Integrate Retirement Planning With Charitable Giving

Derek Ferriera and Martin Johnson
Posted: 8/3/2010

For many Americans, giving money to charity – during their lifetime or in their will – is an important financial goal. But common sense says you shouldn’t do so at the expense of other goals – for instance, educating your children or funding your own retirement. By thinking ahead it’s possible to include charitable giving in the comprehensive financial planning process.

Beyond Taxes
When you integrate charitable giving with your other goals the most important question to ask yourself is: “Do I have a heart for charity?” Don’t make donations just to get a tax deduction. The bottom line is that charitable contributions may reduce your tax liability, but make sure those dollars are truly discretionary before giving them away.

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Charitable contributions can take many forms. Most people are familiar with giving cash or checks. But it’s also possible to donate stock or other securities. The advantage is you may not have to pay capital gains taxes on any appreciation in the value of the publicly traded securities – and you may receive an income tax deduction for the current market value. Note that your choice in charitable beneficiaries may affect your allowable charitable deduction.

Other, more sophisticated strategies are also available, such as family foundations. Although the assistance of an attorney is needed, you and your family members can use the foundation to make gifts to your favorite charities. Other commonly used charitable vehicles include:

• A charitable remainder trust. You retain an income interest for a period of time. Then the assets go to the named charity. The donor gets the income plus an available income tax deduction based on the present value of the interest going to charity.



• A charitable lead trust. It operates in reverse, with payments first going to charity. After a period of years the assets go to a noncharitable beneficiary you select. This strategy works best for individuals who don’t need the income the assets will generate in retirement but want to control who gets the property.

Giving During Retirement
Before starting the charitable giving process, determine what your passion is and who you want to help the most. Charity does truly begin at home, and you should make sure you have enough assets to maintain your standard of living in retirement. Work with your financial advisor from the beginning to make sure you have sufficient discretionary assets to continue making charitable contributions in retirement. Computer modeling can help gauge what any financial decision – including large gifts to charity – will mean 10 or 20 years in the future, and they can determine if gifts may be possible in the future after you’ve met your other financial goals.

Charitable Bequests
There are generally three places your money can go when you die – to family members, to charity or to estate taxes. An estate plan can help you control who gets your money at the lowest possible tax cost. In their wills, people often list charities and the dollar amount each will receive. But, make sure your estate can afford the bequests. If you make specific bequests and the market declines, there might not be enough left to take care of family members.

How you phrase things in your will can make a big difference. Consider, for example, a $2 million estate that makes five $100,000 bequests to individual charities. If the estate shrinks to $1 million, the charities now get 50% of the estate instead of 25%. Instead, consider leaving beneficiaries a specific percentage of your estate. With a $2 million estate, $100,000 is 5%. If the estate shrinks to $1 million, 5% is only $50,000, but more is left for family members.

Future Legacy
Oftentimes, people’s charitable interests often expand as retirement nears. They have a greater sense of their mortality and wonder about their legacy. Giving to charity can help add meaning to their life. With proper estate planning, you and your spouse not only can have a comfortable retirement but also leave a charitable legacy that will continue even when you’re gone.

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Derek Ferriera CFP(r), CLU, CHFC, REBC and Martin Johnson are registered representatives of Lincoln Financial Advisors Corp., a broker/dealer, member SIPC, and they offer investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances.

Derek Ferriera CA Insurance License # 0665169
Martin Johnson CA Insurance License # 0B69397

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