Carolyn Philpot is a founding member of Beall Barclay Wealth Management. Philpot graduated from the University of the Ozarks with a bachelor’s degree in accounting. She also attended Denver-based The College for Financial Planning where she attained her certified financial planner designation. She has been a practicing Certified Financial Planner for more than 20 years.
Perhaps this is not the year to talk about charitable gifting with the global markets in turmoil. Heck, following the volatile first decade of the 21st century, and moving right into the first year of the second decade without things looking much better — this might not even be the century to write about charitable gifting. According to many websites, charitable giving was sharply down in 2009 and down over the first decade.
We live in a very philanthropic community. I have always been proud to be a resident of the Fort Smith area for many reasons, but one of the greatest reasons is the willingness of the people of this community to give back to the community in which they live, work and raise their children.
When I mention charitable gifting, I often see many clients “tune out.” There are probably many reasons for this, but I believe the two most prevalent reasons have nothing to do with selfishness, rather misconceptions. I truly think the biggest misconception about the term “Charitable Gifting” is that the person believes one has to be wealthy to make a charitable gift. The other misconception, I believe, is that the person contemplating the gift does not realize that it is possible to gift an asset (usually an appreciated asset) to a charity well in advance of their death, receive a tax deduction for that gift in the year it is gifted, and may retain lifetime income from that asset.
What was that again?
A person may gift an asset (stocks, buildings, and land are just a few examples), obtain a life time income stream from the asset or the sale of that asset inside a trust, and get a tax deduction for an actuarial calculated amount in the year the gift is made? Really! This allows the grantor (the person or couple making the gift) to continue to be able to use the income from the gift for their enjoyment for either a determined amount of years or for the rest of their lives.
If we think further about this concept we realize that a charity or charities will realize a future gift, the person or couple making the gift gets an income stream to enjoy, along with receiving a tax deduction, and there are no taxes to be paid.
No taxes? That’s right — no taxes.
That is why it is important to gift appreciated, even highly appreciated property if possible. No taxes are paid when this strategy is realized, because the asset is placed into a trust designed to specifically administer all the technical rules surrounding these gifts. Once the asset is placed inside the trust, the asset can be sold inside the trust and there are not taxes to be paid because it is a charitable trust.
One case I recall studying years ago held particular interest to me because I could relate this couple to many people living in this area, and have since used this strategy. The case involved a couple who owned a couple thousand acres of land, and held the mineral rights to the property. The property had been passed down for a couple of generations and had basically a zero cost basis. The couple were elderly and their children were grown, married and did not live locally and did not want the property. The couple placed the land inside a charitable remainder trust while still owning the mineral rights. The land was sold in the trust, invested into an income generating asset, received a tax deduction in the year they made the gift, while being able to leave a remainder interest to charities they supported.
When contemplating a charitable remainder trust to accomplish a philanthropic desire is to contemplate whether it is more important to own the asset which increases a persons’ net worth, or more important to secure a life time income on the asset.
There are other gifting strategies that have not been covered in this article. Such strategies should be made with the assistance of well qualified professional advisors and tax professionals.
Carolyn Philpot can be reached at Carolyn.Philpot@beallbarclay.com