by Michael Evans, Founder & Wealth Manager
Like many of the hard-driving professional families I advise, my wife and I come from an abundance mindset. We love to look for ways to live a large, purposeful life. For us, this includes doing all we can to help others do the same through our charitable giving. Thus this practical guide for giving in more abundance than you could previously imagine.
Times of Want, Times of Plenty
That said, 2022 hasn’t been the easiest year. With the war in Ukraine, inflation, supply-chain disruptions, labor disputes, a lingering pandemic, and so on … it seems the next economic wall of worry has never been far off. It’s tempting to recall the former peak value of our portfolio, and wonder whether it’s wise to remain abundant with our charitable giving.
When times feel scarce, should we move into preserve & protect mode? In our household, we are maintaining our mindset of abundance in spite of the chaos.
In fact, we believe sustained giving should add even more meaning to our own and others’ lives as we navigate these turbulent times together. Just as we did through the height of the COVID pandemic, and the 2007–2008 Great Financial Crisis before that, we have kept giving. So many individuals in our community still need our support.
About That Investment Portfolio
To be clear, having an abundant mindset does NOT mean you must abandon all reason. You want to give until it helps, not until it hurts.
We recommend taking a long-view approach to giving and investing alike. In challenging times, investment portfolios may decline for a time. We know this; we’ve experienced it. But we also know what has happened next. Markets have dipped now and then, but their upward progression has been long and strong.
This understanding helps us ignore the popular gurus who love to declare that this time is different—a greater scarcity is here to stay. We don’t know when. We don’t know how. But we know all odds suggest they will eventually be proven wrong. So, this and every year, my family and I try to remain forward-looking, seeking peace of mind through our lives and our relationships. We look for what we actually can control. We use our time to reflect on taking a long-view approach to giving and investing alike
Abundant Giving, Wisely Given
In our household, we have developed a family Charitable Giving Strategy for magnifying our charitable gifts, even in uncertain times. We can’t control the markets, but we can control how our philanthropy will help our favorite nonprofit organizations fulfill their critical mandates.
Here are eight ideas we use, and you can too, for optimizing your giving goals:
1. Lead With a Charitable Giving Plan
Avoid giving haphazardly. Systematic giving begins with designing a Charitable Giving Plan, based on your most important giving goals. Efficient, effective, and accountable charity helps your giving program stay on track. It ensures your best intentions aren’t knocked off-course by doubts and distractions. Consistent giving also best benefits the causes you support, by providing a reliable income stream they can depend on.
2. Fit Giving Into Your Greater Financial Plans
To give in abundance, don’t treat charitable giving as an afterthought. Include it (and budget for it) along with your other financial mandates. Your sound financial plan can account for all of your Needs, Wants and Wishes, prioritizing and planning for purposeful funding for each.
3. Give Abundantly to a Targeted Cause
If you’d like to make an even more meaningful difference to your top charity or cause, consider committing to their long-term support. This may involve a higher level of planning that looks beyond annual efforts, toward lifetime giving. Tax-wise philanthropic structures may include a Donor Advised Fund (DAF), Charitable Remainder Annuity Trust (CRAT), or Charitable Lead Trust (CLT). Research the options, then speak to your fiduciary wealth manager and tax advisor to see if you can make your giving dollars stretch further.
4. Use Donor Advised Funds to Smooth Out the Annual Giving Bumps
Speaking of DAFs, these approachable vehicles can come in handy for a number of charitable giving purposes—and you don’t need to have supersized wealth to put them to good use. For example, let’s say you’ve been able to seize some of this year’s opportunities to generate especially stellar income in 2022. Other years may be leaner. You could make outsized donations to your DAF in high-income years, and then grant out the proceeds gradually. This facilitates giving grants even in lower-income years, plus potentially taking an extra tax break in the year(s) you fund your DAF.
5. Be Deliberate About the Assets You Donate
Checks are nice. But they’re neither the only, nor necessarily best way to give. Instead, look at your taxable portfolio with an eye toward donating long-term appreciated securities (stocks, mutual funds, bonds), real estate, private company stock, and similar appreciated assets you’ve held for more than a year.
Why does it matter? Think of it as a way to reduce both taxable rocks and charitable hard places. If you sell an appreciated asset and donate the proceeds, you’ll face Federal capital gains rates, plus a potential 3.8% Medicare surtax on the taxable sale. You may further be subject to state capital gain taxes too. If you instead contribute long-term appreciated assets directly to a DAF or other charitable organization, the taxable gains you’d otherwise incur disappear. By making “in-kind” donations (without selling the position first), more of your wealth can go to your benefactors instead of the IRS.
6. Rebalance Your Portfolio While You’re At It
Rebalancing means periodically adjusting your investment portfolio, if market conditions have left your asset allocations out of alignment with your investment plan. For example, as stock markets grow over time, you may end up too heavily invested in U.S. large-cap stocks, and so on. To rebalance, you could sell overweighted positions and buy underweighted ones, or add new money to the portfolio. Or, you can make a charitable gift of some of the extra assets in your taxable accounts, as described above. This win-win move allows you to give to charity, while removing some of your personal wealth “eggs” out of your too-much-risk basket.
7. Offset Income from Other Taxable Events
If you’ve got extra taxable income in 2022, you may be able to offset it by making an extra charitable gift to a DAF or directly to a favorite cause. For example:
- Roth Conversions: With today’s relatively favorable tax rates, it’s made sense for many investors to convert qualified assets into Roth IRAs—especially for those who have experienced a lower-income year due to a career transition, sabbatical, or retirement event.
- Year-end Dividend Distributions: Others may be incurring extra capital gains due to taxable year-end fund dividend distributions, or personal income events.
- RMDs: If you’ll need to take Required Minimum Distributions (RMDs) from your own or inherited retirement accounts; you can replace the taxable RMD with a tax-free Qualified Charitable Distribution (QCD). However, note, you cannot fund a DAF with a QCD.
8. Diversify privately held assets
Are you planning to sell a family-owned business? Consider gifting a portion of your pre-sale interest to a DAF or other philanthropic vehicle. Working with a planning professional to donate private ownership interests can help you diversify your holdings while creating a long-term charitable giving plan for you and your family. There are a surprising number of non-publicly traded assets you can use for gifting, including C-Corp or S-Corp shares, restricted stock, limited partnership interests, real estate, art, some alternative investments and even cryptocurrencies.
Giving and Living on Your Own Terms
My wife and I are so grateful that our wealth allows us an abundant lifestyle. We are mindful of our greater goals. We strive to live a purposeful life on our own terms, with a financial plan to guide the way.
We love helping others do the same. In my career as a wealth manager, I’m granted the gift of designing, building, and protecting financial plans for high-achieving families like mine. This often includes creating room to give to those in need. By combining an abundance mindset with long-term, strategic planning, we help people transform their wealth into making a meaningful difference in their community.
Our team at Cogent Strategic Wealth has decades of experience, working with high achieving professionals like you to align your charitable giving with your personal wants and needs, even in turbulent times.
Why wait? Let’s connect soon, to talk about your tax-wise wealth management and charitable giving possibilities, this and every year to come. We will help you execute your own practical guide to giving in abundance.
The opinions expressed by featured authors are their own and may not accurately reflect those of Cogent Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.
© 2022, Cogent Strategic Wealth®
