Top 5 Times to Talk About Charitable Giving

While many clients will bring up charitable giving on their own, for others it may not cross their minds to discuss charitable planning with their advisors, even if they are charitably inclined. Advisors sometimes avoid broaching the subject because they do not want to come across as trying to sell something the client isn’t interested in buying. However, those advisors may be missing an opportunity to educate their clients about a variety of charitable giving opportunities that could also provide tax savings. Below are five situations where clients may benefit from a conversation about charitable giving.

1. Liquidity Events

When you are advising a client who is preparing to sell assets that trigger capital gains, it is a good idea to see if they are charitably inclined. By giving a partial interest in the asset to a charity or charitable remainder trust, your client can accomplish philanthropic goals while also avoiding or deferring capital gains on the sale of the asset. Additionally, if your client experiences a liquidity event and then later tells you about it, a donor-advised fund may be an attractive solution because it provides them with a charitable deduction and allows them to choose which charities will receive the funds at a later date.

Key situations: sale of a business, sale of real estate, other large taxable events like cashing out inherited retirement accounts or inherited annuities.

2. Retirement

When a client is preparing for retirement or has recently retired, determining whether they are charitably inclined could save them and their heirs significant tax liability. Individuals who are 70 ½ or older can make a qualified charitable distribution (QCD) from an IRA for up to $100,000 (indexed to inflation starting in 2024) to a public charity. While this distribution does not count as income to the client, it also is not eligible for a charitable deduction on the client’s tax return. Additionally, for those subject to required minimum distributions (RMD), the QCD may satisfy all or part of their RMD for the year.

Additionally, many retirees may want to consider funding a charitable gift annuity (CGA) instead of a commercial annuity since the CGA will not only provide them with income during their life, it will also benefit their favorite charity after they pass away. Other options that provide a charitably-inclined client with income while leaving assets to charity upon death are the charitable remainder unitrust and the charitable remainder annuity trust.

Key situations: soon-to-be or recent retirees, clients with large RMDs looming, clients with large cash or stock accounts who want to convert those funds into an income stream for retirement.

3. Death of a Loved One

When a client updates their estate planning documents, they often forget to retitle assets into joint names or update beneficiary designations. When this happens, it is possible that those assets will be inherited by people or entities that the decedent did not intend. When your client has a family member who passes away, in addition to making sure that your client has up-to-date estate planning documents and beneficiary designations, you can point to opportunities to leave assets to charity in a more efficient manner. For example, many estate plans were completed prior to the Secure Act. Many times, those plans left retirement assets to heirs with the expectation of stretching out RMD payments over the lifetime of the named beneficiary while designating other assets for charities. If those plans were not updated, the death of a spouse or parent is a good time to reevaluate which assets should be left to heirs and charities.

Key situations: death of a spouse or parent, receipt of an inheritance, yearly reviews of beneficiary designations, updating estate plans, rolling over retirement accounts, creating new accounts with beneficiary designations.

4. Career Changes

Many employers offer payroll deductions to make donations directly to charities. While many clients know this and take advantage of this opportunity, many more clients who are borderline itemizers would be able to fully itemize if they sign up for payroll deductions to give to charity. The best time to catch this is when a client starts a new job or gets a promotion/raise. A job change is also an opportunity to advise clients to ask if their new employer offers a match for charitable giving.   

Key situations: new employer for client and/or spouse, job promotions, creating new accounts with beneficiary designations, rolling over old retirement accounts.

5. When Clients are Charitably Inclined but Also Need Their Assets to Generate Income

This is one instance where the client likely needs to show some philanthropic interest. However, establishing a charitable gift annuity or charitable remainder trust can be a great way to turn assets into income while avoiding immediate payment of capital gains. For example, if a client bought their home 30 years ago and would like to use the sale proceeds to enter a retirement community, they may be disappointed to learn that while their home has appreciated in value, they will need to pay capital gains tax after the first $250,000 in appreciation. This is a great opportunity for the client to gift a partial interest into a charitable remainder trust and use the remaining proceeds from the sale to pay the entrance fees for the retirement community.

Key situations: clients who could benefit from using sale proceeds of real estate or other assets to generate income, clients with a beneficiary who needs income but should not inherit assets outright, clients with stock (especially privately held stock through an employer, such as Publix) that could be sold to create an income stream, clients who need to sell low interest rate assets that would trigger ordinary income or capital gains if cashed out or sold.

Recognizing opportunities where charitable giving can benefit your clients is just another way to add value to your business and to show your clients that you have all of their goals in mind when making recommendations. The better you know your clients and their goals, the easier it will be to spot situations like the ones above. There are a variety of gift vehicles that a donor can employ to make a charitable gift, and there are many other situations where it will make sense to suggest charitable giving to your clients. UF’s Office of Estate and Gift Planning can work with you to create effective charitable planning strategies for your clients who are interested in supporting the University of Florida.