/local tax-exempt status as a private foundation. You will also need to fill out Form 1023 or 1024, depending on the type of organization you wish to form. This is by far the toughest and most expensive part of the process. The form runs up to 26 pages with questions that require detailed answers. All the correct documents must be attached to the application to make sure the process runs smoothly.

The user fee per application is $400 for organizations with gross receipts that do not exceed $10,000 annually over a four-year period and $850 for organizations with gross receipts that exceed $10,000 annually over a four-year period.

Further, it takes about a year to be approved. The organization must figure out how to operate while waiting for approval from the IRS. Most organizations say, “IRS tax-exempt status is pending.” The donor shouldn’t claim a tax deduction until IRS status is approved. Also, the organization needs to understand the documentation rules it must follow when other people give contributions.

Conclusion

Again, the upfront time and effort might be best for those considering donating amounts upward of $10,000. There is also an ongoing commitment of time and expense to comply with annual filing requirements at both the federal and state levels. Make sure you and your advisors have all your paperwork in place before getting started. But, most who’ve gone through the process will tell you it’s worth the effort to get it right from Day One. Once you do, you can focus your energies on what you do best—funding causes you believe in, not wrestling with tax rules and regulations.

Contact us any time if you or someone close to you is thinking about taking their philanthropic game to the next level.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Teaching Kids and Young Adults about the Power of Giving; Part 2

Teaching Kids and Young Adults about the Power of Giving

You can have this discussion any time of year. Second in a series

 

Key Takeaways

  • Philanthropy can help smooth family friction is there is a common cause they all support.

  • Empower the next generation by letting them make charitable decisions on their own. It’s a very effective way of helping kids and young adults mature.

  • Even families that don’t get along well can find ways to get everyone involved in the giving process.

In Part 1, we discussed the importance of introducing children to giving and re-introducing young adults in your life to philanthropy as well. Giving not only supports worthy causes, but empowers young people to make financial decisions and helps sustain family values.

But, not all families are in sync about many things (big surprise), including the causes they support. Does that mean they shouldn’t give? Of course not.

Even if there is significant disharmony in an extended family, most will rally behind a cause with only a few outliers not participating. In those situations, it’s important to find something that is a passion for the ones who are out of the center--or who at least feel like they’re out of the center. If we can find an alternative cause while maintaining the family’s primary values and goals, it brings the family together and helps many deserving people in the process.

That’s because the children who always felt like they were on the outside, suddenly feel like they’re on the inside, and it’s helping everybody. What families should NOT do is say: “We’re just going to take a vote and the majority rules.”

When that happens, the person on the outside, or the little kids [who] are on the outside, will feel even more disenfranchised. But if somehow we can focus on something that they’re really interested in, you can bring harmony back into the family.

Three things are really important when a family rallies around philanthropy:

1.      Philanthropy, in and of itself, can help the family communicate and heal some of the old stuff that they haven’t been able to heal before.

2.      It’s okay if a family has a main philanthropic mission that not everybody agrees with.

3.      If you allow the next generation the freedom to select things that they’re interested in on their own, you’re empowering them. By letting them know that you believe in their ability to make a good decision. It’s a very effective way of helping young adults mature.

Sometimes as you get more into the “for what purpose” questions—why is it that you’re really into this?—you’ll find that they have some of the same basic targets even though they’re doing it different ways.

I was at a professional conference recently and one of the speakers was a young woman whose great-grandfather owned the patent for barbed wire? Her family had a large foundation, and each generation received a certain amount of money to give away. As you can imagine, the kids were giving a lot of money to a very liberal think tank organization and grandma was giving a lot of money to a very conservative think tank organization. That was causing friction because grandma was just negating them. But, as they started talking about their conflicting goals, both generations came to understand more about the other generation’s goals and values and why they supported the organizations they did.

Long story short, the liberal and conservative sides of the family still have their differences, but now the family foundation sponsors a debate between the two think tank organizations they support. Sometimes if you get deeper into what is behind the passion, there may be some synergy that we didn’t realize existed.

A lot of times we don’t take the time to really understand the other person’s reason, and when we understand the reason, we find it’s a similar reason that we have except the way the other person is approaching the problem is different from our approach.

Conclusion

Whether a young person in your family feels like they’re in the mainstream, or an outlier, the more you can empower them to make their own giving decisions, the more likely they are to instill those values into their own children and the generation that follows.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

 

Diversified Asset Management, Inc. - 2019 1st Quarter Newsletter

New Year's Resolution: Review Your Estate Plan

Before you ring in another New Year, you may want to take time out of your busy schedule to observe another annual ritual: a review of your estate plan. If you're like most people, you probably stuck your will and other documents in a drawer or a safe deposit box as soon as you had them drawn up-and have rarely thought about them since. But changes in your personal circumstances or other events could mean it's time for an update.

