Building a charitable legacy is a profound way for high-income earners to make a lasting impact on their communities and the causes they care about. By strategically planning philanthropic endeavors, individuals can support causes they are passionate about while also achieving significant tax benefits. At Auctus Legacy Private Wealth Management, based in Oklahoma City, we work closely with clients through strategic charitable giving, ensuring their charitable contributions achieve their goals.
If you’re looking for an Oklahoma City-based CFP® or a financial advisor to help you with your charitable giving and financial planning needs, please contact our team to schedule an appointment.
Understanding the Importance of a Charitable Legacy
Establishing a charitable legacy allows individuals to contribute to societal well-being, support communities, and promote positive change. Beyond personal fulfillment, philanthropy can influence future generations, instilling generosity and social responsibility values. Moreover, strategic charitable giving can be crucial in financial and estate planning, offering avenues to reduce taxable income and estate taxes.
As we work with families to determine investment strategies and methods for creating and protecting generational wealth, charitable giving is almost always a part of the conversation. Oklahoma City and the state are known for their generosity and the “Oklahoma Standard,” which are largely due to the generosity of Oklahoma families, perhaps like yours.
We’ve previously written in depth about what charitable contributions are and provided tax insights. In this article, we’ll give you an overview of strategic approaches for making charitable contributions. Each has its benefits and uses; for personalized support and recommendations, contact our team.
Strategic Approaches to Charitable Giving
High-income earners in Oklahoma have access to various strategies that can maximize the impact of their charitable contributions:
1. Donor-Advised Funds (DAFs)
DAFs are philanthropic investment accounts that allow donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. This flexibility enables donors to support their favorite charities thoughtfully and strategically. Additionally, contributions to DAFs can grow tax-free, potentially increasing the amount available for charitable grants.
2. Charitable Remainder Trusts (CRTs)
CRTs provide income to the donor or other beneficiary for a specified period, after which the remaining assets are transferred to designated charities. This arrangement offers donors an immediate charitable deduction. It can help reduce estate taxes while also providing a stream of income.
3. Qualified Charitable Distributions (QCDs)
Individuals aged 70½ or older can make direct transfers from their IRAs to qualified charities, known as QCDs. These distributions can satisfy required minimum distributions (RMDs) and are excluded from taxable income, providing a tax-efficient way to support charitable causes.
4. Donating Appreciated Securities
Contributing long-term appreciated securities, such as stocks or mutual funds, directly to a charity allows donors to avoid capital gains taxes and receive a charitable deduction for the asset's fair market value. This method can often be more tax-efficient than donating cash.
5. Charitable Gift Annuities
A charitable gift annuity involves a contract between a donor and a charity. In return, the donor makes a sizable gift to the charity and receives a fixed annuity payment for life. This arrangement provides donors with regular income and potential tax benefits while supporting the charitable organization.
Between CRTs, QCDs, and other methods, it’s wise to have an Oklahoma City Certified Financial Planner™ working alongside you and your other estate planning advisors (like your CPA and estate planning attorney) to determine which strategies for charitable giving best suit your specific needs.
Tax Benefits of Charitable Giving
Strategic charitable contributions can offer significant tax advantages:
1. Income Tax Deductions
Donations to qualified charitable organizations are deductible from federal income taxes, reducing taxable income. The deduction limits vary based on the type of donation and the donor's adjusted gross income (AGI). For instance, cash donations are generally deductible up to 60% of AGI. In comparison, donations of appreciated assets are typically limited to 30% of AGI.
2. Capital Gains Tax Avoidance
Donating appreciated assets directly to charity allows donors to avoid paying capital gains taxes on the appreciation, enhancing the tax efficiency of the gift. This strategy is particularly beneficial for high-income earners with substantial investments.
3. Estate Tax Reduction
Incorporating charitable giving into estate planning can reduce the size of a taxable estate, potentially lowering estate taxes. Bequests to charitable organizations are generally exempt from estate taxes, making this a valuable strategy for preserving wealth and supporting philanthropic goals upon your death.
Implementing a Charitable Giving Plan
When working with clients seeking to incorporate charitable giving into their financial strategy, our advisors focus on developing short-term and long-term giving plans to support their goals. Developing an effective philanthropic giving plan involves several steps.
Identifying Charitable Goals
Often, we begin by encouraging you to reflect on the causes and organizations that resonate with your values and philanthropic objectives. Consider the impact you wish to make and the legacy you want to leave. Many of our Oklahoma-based clients consider the religious organizations or churches dear to them, non-profit charities, or educational institutions they hope to support through their giving.
Consulting with Financial Advisors
After you’ve identified organizations you hope to support or learned about the opportunities for charitable giving in your community, we meet with our clients (and often with their other trusted estate planning advisors) to explore the most effective strategies tailored to your financial situation and philanthropic goals. At Auctus Legacy, our team is dedicated to providing personalized guidance to help you navigate the complexities of charitable giving.
Structuring Gifts Strategically
The next step is determining the most appropriate assets to donate and the timing of your contributions to maximize tax benefits and philanthropic impact. This may involve coordinating with legal and tax advisors to ensure compliance with relevant laws and regulations.
Reviewing and Adjusting the Plan
We regularly assess charitable giving plans with many clients to ensure they align with evolving financial circumstances and philanthropic aspirations. Adjustments may be necessary to accommodate changes in tax laws, financial markets, or personal goals. If you anticipate a change in your financial situation, like the sale of a company or another event, it’s important to begin planning before the event occurs to take advantage of giving opportunities to offset expected taxes.
The Role of Auctus Legacy in Charitable Planning
At Auctus Legacy Private Wealth Management, we are committed to helping clients build and sustain their charitable legacies.
Expertise in Charitable Vehicles
Our advisors possess in-depth knowledge of charitable giving vehicles, such as DAFs, CRTs, and QCDs. They can educate you as to what each option entails so that you can decide which best suits your needs. We stay informed about the latest developments in charitable planning to provide you with up-to-date information.
Building a charitable legacy is an extraordinary opportunity for high-income earners to make a meaningful impact on their communities while pursuing personal and financial goals. By leveraging strategic approaches to philanthropy, such as donor-advised funds, charitable trusts, and appreciated asset donations, individuals can seek to ensure their contributions benefit the causes they care about most effectively. Beyond the immediate tax advantages, the actual value of charitable giving lies in its power to inspire positive change and create a lasting imprint on society.
Let us partner with you to align your financial success with your passion for giving. Together, we can turn your philanthropic vision into a reality that benefits your family and the world.
Disclosures
Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC.