Charitable giving

The Generous Business

How you can use your business as an engine for generosity

Key Takeaways:

  • Giving interest in a business may enable owners to double their current cash giving, while dramatically reducing their tax liability.

  • Most business owners are not aware they can give a portion of their business to charity.

  • Giving an interest in a business generally has no adverse impact on the owners’ lifestyle, cash flow or capitalization of their business.

  

Hundreds of successful business owners throughout the country are discovering unique ways to use their businesses as engines for generosity. Take the Kuipers, for example.

Bill and Katrina Kuiper own and operate a pharmaceutical distribution company. The company produced about $1 million of net profit last year and was recently valued at $10 million. The business has grown by double digits from its inception 12 years ago, and it’s expected that the company’s performance will continue for the foreseeable future.

The Kuipers are a generous family that gives approximately $100,000 annually to various charities. In addition to supporting their local church, they are actively involved in local charities that support their city’s homeless community, and they have a deep passion for combating human rights abuses globally—especially human trafficking. They also give very generously of their time.

Considering their healthy annual income, Bill and Katrina live a relatively modest lifestyle. They live exclusively on the $200,000 salary that Bill receives from the company. Because of the high growth prospects the business has enjoyed from its inception, Bill has always reinvested most of his profits in the business. However, reinvestment has limited the Kuipers’ capacity for charitable giving. They would love to give more, but they simply lack the available cash resources with which to do so. Or so they thought.

Make charitable intentions go further

A savvy advisor recently shared a strategy with the Kuipers that allows them to increase their annual giving dramatically, even doubling their current cash giving, by using their most valuable financial asset—their business.

The Kuipers’ learned that they could gift a relatively small interest in their business each year to secure the maximum charitable deduction allowed under existing tax rules. Taxpayers may generally deduct up to 50 percent of their income each year through charitable contributions. If a gift is made in the form of a noncash asset such as a business or real estate, the charitable deduction is limited to 30 percent of income.

So the Kuipers’ decided to make a charitable gift of an interest in their business equal to $300,000, 30 percent of their business’s $1 million income. Based on the value of their business, this represented a gift of a 3 percent interest ($10 million divided by $300,000).

The gift was intentionally made to a donor-advised fund for two primary reasons:

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1. Because a donor-advised fund is classified as a public charity under the tax rules, Bill and Katrina receive a full fair-market-value deduction for their gift. Had they made a gift to a private foundation, their deduction would have been limited to their income tax basis in the business—which is quite low in comparison to the value of the business.

2. The donor-advised fund provides a mechanism allowing the Kuipers to make a single charitable gift but ultimately support numerous charities, as the donor-advised fund is merely a conduit to the end charities that the Kuipers support. Once the donor-advised fund receives cash—either from annual distributions of income from the business or proceeds from an eventual sale of the business—Bill and Katrina can then grant that cash from their donor-advised fund to any number of charities that they recommend.

Because Bill and Katrina are in the highest marginal tax bracket (45.6 percent combined federal and state), their gift provided a $300,000 charitable deduction saving $136,800 in taxes. The business interest gift increased their total annual giving from 10 percent to 40 percent of their income.

However, the Kuipers had an additional 10 percent of income that could still be offset by charitable contributions. Their advisor suggested they take a portion of the income tax savings that they had just realized from the business interest gift and make an additional cash gift that would be sufficient to use their remaining 10 percent deduction capacity. So Bill and Katrina made an additional cash gift of $100,000 from the $136,800 of tax savings. The additional cash gift also provided a charitable deduction, saving $45,600 more in taxes and taking their total giving to the maximum deductible amount, 50 percent of income.

The giving strategy described above had no adverse impact on Bill and Katrina’s lifestyle or on the capitalization and cash flow needs of their business. In fact, their cash flow actually increased due to the tax savings they realized. Despite the fact that the Kuipers gave $100,000 of the tax savings to charity, at the end of the day they still had $82,400 of additional cash flow from making these gifts—$36,800 after $100,000 of the initial tax savings from the business gift was made in the form of cash, plus $45,600 in tax savings from the subsequent cash gift.

Combining a vacation and mission

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Most of the $82,400 of increased cash flow was reinvested in their business. However, they did use a portion of it to fund a two-week combined vacation and mission trip to Africa that had an unexpected, transformational impact on their lives. In addition to experiencing the beautiful sights and sounds of Africa, including an unforgettable safari, they had a unique opportunity to meet their ”adopted“ daughter, 9-year-old Christina, whom they’ve supported for years through a child sponsorship program with an international charity that combats child poverty. The Kuipers’ trip marked the first time in over 12 years that Bill had taken a full two-week reprieve from the demands of running a successful business.

