There are often many good reasons to “Just say no!” to naming a charity in your client’s plan.

In fact, most estate plans that have my fingerprints on them make minimal reference to charity and the less fortunate. You may be asking yourself if it was me who penned the questions, “Are there no workhouses? Are there no prisons?” 

If you’re still reading this, possibly in disbelief, let’s enumerate why your client may be advantaged by this seemingly heartless, Scrooge-like advice.

Lifetime Gifts

Perhaps your client should consider making gifts to charity during his lifetime. Good things generally happen when your client personally makes gifts while he’s living. For example, his income tax bill goes down because he can deduct the charitable gifts. If he’s subject to state and/or federal estate taxes, the benefits of being charitable now are even greater.  

Retirement Accounts

Rather than naming a charity in your client’s will or trust, ask him to consider giving some or all of his retirement accounts to charity. If your client leaves a $100,000 individual retirement account at his passing to his son, his son only pockets a fraction of the $100,000 because he owes federal – and probably state – income taxes on every dime he withdraws. But if your client gifts his IRA to his favorite charity, the charity is income tax exempt, so the charity can put the full $100,000 to good use. Your client’s wealth goes further, and the world is a better place because of your client. Your client’s IRA assets left to charity bypass all state and federal income taxes as well as all state and federal estate taxes. A client can also gift up to $100,000 of an IRA directly to charity while he’s living, if he’s over age 70 1/2.

Appreciated Stock

Giving appreciated stock, if it’s held over one year, is wiser than gifting cash or that same stock in testamentary planning. Gifting stock during your client’s lifetime means he may enjoy an immediate income tax deduction for the full value of the gifted stock. He also gets to skip the state and federal capital gains tax toll booths, which can consume up to 30 percent  of his gain.

Private Foundations and Donor-Advised Funds

Your client should gift now to his private foundation or donor advised fund. The tax savings may be immediate, and he can make future charitable gifts from these accounts.

A Healthy and Happy Client

By gifting during his lifetime, your client will have more fun and be healthier. Multiple studies show that giving to others lowers stress and makes an individual happier. Seeing his wealth benefit others is probably more personally rewarding to your client than seeing his balance sheet increase. Research also suggests that the more generously an individual gives, the more financially successful he becomes.  (Yes, you read that correctly.)

So consider eliminating gifts to charity if those gifts occur only after you have departed this fine place. You undoubtedly remember how joyous Ebenezer Scrooge became when he realized benefitting mankind was his business. So lower your client’s current income tax liability by encouraging gifting prudently and generously now, and your client may be even healthier and happier for it.

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