INDEPENDENT INSIGHTS Market insights from an independent perspective


December 3, 2019

Kevin Karpuk CFA

“No one has ever become poor by giving.” - Anne Frank

At Cornerstone, we are blessed to work for many not-for-profit organizations performing extraordinary acts every day to make the world a better place. We are equally thankful to serve the families and corporations that provide support for those institutions. One of the ways we seek to add value in this symbiotic relationship is to make the charitable contributions from our private clients to our nonprofits as efficient as possible. If we can help to reduce the net cost of the gift to the donor, then there is more available to the charity. We are not tax attorneys or accountants but can provide some ideas on gift design for you to discuss with those advisors.

Efficiency in gift design can come in different forms, including tax optimization. The IRS promotes charitable giving through favorable treatment of capital gains and ordinary income in certain circumstances. We will not get into specifics that are best left to tax professionals who know your personal situation, but we will provide three ideas for you to consider to fulfill your charitable intent: establishing a donor advised fund[1], qualified charitable distributions from tax-deferred accounts, and gifting appreciated assets.

Many organizations sponsor donor advised funds. These include Schwab, Fidelity and Vanguard, but some nonprofits also offer their own. In 2017, the tax law changed which increased the standard deduction. The level of giving required to have the government subsidize charitable donations doubled for most people. To counter that, donors can consider utilizing donor advised funds in which they make a contribution to a fund that may cover their giving goals for several years at once. They can then control when and to whom these contributions are released with a high level of confidence[2].
Another consideration, for those who qualify, is a qualified charitable distribution from your IRA. If you are 70.5 years of age, you are required to take a required minimum distribution from most of your tax-deferred retirement accounts. These distributions hit your tax returns in the form of ordinary income and can cause unwanted income taxes. The government does allow you to direct the maximum of your RMD or $100,000 annually towards a qualified charity. This diverts that income from your tax return directly to the charity of your choice. You can also make a charity the beneficiary of all or a portion of your retirement account.
A third option for you to consider is gifting appreciated securities (typically stocks). If you own a security that has gone up in value, then selling it in a brokerage account will trigger a capital gain on which you will pay tax. If, however, you gift it to a charity, you can receive a charitable deduction for the market value of the gift, and you can avoid paying the capital gains on the sale of the stock. Even if you would like to maintain exposure to the stock, you can repurchase the stock immediately after the gift at the new, higher cost basis, which will create favorable tax outcomes in the future versus the current situation.
Given the strong financial markets of the past decade, if you are thinking of making charitable contributions to support an organization close to your heart, pause before you reach for your checkbook. Cash is likely the least efficient vehicle you can use to help those in need. If you have questions regarding your options for charitable giving, Cornerstone’s Planned Giving Services team stands ready to help. Best wishes during this holiday season. We are thankful every day for the opportunity to serve you.
[1] A private foundation has similarities to a donor advise fund but also significant differences that may make it more or less attractive to a donor. You should discuss your options with your tax advisor.
[2] The assets are irrevocable gifts to the sponsoring charity at the time of the donation, but the donor may suggest how to disburse the assets to the end charity over time.

Kevin Karpuk, CFA Chief Investment Officer

Kevin is Cornerstone’s Chief Investment Officer and is involved with the firm’s Investment Policy and Strategic Planning committees. Kevin joined the company in 2000 after graduating from Lehigh University with a B.S. and M.S. in Economics and earned his CFA charter in 2005. Kevin and his wife Kat support many charitable causes and have established a donor advised fund to propagate their philanthropic interests. They live in Bethlehem with their two cats: Zola and Charlyne, enjoy woodworking, gardening, reading and travel. Kevin is the proud uncle to many nieces and nephews and loves spending time with and spoiling them.

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This material is prepared by Cornerstone Advisors Asset Management, LLC (“Cornerstone”) and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the published date indicated on the article and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cornerstone to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cornerstone, its officers, employees or agents. This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

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