“Show me where you spend your money, and I’ll tell you your priorities.”
That quote comes from the late James Frick, a well-known fundraiser and former vice president of Notre Dame. He knew from experience that a person’s spending habits are a good indicator of their priorities.
You probably have a lot of priorities and moral responsibilities as a person. However, you may not always have the time to carefully manage your wealth to ensure that your priorities are upheld through participation in your favorite charities. Smart legacy wealth management strategies, on the other hand, can help ensure that your charitable planning and giving reflects your priorities. You can effectively implement these strategies to leave a legacy of giving with the help of an executive financial advisor or a wealth manager.
Take a closer look at 3 strategies you need to know to manage your wealth in 2022.
Private Foundations
Private foundations are a popular way to give back to the community and receive tax breaks. There are many different types of private foundations, and each one has its own set of rules and regulations. It is important to consult with a financial advisor or wealth manager to determine what kind of foundation is best for you and your charitable giving needs.
You can start a private foundation with as little as $500,000. Given the administrative costs of running a private family foundation, it may be more cost-effective for clients to fund it with multiple millions. Private foundations can hold assets such as private businesses, tangible assets, and other illiquid assets.
Charitable Lead Trusts
Charitable lead trusts (CLTs) have become increasingly popular estate planning tools. A CLT is a trust that pays a fixed amount of money to a charity for years. The remainder of the trust’s assets is distributed to beneficiaries.
CLTs offer several benefits:
- They allow donors to make a significant gift to charity while retaining ownership of their assets.
- They can provide valuable tax deductions.
- They can help reduce or even eliminate estate taxes.
- They can provide an income for heirs in later years.
Although CLTs have many advantages, there are some potential drawbacks as well.
- The biggest of these is that the charity will be responsible for managing the assets and distributing them to beneficiaries.
- It can be a challenge, particularly if there are several beneficiaries.
- Donors may need to periodically make additional gifts to maintain the trust’s value. It’s particularly true if the donor receives a large gift or re-gifts assets to avoid estate taxes.
- CLTs also require legal and tax planning, which can be time-consuming and costly. But that can easily be handled by a reputed wealth management service.
Qualified Charitable Distribution
A Qualified Charitable Distribution (QCD) is a way for taxpayers over the age of 70 to donate directly from their IRA to a qualified charity and receive a tax deduction. The QCD must be made in cash and cannot exceed $100,000 per year. The donation counts towards the taxpayer’s required minimum distribution (RMD), so it’s a way to reduce taxable income. There are no limits on the amount of QCD that can be deducted from your federal income tax return.
Final Thoughts
Tax deductions aren’t always top of mind when charitable-minded clients donate to their favorite nonprofit organizations. If done correctly, these clients may be able to take advantage of the tax code to make tax-efficient, practical, and impactful charitable contributions.
Income tax planning isn’t something that only the wealthy do once in a while. It’s a year-long process. So, if you want to save money on taxes like the wealthy, it might be a good idea to consult a financial advisor or a wealth manager.
