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Gifting Strategies for Spending Down Assets


Using Your Savings to Make a Lasting Impact

I work with many couples who are in their golden years and living securely in retirement. After successful careers and a lifetime of smart financial decisions, they now have a significant nest egg and they need to consider what will happen to their wealth in their later years and after they pass away. Many have kids or other family they choose to leave their legacy to, but that is not always the case. Perhaps they have no kids, or their kids are financially secure, so they don’t feel the need to leave a large inheritance to them.

Their question may be, essentially, “How can we spend down our assets?

For those of us trying to accumulate assets and plan for the long term, this may seem like a good problem to have; however, this is a common challenge for many wealthy people in the later stages of life. Depending on your situation, one answer to this question may be, “Leave a charitable legacy.

Just as you do when you set out to develop a long-term financial plan, take some time to consider your goals, your interests and your passions. What matters most to you? What do you love doing? What has brought the most meaning to your life? Who do you want to help?

Once you’ve decided on a cause, consider the most effective way to give. Following are three ideas.

1. Give directly to an organization

The easiest way to have a charitable impact is by donating directly to an organization that supports your interests. Doing so during your lifetime means you can experience the satisfaction of making a positive impact on a cause that’s important to you.

To maximize your charitable impact while also reducing your tax liability, consider donating appreciated securities instead of cash. Donating securities that you’ve held for at least a year allows you to essentially give more because, (1) you receive a charitable deduction for the current market value of the securities and, (2) the direct transfer of stock to a 501(c)(3) organization does not trigger capital gains taxes for either you or the charity. Your wealth manager can help you initiate a direct transfer of low-cost-basis securities to a charity of your choice.

2. Establish a DAF or a private foundation

A donor-advised fund (DAF) is a charitable giving vehicle that allows you to set aside donations and receive a tax deduction in the current year, while having the flexibility to gift the funds in either the current year or future years. You retain control over how DAF funds are allocated to various organizations.

If your goal is to fund a gifting vehicle that lasts in perpetuity, you may want to consider establishing a private foundation. Compared to a DAF, a private foundation requires more administrative work and is subject to IRS requirements regarding distribution rates and board requirements. However, foundations allow a family to give in ways not permitted through other vehicles, such as making grants to individuals, making program-related donations, managing scholarships and fellowships, funding international grants and engaging directly in charitable activities.

Both vehicles can help foster a spirit of giving that lasts across generations. If your goal is to pass along a passion for helping others and provide your loved ones with an opportunity to make a lasting impact after you’re gone, these strategies can help. Your wealth manager can help you determine whether a DAF or a private foundation makes the most sense given your personal financial situation and charitable goals.

3. Pay for education expenses

Another option for your excess savings is to pay for the education expenses of either a loved one or someone less fortunate.

Many of my clients don’t realize that a payment made directly to an educational institution to cover a student’s tuition does not count as a gift for tax purposes. This means the direct payment is not counted toward your $15,000 annual gift tax exclusion amount, nor is it counted against your lifetime gift tax exclusion. It’s important to be aware, however, that any money paid directly to the education provider may result in a reduction in the student’s eligibility for need-based financial aid.

If you have a goal of helping a non-relative obtain a college education, you may consider establishing an education foundation or donating to an existing foundation. Funding the education expenses of someone less fortunate can be a great way to have a direct, lasting impact on someone’s life.

As with all major financial decisions, it’s wise to consult with your wealth manager prior to implementing any of these strategies. At Creative Planning, we work with clients to identify and execute charitable gifting strategies that can help maximize their impact and minimize their tax liabilities, while leaving a lasting legacy for future generations. For help with your retirement spend-down strategy, or for any other financial matter, please contact us.

Please visit www.irs.gov for details about current tax laws.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.


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