Bill and Katrina are planning to continue this pattern of giving each year. Another benefit of this strategy is that their wealth, as represented by their business, will actually increase over time. That’s despite giving additional gifts in their business. Because their business is growing at double digits each year, and because they are gifting an interest in their business of only 3 percent each year, the value of their retained ownership continues to increase. At the same time, the Kuiper’s charitable giving has increased dramatically, to 50 percent from 10 percent of their income.

Conclusion

The Kuipers’ greatest joy comes from witnessing the lives that are touched and transformed by the charities with which they partner. The business-interest strategy they’ve implemented has enabled them literally to double their support for their charitable endeavors. That’s because their current cash giving has correspondingly doubled as a result of giving a portion of the tax savings generated from their business-interest gift. The Kuipers are also excited about the fact that at some point in the future, when their business is sold or liquidated, very significant additional assets will be available to support the charities they care about. This is a result they had never imagined possible until a creative advisor shared with them how their business could be a powerful engine for greater impact and generosity.

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.

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.

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.

Elite Wealth Planning

What it is and why it matters

Elite wealth planning often plays a key role in the lives of today’s highly successful individuals and families—as well as those who are on the path toward great financial success.

 With that in mind, here’s a closer look at just what elite wealth planning is—how it works and how it can potentially have a powerful impact on your life as you seek to build, preserve and protect your wealth.

The key elements of elite wealth planning

Before we can see what makes elite wealth planning so special, it’s important to understand the various planning strategies that make up the core of most elite wealth planning efforts.

Click here to read more:

Elite Wealth Planning

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.

Life Never Stops Changing

Neither do your giving and financial decisions


Key Takeaways

  • The most impactful gifts are often the result of personal tragedy or triumph.

  • We spend so much of our lives in the wealth accumulation phase that it’s easy to forget the positive impact that our money can have on others.

  • An astute advisor not only helps you optimize your investments, cash flow and wealth protection, but your legacy as well.

Meetings with your financial advisors bring to mind thoughts of balance sheets, net worth statements, stock options, investments, insurance policies and employee benefits. While these documents tell your various advisors what you have, they don’t tell them who you are, what you want or what truly motivates you.

I’ve learned over the years that after gaining a client’s trust, and after carefully opening the door to their personal side, we find out what truly makes them tick and what shapes the lens from which they see the world.

Often we come across tremendous stories of tragedy and triumph (or both). These are pivotal moments in an individual’s background – typically turning into a focus for future action. And sometimes that action is philanthropic – one that highlights the triumph or attempts to solve the problem that caused the tragedy.

For instance, a daughter’s death at the hands of a drunk driver left a family with such a need for a voice that Mothers Against Drunk Driving (M.A.D.D.) was brought into existence. Today, M.A.D.D. is the largest advocacy group in the country focused on preventing individuals from driving while intoxicated – its existence motivated by a heartbreaking loss.

Everyone deals and reacts to adversity in their own way – we must understand and accept that.

While tragedy is one side of the equation, there are also triumphs to celebrate – easier to discuss and just as big a motivation. Many years ago I worked with an extremely wealthy individual who kept telling me that he wasn’t charitable and that he didn’t really care about much of anything. He went on at length about how he was “self-made” and had come from nothing.

It wasn’t until when he revealed that he’d been raised in an orphanage that I realized how critical the orphanage had been to his upbringing and success. Today, that orphanage is endowed by a large gift by my client. It not only represents his personal victory, but an acknowledgment to the people who helped him triumph over his circumstances.

For some, it may be a coach, teacher or program that launches a successful athletic or academic career. It may be the person who helped you discover that you were good at math or the person who took the time to elicit your musical genius when no one else could see it. By doing so, we may discover a desire to make a gift, to return the favor, to pay it forward.

Life Never Stops Changing

Change is an inevitable part of life. We start new jobs, we send kids off to college, we lose a parent or gain a grandchild. Change can be daunting – but viewed through a different lens, it presents opportunity to raise the important questions about philanthropy.

In many circumstances, philanthropy can be the best solution to the change that’s taking place – if only we think to ask our advisors how.

Let’s look at some major life changes and see where you and your advisor might discuss gift opportunities at the appropriate time.

Suppose you are approaching retirement. Let’s assume you are the major breadwinner of your household and you are also hoping to downsize. As ordinary income (your paycheck) ceases, the desire to convert dormant or low yielding assets into supplemental income normally increases. This may be an opportunity to reposition low-basis assets into a pooled income fund (PIF), a charitable remainder trust (CRT) or even a gift annuity. Furthermore, the downsizing might free up additional capital with which to consider similar split interest gifts.

The birth of a grandchild may inspire a fund for college education. You can go the traditional 529 route or consider certain types of CRTs that turn into income in 18 years.

