WealthTrack: How to maximize your charitable giving

Video highlights and 5 key takeaways from an episode of the PBS personal finance show

In a recent episode of the PBS show WealthTrack, host Consuelo Mack sat down with Pam Norley, president of Fidelity Charitable, and Elda Di Re, a partner at Ernst & Young. Their conversation focused on tax, financial and charitable planning. Key themes of the conversation included trends driving growth in giving, the impact of potential tax reform, and why people are choosing donor-advised funds as a key way to manage their philanthropy.

Read on for five key takeaways from the conversation.

Takeaway #1: With markets up and a desire to make an impact strong, charitable giving is growing.

Charitable giving in 2016 reached a new record of $350 billion, and Norley and Di Re discussed several of the reasons for the growth—the strong market, increased awareness of issues in the 24/7 news cycle, the ability to make an immediate difference by giving, and a desire to minimize taxes. “People are feeling confident about the markets right now, and so as a result they’re seeing some appreciation in their portfolios, and so they’re using that to then do their philanthropy,” Norley told Mack.

Takeaway #2: With the potential for tax reform on the horizon, there may be benefit to giving now.

In the period immediately after the 2016 presidential election, there was a sharp increase in charitable giving, driven by concern that tax reform would limit itemized deductions. “Now, what we’re seeing is a thought that even if itemized deductions are permitted for charitable giving, perhaps the benefit in terms of tax rate might decrease,” Di Re said. “So it’s still a no-brainer to give to charity now and get the benefit of the deduction at a higher marginal rate.”

Takeaway #3: Donor-advised funds are taking off as a way to simplify tax-smart charitable giving.

Another area of charitable giving seeing rapid growth is the increased use of donor-advised funds, a type of charitable investment account that individuals or families can use exclusively for the support of charities they care about. Norley explained how donor-advised funds work; Di Re explained that she frequently suggests them to clients in place of a foundation, both because they are accessible to more people and because they have significantly lower administrative burden and costs.

“From a tax perspective, [donor-advised funds allow you to give] when it’s the right time for that asset value, or based on your marginal rate, based upon what tax policy is at the time, and leave it to when you have more time to investigate where that money should go,” Di Re said. “It brings that tax technique, as well as the ability to fund future charities, down to the more mass affluent.”

Norley and Di Re also highlighted the ability with a donor-advised fund to donate appreciated assets directly to charity; this can be one of the most tax-smart ways to give. Norley said nearly 60 percent of donations to Fidelity Charitable last year were appreciated assets like stocks or real estate.

Takeaway #4: Creating a structured approach to charitable giving can inspire family conversations about giving back.

Di Re, Mack and Norley talked about the spark that planned giving with a donor-advised fund can facilitate in families.

“We certainly see with Fidelity Charitable families, that they name the account in the family name, that they sit down with their family on a regular basis, generally at the end of the year, review all the various organizations that the family members care about, and then kind of siphon off the money to the causes they care about, and do that through their donor-advised fund. So we’ve seen a lot of families coming together and doing their philanthropy together.”

Takeaway #5: Giving appreciated assets like stock—and making sure you’re making giving a part of your financial planning process—are often smart moves.

It’s customary for Mack to ask all her WealthTrack guests for a final piece of advice: If there’s one investment that we should make in a long-term diversified portfolio, what should it be?

Elda Di Re advised viewers to identify an asset held for a year or more with the highest percentage of appreciation based on its value, and consider using it to fund your donor-advised fund or foundation. “You get a deduction for the fair market value,” she said. “And if you feel really attached to that asset, then just take the cash you would have given to charity and buy more of that asset. So you’re still whole, but you’ve gotten a deduction for the value, and no one paid tax on the appreciation.”

Pamela Norley’s answer? Don’t overlook philanthropy. “Charitable giving should be part of a complete financial plan,” said Norley.

“I think that’s one of the things that we would say is missing from a lot of the financial plans that people are doing today, is they’re doing philanthropy, they’re making contributions to charities and causes that they care about, but they’re not planning around it.” Making giving part of a financial plan can help increase both the gift to charity and the tax benefit to the donor.

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