Studies show that about 90% of the world’s wealth is in assets that are not liquid cash. This would be things like investments in stocks, real estate, retirement accounts, closely held business interests, farms and farm produce, personal assets, oil interests, and even personal residences. And yet about 80-90% of charitable giving is done with cash, check, and credit cards. This is a huge disconnect. Many donors have a considerable amount of their wealth in assets that are not liquid, and yet their giving tends to come from their cash which is the least of their wealth. This is where SPP can help.
We specialize in helping donors with our proprietary process to maximize kingdom impact:
• Developing a maximum kingdom impact plan- this begins with getting clear on how much is enough for you and your heirs and how to efficiently get the amount you want to go to the charities you care about
• Identifying the most tax efficient asset to give to the charities you support
• Structuring a gift that may be illiquid and difficult to transfer. Then assist in converting the asset to cash so that the charity can use the assets to fund their ministry
• Advising donors on the most effective and tax-efficient assets to use to make a gift There are other benefits of strategic charitable giving. There can be significant personal benefits to structuring a tax efficient charitable gift.
Here are some of the benefits:
1. Income to the donor currently, remainder of the asset to charity later. A charitable gift can be structured to generate income for the donor (and in some cases their family) with lifetime income. In many cases the asset given is not earning much income and has a significant capital gain tax that can be avoided.
2. Income to charity now, remainder of the asset to family later. This structured gift is used to generate more tax efficient charitable gifts to your favorite charities and yet retain interest in the asset for use later.
3. Avoiding capital gains tax on appreciated assets, avoiding all estate taxes. In summary, the benefits of wise and educated giving can be many:
• Avoid capital gains tax on highly appreciated assets
• Generate income to the donors and their family
• Generate current income to charities
• Avoid all estate tax
• Convert your business into a “charitable giving
machine”
We will be providing more information on how SPP may be able to assist you in your charitable giving. Thank you for your continued support and prayers for SATC. We promise to be good stewards of all the resources God provides us through the generous support of our loyal donors.
Below is a case study of one of our valued clients we worked with. Jim and Jane owned a successful business and were starting to think about selling it and using the proceeds to give to ministries that they cared deeply about. They had saved and
invested wisely and had accumulated enough in stocks, bonds, real estate and retirement accounts to fund their desired lifestyle. They felt they didn’t need the value of the business for personal use and could use nearly all of it to give to charities. Thankfully, they came to SPP before the sale so a comprehensive strategic plan could be developed to avoid a significant amount of capital gain tax and income taxes.
The plan we developed was successful in achieving all their personal financial, family legacy, and charitable giving goals.
Using a combination of charitable strategies, they implemented the following plan:
1. Transferred a portion of the business value to a Donor Advised Fund (DAF) prior to the sale. This avoided over $1.5 Million in capital gains tax and another $1 Million in income taxes. They now have a giving fund of over $60 Million with which to make charitable gifts over their lifetime. They can include their heirs in the process of making charitable gifts, thus building a family legacy for giving.
2. Transferred a portion of the business to a Charitable Remainder Trust and avoided another $1.5 Million in capital gains tax.
This trust will generate income to them of $300,000 per year and, because they don’t need it, they are able to give this to charity as well. At their relocation (when they both transition to their permanent, heavenly home) there will be another $6 Million transferred to charity through their DAF.
3. At the close of the sale of the business, they funded a Charitable Pooled Trust that generated a significant tax deduction and reduced their taxes by another $1.5 Million in income taxes. This trust generated $200,000 of annual lifetime income which they also give to charity.
In summary, their plan is accomplishing the following goals:
• Saved over $8 Million of capital gains taxes and income taxes
• Generates over $1 Million per year in income, 80% of which they give to their chosen charities
• Over their lifetime will save them over $15 Million in taxes
• Over their lifetimes will allow them to make over $80 Million in charitable gifts
If you would like more information about how SPP could help you achieve your personal, family, and charitable goals you can reach us by contacting Esteban Cardona. Or you can contact SPP at 616-288-3804 or paul@stewardshipplanningpartners.com. This article originally appeared in Scalpel’s Edge Volume 28.
