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How Smart a Charitable Giver Are You? Take this Quiz!

by Ellen Li, MSBA, CFP® on 11/27/2018

What kind of a charitable giver are you? Take this quiz.

As the holidays is when many people make charitable donations, it’s a good opportunity to brush up on your giving IQ. Are you making the right moves to maximize value for both you and the charity? How smart a charitable giver are you?

Take this 5 question quiz to find out!

True or False: You can donate and still reap tax savings additional to the write off.

True!

Many people are surprised to hear that you can donate and still get the benefit of additional tax savings in excess of the tax write-off you earned.

For example, one of our clients was donating $10k a year to charity in cash. After we discussed the benefits of other strategies, she decided to use a Donor Advised Fund (DAF) to give appreciated assets she held in her portfolio. These investments bore a low cost basis, and if she sold them she would likely have incurred substantial capital gains and a big tax bill.

By using a DAF, she earned both a tax write off and tax savings on the appreciated positions. What a pleasant surprise!

Multiple choice (select at least one option): Which of the following groups of people can engage in charitable planning?

  1. Affluent individuals with over $1MM of net worth or who are earning high income
  2. People who are beginning to save and invest
  3. People with low income and substantial assets
  4. Retirees

Answer: 1, 2, 3, and 4

There is a popular misconception that only millionaires can benefit from charitable planning. The reality is that there are a variety of different ways that strategic giving can help people who are at all different points of life.

For example, did you know:

  • That people older than 70½ can take a qualified charitable distribution from their IRA accounts?
  • That people with low/no income but a large capital gain on assets held can use donor advised funds to save themselves from having to pay a huge capital gain on selling those assets?
  • Some charitable tools (such as a charitable annuity or unitrust) can actually create income while allowing the donor to give at the same time. This may be opportune, for example, for donors who still wish to have some income protection in their retirement.

True/False: The 2017 Tax Reform has made it pointless to give to charity.

False.

The 2017 tax law has changed things, for sure, in many cases making the new for strategy even more pronounced.

For example, you could aggregate a charitable gift (instead of giving it over a prolonged period of years) into one year so that the total value exceeds the higher standard deduction.

Now that’s smart!

True/False: Whenever you give assets to charity, you have to relinquish total control of the assets.

False.

Take for example the Charitable Remainder Unitrust. The donor retains a right to a fixed percentage of the fair market value of the trust assets, with the trust assets being re-valued annually. If the value of the assets increases, so does the annual payout and vice versa.

True/False: Whenever you give assets to charity, you have to relinquish the right to get any benefit from the assets.

False.

There are several scenarios in which the donor can give and receive at the same tie. For example, in a Charitable Gift Annuity the donor transfers asset directly to a charity in exchange for charity’s agreement to pay a fixed lifetime annuity.

Summary on charitable giving strategies

How did you do? If your score surprised you, perhaps it’s time to sit down with a financial advisor this holiday season and go over which options may make sense. Contact us!

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Posts are general in nature and do not constitute the rendering of legal, investment, accounting or other professional advice.