Charitable Giving Best Practices: Planning Makes a Difference

11.01.2017 - Gerard F. Joyce

In recognition of National Philanthropy Month, Fiduciary Trust asked our national head of trusts and estates, Gerard F. Joyce, Jr., to offer his best advice on charitable giving in 2017 and beyond.

In this Q&A, Gerry explains how taking a thoughtful approach to taxes, having honest conversations with recipients and crafting a clearly defined philanthropic goal is a win-win situation for everyone involved.

Q: How can I make the biggest impact possible with my contributions?

GERRY: People tend to approach charitable giving as a quick exercise they think about once a year. But it really requires thoughtful planning, especially if you're making larger charitable gifts, to understand what your philanthropic goals are and what you want to accomplish. I think it's more common today for people who make sizable gifts to have certain outcomes in mind, whether it’s something that changes the world, like eradicating a disease, or accomplishing a more modest goal in your community. Then we can develop a giving strategy that works for everyone—the charity, the donor and his or her heirs.

We’ve seen this approach from large benefactors like Warren Buffett and Bill Gates and now others are following in their footsteps, asking charities to spend the money within a certain period of time, donating to organizations with strong leadership and a proven track record of delivering results. People are starting to ask themselves: What am I trying to accomplish and what is my timeline? There’s no right or wrong answer here.

Plenty of family foundations are designed to continue in perpetuity, making valuable contributions to society and doing a lot of good in the world. Others have a stronger sense of urgency and want to see more immediate results. These are just two different schools of thought. And I think everybody would agree that supporting charity is admirable regardless of the path you choose.

Q. Why is it so important to have an outcome in mind?

GERRY: It gives donors confidence that their contributions are making a real difference in the world. Understanding what you’re trying to accomplish also helps answer important questions about how much to give, which charities you want to support and what assets you’ll donate. Charitable giving becomes part of the broader financial planning process.

We want to make sure we’re donating to the right charity, the right amount and the right types of assets: Giving away cash might reduce income taxes but also affect your liquidity and if you give away a significant portion of your investment assets you are going to want to rebalance your portfolio to be sure you are still on track to meet your growth and income objectives. It’s so important to plan ahead.

Q: Will the GOP’s tax reform proposal affect my charitable giving strategy?

GERRY: This is a question that is on a lot of people’s minds. In light of the tax law changes proposed in Washington, donors want to know what they should do to prepare. I think the answer is going to vary from situation to situation.

It’s important to run some projections for this year and for 2018 to understand, for example, whether or not you're subject to the Alternative Minimum Tax (AMT). The Republicans have proposed eliminating the AMT, but it can still limit your allowable deductions, especially if you are planning to make a significant gift in 2017. Right now, it looks like tax rates are going down, but there's no guarantee that will happen.

Q: With so much uncertainty about taxes, how can I develop a long-term giving plan?

GERRY: I do think it's important to look at the tax current environment and consider how it might change some time down the road. But otherwise the advice we’re giving clients on philanthropy is in line with the advice we always offer on investing: Don’t try to time tax laws. It is smart to think about what is possible or likely to happen next year and make decisions based on that understanding and how it might impact your tax deductions, but there are no guarantees in life.

The primary purpose of charitable giving is to pursue your philanthropic goals. It reflects your values and it's also a great way to get various members of your family, particularly the younger generation, involved in causes you to feel strongly about. Tax considerations are important, but they shouldn’t be the primary driver of philanthropy.

Q: Are there any specific types of giving that require extra attention?

GERRY: When we see individuals giving away personal items like artwork or collections I think we have to be very clear about the organization’s mission and what it intends to do with the item when they receive it. If you are expecting your local museum to permanently display a painting that has been in your family for decades and they don’t, that’s going to be a big disappointment.

Families have emotional attachments to these items–they are part of the family’s heritage, reflecting their personal values and sense of identity. So we always open up these lines of communication between our clients and the institution as early as possible.

Really what it comes down to is making sure you and the organization have the same expectations. For example, if you are donating to a university it may be possible to earmark certain funds for a specific type of activity or a certain department, but only if the contribution is sizeable and the terms of the donation are clearly agreed upon in advance. Every situation is unique, but some universities are looking for donations of $1 million or more before they direct funds to a specific program. At Fiduciary Trust, we help our clients understand exactly what their gift means to an organization and how it will be used.

Q: I write a check to the same charity every year. Why would I need a charitable giving plan?

GERRY: You can always make an outright gift of cash or highly appreciated securities to a charity, but there are also a number of tax-advantaged giving vehicles that may be more effective for you, your heirs and the charity itself. This is where charitable planning can really make a difference.

For example, you might consider a Donor Advised Fund, Charitable Trust or a family foundation, depending on how much control you want over your donations and how much time and effort you are willing to commit. Donor Advised Funds are relatively simple and inexpensive, but the influence you have over choosing grant recipients is limited, while a private foundation typically carries higher administrative costs but gives your family control of the grantmaking process.

And you don’t have to make these decisions immediately. We work with quite a few individuals and families who started making outright charitable contributions once a year and gradually worked these vehicles into their long-term financial plans.

Q: Do you have any parting thoughts about charitable giving?

GERRY: Just one. It almost goes without saying, but the need for philanthropy has always been greater than the amount of money people can actually give away. And I think it probably always will be. So it really is important to do it thoughtfully.

For more information about tax-efficient charitable giving, please contact your Fiduciary Trust representative or call us at 877-384-1111.

This communication is intended solely to provide general information. The information and opinions stated are as of November, 2017, and may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process.Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor


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