Good Riddance To The Alternative Minimum Tax

Perhaps the most despised federal levy is the alternative minimum tax, which Congress passed in 1969 to prevent the loophole- savvy ultra-wealthy from shortchanging Uncle Sam.

Over the years, AMT's reach expanded to include households with more than $200,000 in AGI (adjusted gross income) annually and two- earner couples with children in high- tax states.

Reduce Your Widow’s Tax Bill Materially Annually

This is a good time to consider converting a traditional individual retirement account into a Roth IRA. Tax rates are low but unlikely to stay that way. Here's a long- term strategy that takes advantage of the current tax policy and economic fundamentals - a tax-efficient retirement investment and avoids a new twist in the Tax Cut And Jobs Act that penalizes widows.

Giving More to Loved Ones- Tax Free

While it may be better to give than to receive, as the adage contends, both givers and receivers should be happy with the new tax law. The annual amount you can give someone tax-free has been raised to $15,000, from $14,000 in 2017.

Protect Yourself Against Spearphishing

The Russian conspiracy to meddle in the 2016 presidential campaign relied on a common scam called "spearphishing." While the history-making scam may sound sophisticated, this form of digital fraud is running rampant. Anyone using email is likely to be attacked these days. Here are some tips to protect yourself.

Sidestepping New Limits on Charitable Donations

If you think you're no longer allowed to deduct items like charitable donations on your income tax return, think again.

The new tax law doubled the standard deduction, slashing the number of Americans eligible to itemize deductions from 37 million to 16 million.

To read the full newsletter click here.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

It’s Never Too Early to Teach Kids about the Power of Giving

…..And adult children are never too old to relearn. First in a series


Key Takeaways:

  • Listening and communication are keys to successful giving.

  • Children as young as five or six can be introduced to the power of giving.

  • Philanthropy can help bring families closer together.

  • It’s okay if a family has a main philanthropic mission that not everybody agrees with.

 

The concept of “philanthropy by design” is gaining traction as charitable organizations increasingly understand that successful giving starts by tapping into the donor’s passions—not the funding needs of the organization.

Let’s talk about the next generation a little bit and how to get the kids involved. Where do you start and at what ages, and then how do you step up as they get older?

Children can start giving at any age. It doesn’t have to be formalized philanthropy. A client of ours had a child who started giving when he was five or six. The son was playing T-ball and our client, his dad, was trying to teach his son the concept of philanthropy and helping other people. He said, “I want you to think about what we can do to help someone else.”

The boy had a kid on his T-ball team who didn’t have a mitt, so he was borrowing a glove from everybody else. Our client and his son went out and bought a glove and gave it to the kid. Just that concept of helping someone else and getting the adrenaline rush of seeing the difference you’re making in somebody’s life can start really early.


Stake your kids so they can set their own charitable goals

Next, giving kids a small amount of money and letting them decide what to do with it can be very powerful and rewarding. I had another client who started this practice when his kids were about 6 and 8 years old. Each child received $500 to give away, not to spend on themselves. They had to do research on the worthy causes and they had to bring their intended organizations to the family “grant committee,” which was mom, dad, grandma and grandpa. They talked about it Christmas afternoon or the day after Christmas.

 

Children have things that they’re concerned about. One of my clients had a son who was 15 when he started talking about giving. The boy was concerned that some kids at his school couldn’t hear well and that it was affecting their grades. The teen actually created a nonprofit and went to the audiologists in town and got them to volunteer to give [hearing] exams to the affected kids. Then they hearing experts got the teen in touch with the people who sell hearing aids for school age kids.

The point is, you don’t have to wait until your kids are old enough to understand money from the standpoint of having a part-time job or having to pay for some of their own expenses like gas, movie tickets or trendy clothes. No, they don’t have to be 15, 18 or even 20 years old. You can start at a much younger age, and the earlier you start, the more they’ll start identifying things that are important to them. By the time those children reach their teens, they can be pretty serious about giving.

So, what happens when Generation Two in a family is already in their 20s or maybe even their 30s?

If they’re in their 20s and 30s, those are kind of interesting years because normally they’re just getting started with adult responsibilities like budgeting and paying rent, utilities, credit cards and other bills. It’s almost like you’re starting over with them. It’s like when they were little and you were giving them small opportunities to make a difference. But it makes it easier in terms of the family situation because there are limited resources, and so together they can make a bigger impact than they would have been able to do separately.
So, if as a group, if there are two or three siblings, they can decide together about a couple of things that they really want to make a difference on, then by pooling their money they can do something that will really make a difference rather than just give a little bit to different charities. In many ways, you use the same process with those in their 20s and 30s that you use with teens.


Conclusion
It’s never too early to teach your kids and grandkids about the power of giving and it’s never too late to remind your adult children about philanthropy. Even if their current financial situation makes it difficult to give a lot—the act of giving will make them feel better, will help those in need, and will set a great example for their own children.

By the way, you can give all year round, not just during the Holidays and before end of year tax deadlines.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

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