Rarely does the tax code line up with long-term investing approaches, particularly as the capital gains rate is up for examination for increases.
However, the good news is that charitable giving strategies, approaches, and planning create tremendous opportunities for win-win outcomes. Many organizations are receiving a growing amount of support that contributes to advancing society in a multitude of ways, such as increasing access to educational scholarships, pushing the edge for scientific research or promoting access to the arts. The ability of investors to donate unrealized capital gains through innovative vehicles such as Donor Advised Funds, Charitable Lead Trusts, and Charitable Remainder Trusts drives much of this action. A February 2023 article from Thrivent states, “Because donor-advised funds have an indefinite life, this can potentially create a legacy of family giving long after you pass away.” As a result, there is an increasing demand by HNW investors to explore charitable giving options.
According to our recent whitepaper, Charitably Minded: What Giving Vehicle is Right for Your Clients, charitable giving is on the rise. Moreover, Giving USA, part of the non-profit Giving Institute, found that American citizens, foundations, and businesses gave $484.85 billion to charity in 2021. Of that total, private individuals contributed $326.87 billion, or about 67% of all charitable donations. These philanthropic gifts represented an increase of 4% over the previous year. This uptick in philanthropic gifts underscores the importance of how individuals can maximize their contributions' impact.
Advantages of Charitable Trusts
While giving strategies differ, they share common benefits, including:
- Estate Tax Optimization: Assets held within charitable trusts are effectively removed from the donor's estate, potentially reducing the overall estate tax burden upon their passing.
- Tax Deductions: Depending on IRS regulations, donors may be eligible to claim deductions for assets contributed to charitable trusts, providing immediate financial benefits.
- Irrevocability: Once placed into a charitable trust, assets cannot be reclaimed by the donor, ensuring the chosen charitable cause will receive long-term support.
With an abundance of options, finding the right strategies requires collaboration between financial advisors and clients. Advisors can guide clients through the nuances of each strategy, considering financial goals, personal values, and desired impact. Ultimately, the chosen vehicle should align with the client's vision and provide an avenue for meaningful change. Top advisors looking to expand their businesses in the HNW investor segment are rapidly embracing these approaches and turning to expert providers and platforms, such as the SS&C Trust Suite, to scale their ability to grow while increasing operational efficiency.
To learn more, download the complete whitepaper, Charitably Minded: What Giving Vehicle is Right for Your Clients.
Reference
[1] “What are the Different Types of Charitable Trusts?” Thrivent, 9 February 2023, www.thrivent.com/insights/generosity-giving/what-are-the-different-types-of-charitable-trust/
[2] “Giving USA 2022 Infographic.” Giving USA, 7 July 2023, www.givingusa.org/wp-content/uploads/2022/06/GivingUSA2022_Infographic.pdf
