Gratitude can transform common days into thanksgivings, turn routine jobs into joy, and change ordinary opportunities into blessings." – William Arthur Ward
As we ramp up for the holidays, charitable giving is top-of-mind for many clients and investors. We take giving back seriously on our team. This year, we headed over to Avenues for Homeless Youth to learn more about their work with Twin-Cities youth experiencing homelessness. As part of living our values, we will be helping Avenues for Homeless Youth during Minnesota’s achieve their matching gift goal on Give to the Max Day on November 14.
As part of our practice at Nicollet Investment Group, we help clients think strategically about their giving. Certainly, there are financial planning considerations for thinking about giving, but equally important is the role that philanthropy plans in multi-generational wealth. Family giving is an effective vehicle for transmitting values and working together across generations.
Families that give together thrive together
Our view of charitable giving planning is very similar to how we consider investing: families need to consider their portfolio of interests and how we can best address those interests through philanthropy. In the discovery process, we work with tax and estate planning advisors to identify the best assets and giving structures to best design a family philanthropy portfolio. Frankly, this is the easy part. The hard part is bringing families together to work collaboratively and engaging the next generation.
The following ideas may help guide your approach to including your children in your giving plans:
- We encourage families to spend time discussing philanthropy with their children, as it is an opportunity to have supportive dialogue about values and giving.
- We recommend that families talk about the change they are supporting, rather than lecturing children about their privilege.
- Invite children to weigh in, and if age appropriate, allocate a certain amount of giving to causes that inspire them.
- Model your values through giving, board service and volunteer work.
It’s often surprising when we raise the opportunities for giving with clients. Anecdotally, clients tell us they’ve not been asked about their giving in the past, and they almost always welcome the conversation. In our role, we’re looking to help clients with better ways to think about their charitable giving, including donor-advised funds (DAF), gifts of appreciated stock, and using your IRA assets to gift to charities.
Save share spend – strategic allowances
Many families start the conversation about giving by implementing three-slot banks to start learn about saving, sharing and spending. This allowance strategy provides an early introduction to money management (I’ve always thought there should be a “taxes bank”.) Once or twice a year, have a family meeting to discuss the beneficiary of the share funds, and consider matching the share savings as a reflection of values.
Donor advised funds
The new tax laws have ignited interest in donor-advised funds as a strategy to fulfill giving goals and objectives. Clients have the opportunity to bundle several years of charitable gifts into a single tax year, allowing the flexibility to claim the charitable deduction in one year, but granting the assets over time. We’ve found this especially appealing to clients who support smaller organizations that might not be capable of managing significant one year gifts.
Appreciated stock? Give it away!
Gifts of appreciated stock continue to be very popular, even for donors who will not itemize their taxes due to the new tax law. In spite of the market volatility we’ve experienced over the past year or two, many clients have held individual stocks for more than 20 years, and even if stocks are challenged over a given short period, many long-term holdings have significant unrealized capital gains. We enjoy gifting stock for a few reasons:
- Regardless of whether the client can itemize, the effective cost will always be lower when giving highly appreciated stock, as the donor avoids taxes on the gain in the stock.
- Typically, stocks of this nature become over-weighted in a well-diversified portfolio.
- Donors may consider giving more, since the effective cost of the gift is significantly less.
Of course, clients who itemize receive the full deduction so there may be even greater benefit for those donors who gift appreciated stock. Be sure to check with the tax geniuses ….
Happy Birthday, retirees
Happy birthday if you’ve turned 70 ½ this year. Clients have celebrated the now permanent Qualified Charitable Distribution option, which allows donors to avoid paying taxes on their required minimum distribution (RMD). This option is particularly useful for clients who cannot itemize their deductions and for whom a majority of their assets are held in their IRA. As well, gifting from your IRA may keep you from being pushed into a higher tax bracket.
Unicorns – gifting complex assets
I’m not suggesting that clients have unicorns, but occasionally we find ourselves looking to gift nontraditional or uncommon assets. Hedge fund and private equity investments, restricted stock, insurance policies and non-publicly traded business interests can be gifted. The process of gifting illiquid assets can be complex and the time-horizon for valuation can exceed one year, so plan ahead and engage the best professionals to guide your giving.
It’s a constantly changing landscape. We invite conversations about giving, and not just because it makes financial or tax sense. Giving feels good, it’s a real demonstration of our values, we are leading by example for our children and our community and it helps to make the world a better place. Learn more about Charitable Giving.