By: Andrew Rosen, CFP®, CEP®

After many years in the financial service business, I’ve consistently seen individuals donate a hefty portion of their assets and resources towards charities.  It’s a constant reminder of the awe-inspiring charitable nature of people.  There are many ways to make charitable donations, but this post will focus on three simple and proven methods.


Strategy 1: Gifting Appreciated Stock

I like this method a lot, especially if you have highly appreciated, non-qualified (non-retirement) assets that are subject to long-term capital gains.  As an example, let’s say you plan to give $10,000 towards a charity.  Let’s also assume you have a stock you purchased for $1,000 which is now worth $10,000.

  • Option 1 – you can give $10,000 from liquid cash on hand and receive a $10,000 deduction for tax planning purposes.
  • Option 2 – you can give the same $10,000.  However, this time donate the highly appreciated stock.  You get the same $10,000 deduction and never pay capital gains tax on these funds.  The charity also doesn’t pay any gains when they sell the stock, as they are in an exempt class.  Therefore, you’ve avoided the capital gains tax while the charity benefits from getting the full value.
  • Option 3 – you do essentially the same thing as option 2.  But, for those who want numerous charities to benefit you can gift to a Donor Advised Fund, rather than directly to a charity.  From there you have the option of giving to as many charities as you’d like, while receiving the same benefits as option 2.

Strategy 2: Utilizing Life Insurance

Life insurance has many purposes, but many people miss how it can be a great way to leave a legacy towards a charity. You can gift proceeds to a charity of your choosing at death and still receive tax benefits while living.  Here is how it works.

  1. Take out a life insurance policy on you.  A permanent policy is almost always recommended for this purpose (we don’t care about cash accumulation); all you’d need is a no frills, inexpensive policy.   If married, a second to die life insurance policy works really well, too.  It lowers the cost substantially, but won’t pay until the last of you (you or your spouse) passes.
  2. Make the owner and the beneficiary of the policy your desired charity.  (Disclaimer: make sure it is a charity that is well established.  It would be a shame to go through this effort and have the charity cease existing 20-30 plus years from now.)
  3. Each year you gift your premium dollars to the charity and receive your normal deduction.
  4. The charity pays the premium dollars as now they are the rightful owners of the policy.
  5. At your passing, the charity receives a large sum of tax free dollars in your name.

This strategy is a great way for individuals to take a little of their current dollars and repurpose them for a highly leveraged amount in the future.

Strategy 3: Gifting Required Minimum Distribution Dollars (RMD) or IRA Dollars Once Reaching 70.5

This is another one of my favorite charitable strategies.  We find many charitable people who don’t end up touching much of their RMD dollars each year. These people are forced to take money out of their IRA and pay ordinary income tax on the full amount.  However, instead they can gift these RMD dollars directly to a charity of their choosing and pay no income tax.  Better yet, the charity receives the full amount of the RMD dollars.  In addition, you can give above and beyond the RMD amount as long as you are age 70.5.  The caveat is that the cumulative dollar figure can’t eclipse $100,000 in any calendar year (this includes your full RMD if it is over the $100,000 threshold).

Final Thoughts

Charities in general are always incredibly thankful for the wonderful gifts they receive.  I for one am a big proponent of giving. However, if I can do so more strategically so that everyone benefits (except maybe the IRS) show me where to sign!  Whatever you decide, it is important you work closely with your tax advisor (in conjunction with your financial planner) to make sure everything works in line with your overall plan.



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Andrew Rosen

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

Find out more about Andrew Rosen, CFP®, CEP®
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