‘Tis Better to Give Than to Receive — Here’s How to Do It Right
“Whenever we can think of the appropriate way to create a gift, we can usually make a big impact,” says Mike Skrynecki, CFP(r), a financial adviser with Morgan Stanley who earned his master’s degree in marketing from Georgia State. “And we can increase the impact we’re making by planning it in a thoughtful manner.”
In addition to being a certified financial planner, Skrynecki is also certified as a fund-raising executive, and is both a past president and current board member with the Georgia Planned Giving Council. However, “I always prefer to think of it as gift planning, rather than as planned gifts,” he explains. “’Planned’ is past tense, like it’s already happened. ‘Gift planning’ means it’s in progress, it’s forward-thinking.”
And by doing a little bit of planning – rather than just writing a check – donors can maximize their “bang for the buck.” By donating an appreciated asset such as stock directly to an institution, for example, donors can avoid the capital-gains tax they’d have to pay if they sold the stock first and then donated cash. “Gifts of appreciated assets are probably one of the better yet most under-utilized tools for individuals to contribute to their charity of choice,” Skrynecki says. With the way the stock market is coming up from the bottom and reaching all-time highs, people now have more of that to give. And in 2013, you have more of a tax benefit for giving, particularly for those in the higher-income range.”
For older donors, there’s an additional way to keep from diverting money to the IRS. Between now and the end of the year, donors aged 70 and a half or older can donate up to $100,000 directly out of an IRA. Previously, that was the age threshold when retirees were required to begin taking out a minimum amount from their retirement accounts each year and paying taxes on the income.
“They started allowing people over 70.5 to do that in 2006, and it was only supposed to go until 2010, but they kept extending it,” Skrynecki explains. “I don’t know whether it’s going to get extended again, but I definitely think that is a viable option, particularly for wealthier people who don’t necessarily need the income from their IRAs.”
Skrynecki stresses that donors “don’t want the tax tail wagging the dog” and making tax considerations their primary motivation for giving, but smart planning can help donors ensure that more of their assets end up working for their preferred charities and not for the government. “I’m very big into charity, and Uncle Sam is not my favorite charity,” he says.
Other frequently overlooked options for donors include making a charity the beneficiary of an insurance policy, as well as creating a gift annuity. With gift annuities, donors give a lump sum to an institution in exchange for an annual income stream from the charity.
“Some people think, ‘Well, I can’t afford to make a gift right now,’” Skrynecki says. “But a lot of them might have certificates of deposit that they’re only getting peanuts from. They could turn that around and give it to charity in exchange for a gift annuity that would give them a higher rate of return, with the charity keeping the remaining balance when the donor dies.”
Skrynecki used this strategy for a client who was thinking about leaving an asset to his alma mater in his will. “I said, ‘Why wait? Give it to them now.’ One, they can sell it without having to pay capital gains. Two, he could enjoy the gift during his lifetime. He endowed a scholarship in his dad’s name, and actually made a bigger gift than we’d originally talked about – and he got to honor his dad while he was still alive. It was a win-win-win scenario.”
That annuity, Skrynecki says, epitomized what proper gift planning is all about. “It’s about gifting in a thoughtful manner: What can we do to increase the impact of this gift? In this case, he gave way more than he ever thought he’d be able to, and he turned a non-income producing asset into an income producing one in a tax-favorable manner. Ultimately, he ended up doing better all the way around.”