Utahns and Charitable Giving
Utahns are known for being charitably inclined. In fact, according to a study by WalletHub in 2017, Utah is the most philanthropic state in the country (and topped the list the two previous years as well). The study found that Utah has the highest percentage of the population that donates time and was tied for first for making charitable donations.
It's clear Utahn’s have big hearts. And when people think about charitable giving, they likely think mostly about who they’re giving the money to, and little about how they are giving the money.
Giving money to your favorite charity is pretty straightforward, right?
Get the call or letter asking for support
Write a check
People get help and you feel good
This is usually how it works, and what’s wrong with that?
Absolutely nothing. Charities rely heavily on this form of giving to fund ongoing operations and programs.
However, there are other ways to give that can benefit both donors and the charities they love and support. Here are three charitable giving ideas* that don’t have to involve your checkbook.
1. Non-Cash Assets
1. Donate non-cash assets like a business interest, real estate or investment securities. Considering all the assets on your balance sheet can greatly increase the pool of potential giving resources. And if the assets are highly appreciated and subject to capital gains taxes, there could be significant tax savings by donating the assets rather than selling them and donating the proceeds.
In many cases a charity can avoid paying capital gains taxes when they eventually sell the asset, leaving more funds to support charitable programs.
Example: Jack Investor gives regularly to a handful of charities, including his place of worship. He was concerned about the taxes he would eventually pay when selling the investments in his taxable brokerage account. Jack decided to donate 1,000 shares of ABC Mutual Fund to his place of worship, which sold the mutual fund and as a charity completely avoided capital gains taxes. Jack then took the cash he would have donated directly to his place of worship and reinvested it in ABC Mutual Fund to replenish his long term investment portfolio. If Jack were to do this systematically over many years, he would not only avoid selling and paying taxes on the gifted mutual funds, but also increase the cost basis in his remaining mutual fund investments, which would reduce his future tax liability when he eventually sells them. Jack could expand this approach beyond his place of worship by using a donor-advised fund.
2. Donor-Advised Funds (DAF)
2. Set up a donor-advised fund (“DAF”) with non-cash assets. Many investment houses and community foundations sponsor something called a donor-advised fund, which is a public charity that collects assets from donors and then, as the name implies, distributes funds as the donors advise.
Donors give up legal control of the assets they contribute to a DAF. By so doing, they capture a potential tax deduction in the year of the gift. The DAF generally follows the donor’s recommendation as long as the recipients are public charities. A DAF can be a very efficient way to give non-cash assets (see #1 above) and then split the funds among several smaller charities. This can especially help small charities who may not be equipped to accept non-cash assets directly.
In addition, a DAF may be a consideration for someone who would like to receive a large tax-deduction in one year, but spread their charitable donations over time.
Example: Jane Entrepreneur was planning to sell her successful XYZ Company. She had given modestly to a few charities over the years, but planned to give much more after selling XYZ. Jane decided to donate 30% of her business to “Jane Entrepreneur Fund,” which is a donor advised fund (DAF) she set up at her local community foundation.* Jane got a large tax deduction in the year of the gift, which greatly helped in a very high income year. The DAF eventually sold the 30% business interest to the party who bought the remaining 70% of XYZ. Jane’s DAF reinvested the sale proceeds in a diversified investment portfolio to provide for both growth and ongoing distributions to her favorite public charities for years to come.
3. Giving At Death
3. Make a gift at death in your Will or Trust or with retirement plan assets. Wills and Trusts are often set up without much thought for charity. Sometimes we are unclear how much money could be available for charity in light of personal needs and desires to provide for our survivors.
If your Will or Trust doesn’t reflect your current charitable giving preferences, your attorney could do a simple amendment to bring it up to speed. A gift at your passing could provide a significant boost to a charity’s mission, possibly in amounts exceeding what you might have given the charity during your lifetime.
Note that retirement plan assets are typically passed at your death to assigned beneficiaries rather than by language in your Will or Trust. If you want to use retirement assets to benefit charity, which could be a good move in some cases, consider naming one or more charities as a retirement plan beneficiary.
Example: John and Mary Retired set up their Wills and Trusts long ago when their kids were young and all the assets were structured to flow to the surviving spouse and children. Their children are now out of the nest and getting along reasonably well. John and Mary have long supported several charitable causes, but have always wanted to do more for one non-profit in particular. John and Mary decided to have their attorney do a simple 1-page document (called an “amendment” for a trust or Codicil for a Will) to have a percentage of their assets, up to a specific dollar amount, go to their one favorite charity. They also made the charity a partial beneficiary on their retirement accounts.
Now that you’ve been introduced to some ideas, and there are more beyond the scope of this article, your next steps could include putting your thoughts in writing, talking with your favorite charities, exploring donor advised funds, and consulting with your professional advisors.
About the Author
Neil Mahoney, CFP®
is a fee-only CERTIFIED FINANCIAL PLANNER™ professional who loves to help special needs families and people with disabilities make the most out of the money they have so they can live the best life possible.
