Charitable Planning Ideas and Opportunities

The following material is designed to provide professional advisors with planning ideas and scenarios that, when blended with estate, tax and financial planning objectives, will help create a values-based, comprehensive plan that best serves the client and can also achieve important community benefits.

These strategies and ideas are intended to be examples of how charitable planning can work in a variety of situations.

Charitable planning opportunities tend to fall into four broad categories.

1. Sale or Disposition of a Highly Appreciated Capital Asset:
   Many high-net-worth clients have the bulk of their assets tied up in a very small number of assets. Perhaps it is a closely held family business, a vacation home, or other real estate holdings. The client might hold a number of stock options that are ready to mature, or the client may own marketable securities that have a low cost basis and significant capital appreciation. Regardless of the asset, the client may be in a position to unlock some of the appreciation and eliminate the capital gains tax through the use of charitable planning strategies.
    
2. Need to Generate Income for Self and Others
   Notwithstanding recent market downturns, the past decades have seen unprecedented growth of personal wealth in the form of portfolio appreciation. However, when clients seek to change their asset allocation to produce more income or diversify their portfolios, they may be hit with a substantial tax in their gains. This gives advisor and client a chance to be creative in their approach to converting paper gains to cash flow, reducing taxes and turning non-deductible items into tax deductible ones, while also addressing charitable objectives.
    
3. Estate Planning
   Perhaps the most opportune time to talk with a client about charitable planning strategies is when doing estate planning. The vast majority of high income individuals have some volunteering and/or charitable giving history, and many want to consider investing a portion of their estate assets in something that they care deeply about.
   
   Though not the only driver, taxes are of course an issue. A key strategy to lessen, and in some cases eliminate, the federal tax burden is to add a philanthropic component to the estate plan.
   
   Unlike the charitable income tax deduction, there is no limit on the estate charitable deduction. Hence, the client could have a zero estate tax by leaving everything to a public charity, family fund or foundation. However, generally philanthropic estate planning is not done solely to reduce the burden of estate, income and/or gift taxes. It is also critical for any plan to instill and transfer family values, and as well as satisfy an individual’s desire to make a difference.
    
4. Philanthropic Planning
   Understanding all the options a client has to work with will give definition and depth to a client’s philanthropic plan and enhance the advisor’s role. Using one or more of these options may help a client/donor meet present or future financial needs, while allowing them to create a values-based charitable giving plan that will involve future generations of the family.