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Family Wealth Ideas: What is the best way to make a charitable gift?


Money box with bow, presentQ. What is the best way to make a charitable gift?

A. There are two primary ways of making a charitable gift that are  better than just giving cash.

One is by giving appreciated property that you have owned for more than a year and would produce capital gain tax if you sold it. The value of the appreciated property is fully deductible against other income (subject to certain limits). And you avoid the capital gain tax (Federal and State) on the gain.

Ignoring state income tax consequences, a gift of $10,000 in cash will save up to $3,960 of tax resulting in a net cost of $6,040. But if you give $10,000 of stock owned for more than a year which has zero basis, it will offset the same ordinary income and save income tax of $3,960, but also avoid as much as $2,380 of capital gain tax. Therefore, the net cost of the gift is only $3,660.

Another effective method of gifting is to transfer money from an IRA directly to a charity. You may only take advantage of this provision if you are over age 70 1/2 and the contribution is limited to $100,000. The special advantage is that this transfer counts toward your minimum required distribution, without being taxable to you. Your overall income is reduced and limits, such as social security taxability, itemized deduction phase out, and personal exemption phase out, may not come into play. This technique is particularly good for moderate income taxpayers who do not itemize deductions, and therefore, do not get the advantage of the charitable deduction.

Answers to your question about protecting and preserving your family's property.

David Heilich, Member in Charge, Family Wealth Planning Group

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