A sea lion swimming underwater in the Sea of Cortez, Baja California Sur, Mexico. © Matthew Rader
If you are like me—deeply committed to a cause—but retired on a fixed income, then a major gift to support your favorite organization may not be easy right now. Our future needs are sometimes uncertain and many of us feel constrained to simply make a small monthly contribution, or a one-time donation, hoping that “down the road” we will have the capacity to make a larger, more impactful gift to support the causes we love. But there are ways that you can meet your current philanthropic goals in a tax-effective way now, not necessarily donating cash, and also plan for extending your generosity well into the future. I should note that I am not a tax accountant or estate planning expert, so you should check with your own advisors before making any move I might suggest here.
After my MBA, I spent more than 30 years in banking and, after leaving JP Morgan Chase as a Managing Director, yearned to do something for the environment. I decided to follow my passion, completed an MA in Environmental Conservation Education at NYU, and moved to Washington, DC. There I met many inspiring people dedicated to nature conservation, including Rod Mast, a dear friend for nearly two decades and now CEO of Oceanic Society. I am delighted to have served on Oceanic Society’s board of directors for several years now, and I cannot think of a more fulfilling and important way for me to contribute my time and resources.
Donating Now: Cash or Non-Cash Assets?
Since Oceanic Society is a 501(c)(3) non-profit organization, it is recognized by the IRS as eligible for donations of pre-tax income from U.S. taxpayers who itemize their deductions. As we all know, every year we can make a cash donation from our taxable account and deduct it fully from our annual income before we pay taxes on that income, up to a limit.
But there are significant advantages to making a non-cash donation from a taxable account as well, without having to use your cash. Your financial institution can transfer any appreciated stocks directly to Oceanic Society, and you avoid capital gains tax on the appreciation. In addition, you are still eligible to deduct the full fair-market value of the assets you donated, usually up to $100,000 each year, if the donations were made from a taxable account, as opposed to an IRA. In such a case, the charity (Oceanic Society) gets the use of 100% of the proceeds if they sell them on receipt, and more or less if they sell later, depending on the assets’ market value at the time. You’ll need to check with your tax advisor regarding your specific situation—for instance, if the sale of your assets would have triggered long-term capital gains—but typically, if you’ve held the assets for more than a year your deduction is up to 30% of your adjusted gross income (20% for family foundations), and you can carry forward amounts bigger than that for five years.
Let’s move now from our taxable accounts to those that are taxed later, such as our IRAs and similar. Those of us who are over 70.5 years of age know about the IRS’s required minimum distributions (RMD), which compel us to withdraw a portion of our IRA (or face penalties) every year. The amount rises every year as we get older (the IRS has now pushed the RMD to age 72 for individuals who have not yet turned 70.5). But we can make a Qualified Charitable Distribution (QCD) directly to an eligible charity from our IRA which counts toward the amount we must take out from our IRA every year. Again, we can do this with cash or by transferring assets directly to the eligible organizations. Obviously, as long as we can afford it, we want to keep as much as we can in our IRA, which hasn’t been taxed for all the time it has been sitting there. So, after the charitable donations from your IRA, the amount you still have to take out that year is reduced by the amount of those donations.
Turning pandemic misfortune into fortune, we do get a break in 2020, as the RMD is suspended. We do not have to take any money out of our IRA this year. This means that there is no point in making unnecessary distributions from our IRAs this year, as we’re better off making cash or non-cash donations from a regular taxable account, taking the tax deduction, and waiting to make gifts to Oceanic Society from our IRA next year, or whenever the RMD is reinstated. In case you’re wondering, you can’t have it both ways: because the IRA was never taxed, the deduction itself is not tax-deductible from our regular income.
At a Certain Age: Legacy (Planned) Giving
A more pleasant part of preparing for the day we will be six feet under, is thinking about the good we can still do, i.e. our legacy, when we’re no longer around, through legacy giving.
Legacy or planned giving can be broadly described as:
“a process of arranging a charitable donation now that will allow you to make a larger gift than you could from your regular income, usually allocated at a later date as a legacy, or as part of your overall financial planning both for now and when you’re gone.”
This type of philanthropic giving serves a dual purpose – allowing us ordinary people to give large gifts to non-profit organizations while protecting our assets, and at the same time providing substantial tax breaks and financial benefits for ourselves and our families later.
I like to think of my legacy as the impact I want to be remembered for when I’m gone. Planned giving helps me achieve that legacy. For each of us, maximizing the benefits for our heirs and our favorite charities, such as Oceanic Society, is complicated and the laws are changing all the time. That’s why it’s important to consult a professional to determine what is best for you. It might help to look at a checklist of some of the most common options:
- Bequest – Designating Oceanic Society in a will or living trust is by far the most popular type of planned giving; it is easy to do and costs nothing during a donor’s lifetime. The bequest is usually a dollar amount or a percentage of an estate, which will go directly to Oceanic Society after your death.
- Legacy Giving – A donor can name Oceanic Society as the full or partial beneficiary on any of their retirement accounts (IRA, 401k, 403b), or on their life insurance policy. Your heirs can benefit as well since the designated proceeds are exempt from estate tax.
- Personal Property – Tangible property, such as artwork, collectibles, books, and more, can also be gifted to a nonprofit. Most times, the gift will yield a charitable deduction for the fair market value of the item, with no capital gains liability to the donor or organization, but unlike listed securities they can be tricky to appraise.
- Charitable Remainder Trust – Here, the grantor receives income from the trust until he or she dies, then the balance goes to the designated charity. It can get complicated and expensive to set up.
I hope this has been helpful as we all think of ways we can help Oceanic Society fulfill its mission, at this time especially. In the aftermath of the Coronavirus pandemic we are all naturally, and rightly, concerned with our own health, and that of our fellow humans. But what about the health of our planet, and specifically of our oceans, the blue heart of our living world? Simply because this is being overshadowed by justifiable humanitarian concerns it’s exactly the time to think about ways in which we can support Oceanic Society, both today and in the future.
