“Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.”
That’s a quote from the late James Frick, a famous fundraiser and former vice president at the University of Notre Dame. He knew from experience that a good indicator of a person’s priorities is where they spend their money.
As an executive, you likely have strong priorities and moral obligations. However, you don’t always have time to manage your wealth closely enough to ensure that those priorities are upheld through involvement in your favorite charities. Smart legacy wealth management strategies, however, can help ensure that your priorities are evident through your charitable gifting. With the help of an executive financial advisor, you can effectively implement these strategies to create a legacy of giving. Let’s look at some of them in more detail.
Donate Low Cost Basis Stock
One of my first recommended legacy wealth management strategies is to donate low cost basis stock to the charity of your choice. This is stock you purchased at a much lower price than the current market value.
This method can be especially useful for executives who hold onto company stock for years. Typically, your company will grow in size and stock value, leaving you with a potentially large capital gains tax bill when you sell the stock. Many of the executives I work with don’t have a need for the extra income from selling the stock, so donating it to charity can be a great option to offset the potential tax burden it presents.
In this instance, you can actually donate the stock directly to the charity and allow the charity to sell the stock. This offers a few benefits:
- It eliminates the need for you to sell the stock yourself.
- It removes the taxable burden off of your shoulders.
- It allows you to effectively give more to the charity than if you were to sell the stock, withhold the tax on the income, and donate the remaining money.
To do this, you just need to transfer the stock into the charity’s name. Because every executive has a unique financial situation and holds different stock, it is best to work with a trusted financial advisor in executing this strategy.
By donating stock directly, you can give to multiple charities in a year by simply titling a certain amount of shares to each charity of your choice. At the end of the year, all of the organizations you’ve donated to will send you a report of all of your donations, which you can then give to your preferred tax professional. This strategy is a good one for executives whether they would like to give to one or many charities throughout the year.
Use a Donor-Advised Fund
Another legacy wealth management strategy I recommend is establishing a donor-advised fund (DAF). Your DAF can be set up with the help of a trusted wealth manager and acts as a holding tank for funds you would like to donate to charity. From the fund, you’re able to guide where the monetary donations are sent and turn on automatic withdrawal features to donate over the long term.
As long as the charity you wish to donate to is recognized as a non-profit organization (501c3), it is eligible to receive funds from your DAF. This allows you to donate to multiple organizations but only file one reporting form on your taxes. Also, the money you contribute to a DAF is tax deductible as a charitable contribution in the year it was deposited, even if you haven’t actually donated the money yet.
The downside to the DAF is that there are some administrative charges and fees associated with the account, so the charities may receive slightly less due to these fees.
Still, a DAF can be an excellent legacy wealth management strategy for executives who know they want to donate to charity but aren’t fully committed to specific organizations. It’s also a good solution for executives looking to allocate funds to multiple charities or allow their funds to accumulate before donating them. Finally, a DAF can be established by an individual, family, business, or other entity, allowing you to start a tradition of philanthropy that lives on through generations.
Donate Your Required Minimum Distributions
A third legacy wealth management strategy to consider is donating your required minimum distributions (RMDs). When you contribute to a qualified retirement account, such as a 401(k) or an IRA, the money being saved is allowed to grow tax-deferred until you turn 70½. At that point, you are required to withdraw a certain percentage of these qualified funds, called RMDs, or you incur a penalty. As the RMDs come out of your qualified account, you are required to pay income tax on the distribution at your current income tax bracket level.
However, what if you don’t need the extra income? You can use those RMDs as a qualified charitable distribution (QCD).
A QCD is taken from your qualified account (or multiple qualified accounts) and distributed directly to the charity or charities of your choice. When you turn an RMD into a QCD, you are effectively offsetting the income that you would otherwise be paying income tax on and redirecting your unneeded retirement funds to a cause you believe in.
One of the biggest benefits of using a QCD strategy is that it is not reported as a deduction, which means that it does not count against your charitable gifting limits. This allows you to implement other charitable gifting strategies (like the ones listed above) in addition to the QCD strategy. If executed well, a QCD approach can integrate seamlessly into your ongoing charitable gifting plan.
Your priorities are evident in the way in which you manage your assets—both time and money. Having worked with top-level executives for decades, I understand that strategy can be the most limiting factor when it comes to charitable gifting. These legacy wealth management strategies, however, can help leverage the assets you currently hold and ensure you’re supporting the causes you care most about. Working with an executive financial advisor, these strategies can help you leave a legacy of giving, and empower you and your family to give even more generously and potentially offset taxation for years to come.
K. Wade Carpenter, CFP®, AIF®, ChFC®, CLU®, is an innovative wealth manager serving corporate executives and entrepreneurs from coast to coast. Throughout his more than 25-year career, Wade’s focus on C-level clients has made him a top strategist for integrated asset allocation and equity compensation management. He also can provide expert guidance on legacy wealth management strategies. For more information on how Wade and the Carpenter Team can help you reach your financial goals, reach out today for a complimentary consultation.
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