Your Charitable Gift: What is the Best Method for You

Many people assume that the hardest art of making a charitable gift is determining which worthy charity to donate.  While this may be true, many people often overlook or don’t fully investigate the method in which they make their contribution.   Here are a few giving methods and a bit about them for you to consider before making your next charitable contribution:

  • Giving Cash:  Giving cash is the typical method in which most individuals and families donate to charities.  It is simple and straightforward.  You write a check to the charity of your choosing and the charity accepts your check and puts your donation to work for their good cause. 

When donating cash to a public charity you will want to obtain a 501c3 determination letter from the charity, prior to your gift.  This letter shows that they are in good standing with the IRS and that they are still considered a “tax-exempt” organization.  Meaning, you will be able to deduct your gift up to 50% of your adjusted gross income (AGI) on your taxes. 

  • Giving Appreciated Assets: Making a donation of an appreciated piece of property or asset works fairly similar to giving cash.  However, there are a few additional steps.  You will still want to request a copy of the determination letter for your records. 

Next, you will want to identify which appreciated asset you would like to give.  Many people give appreciated stock to charities.  So, it is easy for the charity to liquidate the stock and use as it would a cash donation.  If you are planning to donate a piece of art or some other asset that may not have a market where it is easily sold, you should first contact the charity to discuss the item you wish to donate.  

Also, when gifting an appreciated asset (sometimes called gifts of capital gains) you will only be able to deduct your donation up to 30% of your adjusted gross income (AGI). 

  • Donor Advised Fund: Often requesting and collecting all the 501c3 determination letters and saving all the records of the donation are a hassle when it comes time to file taxes.   In some cases, donations that would otherwise be eligible for deductions are overlooked because they were small and the donor kept no record of the gift.  Many people find using a donor advised fund can reduce many of the headaches that can be associated with the recordkeeping of charitable donations. 

A donor advised fund is an account that is established where you could make as few as one or as many contributions you like during a given year.  The donor advised fund itself qualifies as a tax-exempt organization.  Therefore, your gift is immediately tax deductible.  You can choose to fund your account with a lump sum or you can make contributions throughout the year. 

After you have funded your account you can make one of three decisions.  One, you can grant your donation to a charity or charities of your choosing.   Two, you can invest your contribution and allow it to grow for future grants to charities.  Lastly, you can decide on a combination of the two, taking a portion and granting it to a charity and leaving a portion to grow.  One important note, just as your gift to charities are irrevocable so is your gift into your donor advised fund. 

The donor advised fund will do all the work of ensuring the charity you are making a grant to is in good tax-exempt standing with the IRS and will send a check on your behalf to your chosen charity.  The fund itself will also keep a record of the grants you have made so that you can easily see where you are gifting your funds. 

Additionally, many people also like the option given with a donor advised fund of granting anonymously.  If someone wants to gift to a charity but doesn’t want to be recognized for the gift or if they want to avoid being placed on a mailing list the anonymous granting options is ideal.

  • Charitable Gift Annuity:  Charitable Gift Annuities (GCAs) are a bit more complex and require more planning.  However, they are great way to grow your donation to a charity.  A charitable gift annuity, works like an annuity, where the charity itself will serve as the management company and any profits the investment earns will go to the charity.  This allows the donor to receive an income tax deduction as well as a portion of the donation back through annuity payments.   Additionally, the donor can still take a deduction for the donation amount equal to the present value of the charity’s “remainder interest” of the donation over the present value of the annuity. 

Before starting a charitable gift annuity, you should consider both the positives and negatives of this type of investment. 

One of the downsides is that creating a charitable gift annuity will tie up a large portion of your funds and it can be very costly to terminate outside of the set term for the annuity.  Be sure you will not need any of the funds you are putting into this type of investment. 

Also, if the charity you have chosen becomes insolvent and files bankruptcy the charitable gift annuity will terminate.  So you should fully research any charitable organization you are considering making this type of arrangement with to be sure it is financially stable.

