“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 when fulfilling your charitable intent: establishing a donor advised fund,¹ using 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, 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 is a qualified charitable distribution from your IRA, if you are of a certain age. Required minimum distributions (RMDs) from tax deferred retirement accounts are treated as ordinary income on your tax returns and can cause unwanted income taxes. The government allows you to direct all of your RMD (up to a 2024 limit of $105,000) 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, with some limitations. Even if you would like to maintain exposure to the stock, you can repurchase the stock immediately after the gift at a 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 Philanthropic Services team stands ready to help.

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.

Securities Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services are offered through Cornerstone Advisors Asset Management, LLC.
Cornerstone Advisors Asset Management, LLC and Cornerstone Institutional Investors, LLC are independently owned and operated. Cornerstone Institutional Investors, LLC is a member of M Financial Group. Please go to mfin.com/Disclosure for further details regarding this relationship. For important information related to M Securities, refer to the M Securities’ Client Relationship Summary (Form CRS) by navigating to mfin.com/m-securities.
This document is for information purposes and should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney, financial or tax advisor or plan provider. 6482959.1