Philanthropy

Philanthropy: You Don’t Need to Be a Gates
or a Buffett to Make a Meaningful Contribution

Provided by RBC Wealth Management and The Neuman Wealth Management Group

Many of you may be considering supporting, or already support, worthy causes that are important to you. So if you’re thinking about sharing some of your financial success with a qualified non-profit organization, let’s take a few moments to look at some of the choices available.

Where Do You Begin?

To decide if charitable giving makes sense for you, consider your age, net worth, future income needs, and financial goals. Then speak with your financial advisor and tax professional for help determining which strategy is the best fit for your circumstances and philanthropic goals.

There are many different methods of charitable giving, each with a specific set of benefits. Some of the most common include the donor’s ability to:

• Transform an illiquid asset into an important source of future income
• Restructure a non-diversified portfolio without incurring an immediate capital gain
• Help avoid current capital gains tax on the sale of a business
• Take an immediate tax deduction on a future gift
• Receive an income tax deduction in the year gift is made
• Reduce potential estate tax liability, by reducing taxable estate

Charitable Giving Strategies

There are a number of tools and strategies, each with its own advantages and limitations, that can be used for effective philanthropy:

• Outright bequest of cash
• Charitable trusts
• Family foundations
• Life insurance
• Interest in a residence
• Charitable gift annuities
• Donor advised funds
• Pooled income funds
• Gifts of appreciated property, such as stock

If your gift consists of shares of stock or other securities that have increased in value, you may enjoy several additional benefits. It may help eliminate your capital gains tax exposure, reduce your taxable estate and remove potential future growth of the donated assets from your taxable estate.

Gifting highly appreciated assets to charity

When you donate stock or other assets classified as “intangible long-term capital gain property” to a qualified public charity, you can deduct the full Fair Market Value (FMV) of the property to the extent that it does not exceed 30 percent of your Adjusted Gross Income. Any amount that cannot be deducted in the current year can be carried over and deducted for up to five succeeding years.

For example, let’s say you donate stock with a cost basis of $10,000 and a current FMV of $50,000 to a public charity and that your AGI for the year is $100,000.

That means the maximum deduction for the present year is $30,000 (30 percent of $100,000), leaving the balance – or $20,000 – available for a deduction on next year’s return. You avoid paying capital gains tax on the $40,000 appreciation in value, should you sell the stock. You also reduce your taxable estate by $50,000 in the year the gift is given and remove potential growth of these assets from your taxable estate.

If you wish to donate highly appreciated assets to charity, however, it is important to make sure you understand all relevant rules. Also, certain types of property may be more advantageous to donate to charity than others. For help making well informed decisions, speak with your financial advisor and tax professional about your investment objectives and charitable goals.

This article is provided Eric St. Martin,  a Senior Financial Associate at RBC Wealth Management in Stillwater, MN, and was prepared by or in cooperation with RBC Wealth Management.  The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Wealth Management does not provide tax or legal advice.

RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC

Current 11/2012