Charity Assessment

What to Ask Prospective Advisors

The Qualifying Charitable Distribution

Using the Qualifying Charitable Distribution (QCD) for IRA’s

There is a tax provision that allows people over 70 ½ to transfer up to $100,000 a year from their IRA to a qualifying charity as a direct pass-through.  It usually doesn’t affect your other taxes and can be used to satisfy your Required Minimum Distributions.  In other words – the state and federal governments never see a dime.  

I’d like to come at the opportunity from two different angles.  The first is for people who are both generous to charity and to their family.  The second is for leaders (or soon-to-be leaders) in those charities.

For families: think of this more as succession planning than current tax planning.  

Your family inherits your assets in three buckets.  Bucket one has things like real estate, securities and personal possessions.  Your heirs may get a step-up in the cost basis so all capital gains are forgiven.  Assets pass at 100 cents on the dollar.

Bucket two has life insurance.  Structured correctly, your family gets those benefits income tax free.

Bucket three has assets that are always taxable like annuities and retirement accounts.  If you don’t pay the tax, your heirs will.  Your children (the employed ones) could lose up to 40% of the value to the government.

Bucket three is the low-hanging fruit for charitable giving.  If you want to do right by your church or cause, give them assets with limited value to your taxable heirs.  Leave your family the assets they can keep.  The QCD is a good start.

At your annual financial planning review, make a list of what’s in your three buckets.  You may also find things in the first two you can do without now and enjoy the deduction.  Some gifts are best given from a warm hand.

For inspiring charitable leaders:  This isn’t about using the QCD – it’s about selling it.

You know people who could contribute a lot more than they have.  Next time you ask for a donation, DO NOT ask for cash!

Try this instead:

Hello Jeff, It’s campaign time again.  Will you be using the new IRA direct transfer this year?

Huh?

It’s a loophole that allows folks to transfer money directly from their IRA to charities like us without paying any taxes.  You can use it to avoid taxes on your required distributions too.  It’s limited to a hundred thousand dollars a year – but we can work around that.  Handy estate gift too …

Er, uh ….

Why don’t you and Helen join us for lunch next Thursday?  I can tell you how we’re taking advantage of the opportunity.

See you then.

Let’s break this down:  In a few sentences, you significantly raised the bar, brought new assets into the conversation, broached death and taxes tactfully, let him know he’s not alone and closed for the “ask” appointment.

Does it matter if he isn’t 70 ½ yet?  No.  Taking money from an IRA and deducting it works about the same as the pass-through for most people in their sixties.

Does it matter if he doesn’t even have an IRA?  No. There may be things in buckets one and two that offer nice write-offs.  

What does matter is you just started a peer-to-peer conversation about his serious money.  Cash is a byproduct of assets.  Go for the source!

BTW, big checks like this make nice challenge grants to help other contributors find their wallets.  Leverage them.  Maybe Jeff can make a couple calls.

Your pancake breakfast isn’t going to restore the chapel.  Be inspirational!  

If I can help explain this to friends who serve, just say when and where and I’ll be there.

As always, the opinions expressed here are mine and don’t necessarily reflect the views of LPL Financial or anyone else.  This is generic information so definitely run this by your tax and legal advisors for your specific situation.  They may have even better ways to have your cake and eat it too.  sh   

$8 Advice

Have you noticed the discount brokerage firms from before the meltdown are now in the financial advice business? 

It makes sense. 

Those firms know exactly how well or badly their clients did.  Ten years of trading hot-tips at eight bucks a pop didn’t work for everybody.  Either you help them pick-up the pieces or someone else will.

I don’t know if this is an opportunity for me.  We haven’t seen a lot of do-it-yourself investors over the years.

The ones who figured it out don’t need my help.

The ones who didn’t figure it out would rather show me a prickly rash than their portfolio.  It’s hard.  

When they do show me (their portfolio, that is), it’s usually because she decided they are not going down with the ship.

Bottom-line; a lot of people never developed the skills and confidence to manage their own investments.  There must be millions of them for the discounters to completely retool their marketing and operations from trading to advice (well, robo-advice, that’s another can of worms in a previous blog).

If you are in that leaky boat, look for an experienced advisor – someone you can look in the eye.  

Talk goals first, investments second.  If he starts with investments, keep looking.  When you get to your investments, relax – we’ve seen worse portfolios than yours.

I’d steer clear of junior 800-number advisors.  This is a tough business with a wicked learning-curve.  

Find someone who always knew you needed help.

Ask a friend who she uses.  You can call me.  Do your homework.

For heaven’s sake, pay for the quality your family deserves. 

Good luck.  sh

PS:  Please forward this to recovering traders you love.  They will thank you someday.  sh 

The opinions expressed here are those of Skip Helms and do not necessarily reflect those of LPL Financial or anyone else. It is not possible to determine the top or the bottom of the market. Investing involves risks, including the loss of principal. Past performance does not guarantee future results. Please consider potential transactions carefully and read all appropriate materials before investing or sending money. No strategy assures a profit or protects against loss. Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA / SIPC