There are often many good reasons to “just say no” to naming a charity in your client’s plan.
In fact, most estate plans that have my fingerprints on them make minimal reference to charity and the less fortunate. You may be asking yourself if it was I who penned the questions: “Are there no workhouses? Are there no prisons?”
If you’re still reading this, possibly in disbelief, let’s enumerate why your client may be advantaged by this Scrooge-like advice.
Perhaps your clients should consider making gifts to charity during their lifetime. Good things generally happen when your clients personally makes gifts while they’re living. For example, their income tax bill goes down because they can deduct the charitable gifts. If they’re subject to state and/or federal estate taxes, the benefits of being charitable now are even greater.
Rather than naming a charity in your client’s will or trust, ask them to consider giving some or all of their retirement accounts to charity. If your client leaves a $100,000 individual retirement account to his son, the son only pockets a fraction of the $100,000 because he owes federal—and probably state—income taxes on every dime they withdraw. But if your client gifts their IRA to their favorite charity, the charity is income tax-exempt, so the charity can put the full $100,000 to good use. Your client’s wealth goes further, and the world is a better place because of your client. Your client’s IRA assets left to charity bypass all state and federal income taxes as well as all state and federal estate taxes. A client can also gift up to $100,000 of an IRA directly to charity while they’re living, if they’re over aged 70½.
Giving appreciated stock, if it’s held over 1 year, is wiser than gifting cash or that same stock in testamentary planning. Gifting stock during your client’s lifetime means they may enjoy an immediate income tax deduction for the full value of the gifted stock. they also get to skip the state and federal capital gains tax toll booths, which can consume up to 30 percent of their gain.
Private Foundations and Donor-Advised Funds
Your client should gift now to their private foundation or donor-advised fund. The tax savings may be immediate, and they can make future charitable gifts from these accounts.
A Healthy and Happy Client
By gifting during their lifetime, your client will have more fun and be healthier. Multiple studies show that giving to others lowers stress and makes an individual happier. Seeing their wealth benefit others is probably more personally rewarding to your client than seeing their balance sheet increase. Research also suggests that the more generously an individual gives, the more financially successful they becomes. (Yes, you read that correctly.)
So consider eliminating gifts to charity if those gifts occur only after you’ve departed this fine place. You undoubtedly remember how joyous Ebenezer Scrooge became when he realized benefitting mankind was his business. So lower your client’s current income tax liability by encouraging gifting prudently and generously now, and your client may be even healthier and happier for it.