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3 ways advisers can help clients maximize charitable giving benefits

There is still time for investors to help fulfill their philanthropic passions and also reduce their tax bills

Dec 13, 2016 @ 3:21 pm

By Mike Penfield

+ Zoom

Andy Williams can be heard singing “It's the Most Wonderful Time of the Year” over the airwaves these final weeks of 2016. For charitable organizations, the words are appropriate, as December is the time nonprofits traditionally receive a significant portion of the donations that fund their operations.

(More: A donor-advised fund can benefit clients as well as charity)

As investors are looking toward their anticipated tax bill for 2016, you may discover clients wanting to review their giving strategies so they can best maximize the benefits of their donations. Here are three opportunities they may not have considered.

CREATE A CHARITABLE REMAINDER TRUST

If your clients are invested in real estate, a charitable remainder trust may be a good opportunity to blend significant tax benefits with philanthropy. Putting the real estate into a charitable remainder trust allows your client to continue to earn income, while also receiving a large income tax deduction and minimizing the gains tax due on the property.

(More: 7 tips on achieving zero-tax estate planning through charitable giving)

FUND A LEAD TRUST

Some investors are looking for a way to utilize their support of their favorite charities to minimize the transfer tax due when they pass their assets to their heirs. To help arrange this, consider the option of funding a lead trust with a concentrated stock holding. The initial assets placed into the trust will stay there for a term of years and then be paid back to the donor's heirs. Payouts are made annually from the trust to the specified charities, allowing the donor to fund the charitable gift once with ongoing results for several years. The gift to charity can drastically reduce the amount of transfer tax due for the eventual disposition of the property to your client's heirs.

DIVERSIFY STOCK CONCENTRATIONS

In addition to reviewing their philanthropic endeavors, many investors also make time at the end of the year to diversify their stock concentrations. You may be able to combine the two endeavors by suggesting they utilize a charitable remainder trust. They place the appreciated stock assets they are looking to diversify into the trust, removing those assets from their overall estate and also receiving a charitable tax deduction. When the trust sells the stock, the proceeds go into the trust, allowing them to defer and sometimes avoid paying capital gains taxes since the trust is tax exempt. The trust will give the investor an annual income, and when the investor dies, the remainder of the trust will go to the charity established.

(More: Year-end tax strategies for wealthy take on new importance)

While 2016 is quickly passing by, there is time yet for investors to make changes to help fulfill their philanthropic passions and also reduce their tax bills. If you have clients looking for different and potentially more beneficial ways to give this holiday season, these three options might provide them the opportunity they're looking for.

Mike Penfield is the national director of the U.S. Bank Charitable Services Group.

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