  • Charitable Remainder Trust: Another way to grow charitable donations through investments is using a Charitable Remainder Trust (CRTs).  Charitable Remainder Trust are trusts that are set up for the donor to gift assets through an initial donation to the trust.  The trust then will make annual distributions to a beneficiary (typically the donor/ grantor) and gives the remainder of the trust to the chosen charity.  Charitable Remainder Trusts work differently than the charitable gift annuity because they make the donation to the charity at the end of the term.  Therefore, Charitable Remainder Trust offer more security than the charitable gift annuity would. 

One requirement that should be considered when discussing charitable remainder trusts is that the trust will be required to distribute between 5% and 50% annually to the beneficiary.

Charitable Remainder Trust have several tax benefits due to the income tax deduction as well as the trust itself will not be taxed for income.  However, the beneficiary (who is receiving the annual distributions) will be taxed on any income distributed. 

Additionally, Charitable Remainder Trust are attractive when creating more involved estate plans as a method to avoid estate taxes.  Charitable Remainder Trust offer a full estate tax deduction if created at the grantor’s death. 

A couple of downsides to creating either a charitable gift annuity or charitable remainder trust are that can they be very costly to create, maintain and both will require making a large contribution.  

  • One last note on Charitable Gifts: Regardless of whether you are thinking about making a small & simple or large & more complicated charitable gift, you should first consult with your tax advisor or CPA to discuss the best method for your situation and wishes.  Also, if creating a charitable annuity or charitable remainder trust you should also speak with your estate attorney.

Your professionals like Financial Planner/CFP®, Tax Consultant/ CPA, and Estate Planning Attorney are there to help you.  Many times it can be to your best interest to bring them all to the table when discussing complex charitable gifting and estate planning topics.  Together, they will be able to help complete the picture and educate you on the right method of gifting for you. 

Heather Castle

I am originally from Virginia and grew up in Tuscaloosa, Al.  I completed both of my degrees at the University of Alabama.  My undergrad degree in Finance and then later my MBA from the Manderson Business School through their Executive MBA program. 

I started Castle Wealth Advisors, LLC because I wanted to provide ethical and approachable financial planning and investment management to individuals and business owners, concerned with their financial futures, regardless of age, sex, race, or net worth.

I've always believed clients should work with reputable, qualified, and experienced advisors.  So it was important to me to gain industry experience as well as pursuing additional industry specific designations.  I have passed the following licensing exams:

     Series 7, General Securities Representative

     Series 66, Investment Advisor Representative 

     Series 9 & 10, General Securities Sales Supervisor

     California Life, Health, and Variable Insurance (License #0K01554)

I have been in the financial services industry since 2006 and have work with many differing type of clients over the years.  One thing I know to be true, everyone wants to feel heard and cared about.  Meaning everyone I have ever worked with wants to feel like their desires, wants and needs have been heard and taken into consideration when speaking about their personal financial matters.

Many people have the same goals, they just express them differently, and then there are a few who’s view and desires are completely different.  This is one of the aspects I love about my job.  The PEOPLE!  I get to meet some many interesting people and they challenge me daily.  No day in my line of work is the same.  Today I could be planning for a family who owns a small business and tomorrow working with a women going through a painful divorce.  Listening and building financial plans and strategies around personal needs is why many of my clients have said they do business with me and have stayed with me. 

Another reason I love my job… I get to truly HELP people.  I get to make a living and provide for my family while helping others.  Over my career I have felt a need to dive deeper into financial planning and working with high net worth individuals who have greater planning and investing needs.  Listed below I have highlighted a few of the areas I specialize in:

·      Women in transition (divorce/ death)

·      Corporate Executives

·      Young Entrepreneurs

·      Small Business Owners

·      Family with Special Needs Members

·      Complex Retirement and Estate Planning Needs

Currently I live in Brentwood and really enjoy the West Side of Los Angeles.  I am actively involved with the Junior League of Los Angeles.  I have a passion for trying new things and new experiences.  So, in my free time I love traveling and scuba diving.  I also am interested in learning French, taking pilot’s lessons and dancing the tango!