Widowhood is another significant life change that triggers emotional and financial upheaval, and often changes to family dynamics. If your late spouse was the main financial decision maker in your relationship, you may feel lost and frightened about the future. Perhaps the best solution is simplification and consolidation – taking multiple accounts and creating one large gift annuity, charitable trust or pooled income fund that delivers quarterly income. You should also examine gifts such as life estate agreements – which relieve the children of dealing with a house they usually don’t want anyway.

A serious illness is another major life change that brings a host of emotional and financial worries. But as you and your family delve into researching your loved one’s illness and treatment options, it can also motivate giving to support further research into curing or ameliorating that illness or disease.

Change is everywhere and change is constant. While some changes go unnoticed, others represent a prime turning point in our lives. We spend so much of our lives in the wealth accumulation phase that we sometimes forget the power our wealth can have to make lives better for others.

Conclusion

Just as an astute advisor can help you optimize your investments, cash flow and wealth protection strategies, he or she can also help you optimize the power of your giving.

All you have to do is email us or give us a call.

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.

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.

You Love Your Collection

Have you done the tax, estate and charitable math?

                                                                                                      
Key Takeaways

  • Collectibles are considered “tangible personal property” and are, therefore, taxed differently than other capital assets.

  • For collectibles, the long-term capital gains tax is at 28 percent (not 20 percent) as it is for stocks or real estate.

  • Gifting collectibles to charity requires a qualified appraisal and the recipients must be used for its charitable purposes. If not, you’ll have to take a less valuable deduction.

 

It is estimated that 30-percent of high net worth families collect art, antiques, coins, classic cars or other valuable assets that aren’t traded on an open exchange. Often referred to as passionate assets, they represent both a challenge and an opportunity for advisors and their clients.

Many enthusiasts don’t think of their collectables as they do their other assets – collectibles are loved, cherished, and coveted. They hold a meaning and identity that is incomparable to their economic value.

If you’ve ever been to a classic car show and stayed less than an hour, you did it wrong – to put it bluntly. Ask an owner about their gleaming, perfect specimen of a 1940 Duesenberg and you’ll get a detailed rundown of its history from the factory floor to present day, sparing no details in between. This is true for most collectors – be it toy trains, fine art or baseball cards.

That visceral connection is what makes planning for the “succession” of the collection so challenging. Yet, plan they must. Is the next generation even interested in the collection? Better find out. Who owns the collection? Better find that out, too. It’s the planner’s chance to make a huge difference in the final value to the family.

Tax considerations

VERY IMPORTANT: Collectibles are considered “tangible personal property” and are, therefore, taxed differently than other capital assets are. For collectibles, the long-term capital gains tax is at 28 percent, not 20 percent, like it is for stocks or real estate – that’s a significant bump. Furthermore, gifting your collectibles to charity gets complicated because you need a qualified appraisal of the collectible at the time of the gift. Further, the charity must be able to use the gift for its charitable purpose in order for the deduction to be at fair market value instead of the less valuable cost basis.

Proper planning can address these issues and you need to make sure your advisor can assist you properly, or have access to an expert specializing in this area. Keeping the collection in the family can be accomplished only with solid planning – as well as preventing a fire sale to create liquidity to pay estate taxes at the death of the collector.

What matters is aligning your goals for their collectibles with the tools and strategies that will accomplish them.

Make sure your advisors can help you with questions like these:

  • Do we use a pooled income fund to sell of the collection little by little?

  • Do we transfer to a private operating foundation and endow it with capital to keep the collection in the family?

  • Do we utilize monetized installment sales to defer capital gains tax for 30 years as we liquidate?

Any or all of these strategies may be applicable to your situation. If he or she hasn’t done so already, make sure you open the dialogue with your advisor(s) about your valuable collections.


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.

Eye on Money January/February 2019

We invite you to check out the new issue of Eye On Money! Inside are articles on:

Giving smarter. This article explores ways to make the most of your charitable contributions.

Why knowing your net worth is important. Plus, we’ll show you how to calculate it.

How to save more money this year. These tips can help you save more money, cut your expenses, and make smart choices about the types of accounts you use.

The child tax credit. This tax credit has been revamped and can now be claimed by many higher-income families with young children. Here are a few things to know about it.

Also in this issue, you can check out the differences between Treasury bonds, notes, and bills, learn how to improve your credit score, and make a note of key financial dates for the first few months of 2019. Plus, you can decide whether to add St Anton and the rest of Austria’s Arlberg Ski Region to your skiing bucket list, learn which national parks shine in winter, and test your knowledge of best-selling novels.

Click here to read more:

Eye on Money January/ February 2019

Please let us know if you have questions about anything in Eye On Money.

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.