Click below to listen to Episode 90 – Charitable Giving Strategies Using Non Cash Assets

Charitable Giving Strategies Using Non Cash Assets

Learn about how to efficiently give to your favorite charities.

Tis the season for giving, so what better way to celebrate the giving spirit of Christmas than to learn how to give better and more efficiently. When most people think of giving to their church or charity, they usually only think of what they have in their checking and savings accounts to give. Yet, on average, only about 10% of assets are held in cash.

In this podcast, Bob covers the most efficient ways to give using the other 90% of what’s in non-cash assets. He is joined by a charitable giving expert, Ryan Assunto of the National Christian Foundation, to talk about giving more efficiently. The National Christian Foundation is the largest Christian, non-profit organization in the United States assisting donors in donating to charitable causes. NCF is also the leader in accepting non-cash assets, and is the nation’s largest provider of donor-advised funds focused primarily on Christian givers.

GUESTS: Ryan Assunto of the National Christian Foundation
HOSTED BY: Bob Barber, CWS®, CKA®

Mentioned In This Episode

Christian Financial Advisors
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Bob Barber, CWS®, CKA®
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Ryan Assunto
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National Christian Foundation
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EPISODE TRANSCRIPT

[INTRODUCTION]

Welcome to “Christian Financial Perspectives”, where you’re invited to gain insight, wisdom and knowledge about how Christians integrate their faith, life and finances with a Biblical Worldview. Here’s your host Christian Investment Advisor, Financial Planner, and Coach, Bob Barber.

Bob:
So welcome to today’s podcast, podcast number 90. I’m kind of astounded when I say that. I can’t believe that I’m at my 90th podcast already, but being that this is right before Christmas, and we’re going to be bringing this to you. I thought it’d be a great podcast to do on giving. And a couple of years ago, I developed a program called 10-4-4 giving. I presented this in many churches and charitable organizations, and I thought what would be nice today is get one of the experts on giving to do the podcast with me. So, I have on the other line with me through our technology, Ryan Assunto. Hey Ryan, welcome to the podcast.

Ryan:
Hey Bob. Thank you. It’s great to be with you today.

Bob:
You’ve done this before, so you know how to do this and I have a feeling you do these quite often.

Ryan:
Anytime I get a chance to talk to you, Bob, I’m glad for it. It’s always good to talk about giving with a financial advisor who likes to encourage his clients to give.

Bob:
Well, being around Christmas time too, that’s always top of mind. And also, here we are at the end of the year. So there are tax advantages, but that’s not the only reason that we give. We give because God’s word calls for it. It releases the bondage of selfishness. Scripture says it’s more blessed to give than receive, and there’s no doubt about that. I just wanted you to come on with me and Ryan, tell the audience a little bit about you. I mean, I know about you. I know you’re with the National Christian Foundation, one of the largest Christian foundations in the United States. You’re in Austin, so you’re not far from me, but we’ve got listeners in New York and California and Chicago, and all over the place. So, tell everybody about your experience and a little bit of your background before I get you to come in and help me with this.

Ryan:
Sure, sure. I’d be glad to. So you’re right. I work with National Christian Foundation. I’m the president of the Austin affiliate, and NCF is a charitable giving organization that helps generous givers find creative ways to give more to the causes they care about most. We have a national office just outside of Atlanta, Georgia, and about 30 local offices all spread across the country in different metropolitan areas. We have the privilege of walking alongside generous givers as they use the resources God has put in their hands to support the charities, the churches, the nonprofits that they love. Bob, most people as you well know, most people have a financial strategy but they don’t really have a giving strategy. So, they end up just kind of with a shotgun approach to their charitable giving. They end up missing opportunities. They end up wasting money in places and at NCF, it’s our privilege to come alongside generous donors and help them develop a giving strategy so they can be wise stewards of all that they own and experience the joy of growing generosity.

Bob:
So you’re a business, a nonprofit business, that is all about helping people to give more wisely and in better ways.

Ryan:
That’s exactly right. So we are a nonprofit and we’re a faith-based nonprofit explicitly as National Christian Foundation. Our vision is every person reached and restored through the love of Christ. And our mission statement is mobilizing resources by inspiring biblical generosity. So we are clearly faith-based and yes, we help folks, again, think about creative ways to give from all of their wealth. In the United States, when you look at how we own things, assets are held in the US in a kind of a mix of cash and non-cash, but only about 10% of the assets we own are in cash. 90% are in other things like real estate, publicly traded stocks, privately held business, other kinds of non-cash assets. But when you look at how we give in the US, 80% of all charitable giving happens in cash, which means 80% of all charitable giving comes out of only a 10% slice of the wealth pie. So we have a lot of resources that go untouched when it comes to charitable giving. And at NCF, we help people think about their entire balance sheet. We help them think about their non-cash assets, as well as their cash assets, and how to mobilize those for kingdom causes.

Bob:
As the program is called, it’s called 10-4-4, and we’re going to go over 10 planned giving strategies, 4 planned giving time periods, and then we’re going to go over 4 planned giving tools. And these tools are what NCF can help us with.

Ryan:
That’s right. That’s right. We love to help people with the particular tools, as well as the the strategies and the time periods to help folks give things away. So, we work alongside people like you all the time to help clients make the best decisions when it comes to charitable endeavors.

Bob:
So the first giving strategy that I’ve shared when I’ve given this presentation in churches and charitable organizations is the estate plan. So how can we use the estate plan in our charitable giving?

Ryan:
Well, you can name charities in your will to give things and assets away when, upon your death, you can name charities in your will. We frequently encourage people to name a donor advised fund as a particular type of charitable giving vehicle that allows your heirs after your passing to decide where your charitable assets may end up. So if you want them to engage in giving as a part of the legacy that you leave, then the charitable assets can be left to a donor advised fund, and your heirs can be the advisor on that fund to select where those assets may end up.

Bob:
But you can give out of a donor advised fund. You can give to a church. You can give to any of your favorite charities. Cause we have one, we call it our family giving fund, and that can be in your will or your trust. And then, like you say, your beneficiaries can help you. That really a great way to create a legacy.

Ryan:
Absolutely, absolutely. When people think in terms of legacy planning, they’re usually thinking about how to pass down assets to their children. But what we all know is true is that there are challenges that come with inherited wealth. And so, involving charitable giving in your estate planning in your will, can be a helpful way to pass along values, and not just valuables, to your kids. So what I mean is if you leave charitable wealth in a donor advised fund for your heirs to give away, then you are in effect saying to them, giving is a value in this family. And I intend for it to always be a value in your life as my children. And so I’m giving you something practical that you can work with, that you can do something with, to be a part of giving things away.

Bob:
I caught on to something as you were talking there. You said values, not just valuables.

Ryan:
That’s exactly right. That’s exactly right. There’s an old saying that says shirt sleeves to shirt sleeves in three generations. And what that means, basically, is you’ve got an initial generation that creates wealth, a second generation that spends and uses the wealth, and then a third generation that really didn’t have to work for it. They didn’t watch anybody work for it, so they don’t appreciate it. So they typically squander the wealth. So the family goes from shirtsleeves to shirtsleeves. That is really hardworking to really hardworking in three generations. Frequently, that’s because of a lack of communication or a lack of the handing down of values. Most family wealth goes away, not because of poor legal planning or poor investment advice, but because of poor communication and a lack of trust and relationships. And so what we see is, again, when you utilize charitable giving as a tool to make an impact in your family, then the communication about giving, the values that are expressed through giving, the way that your eyes are opened through giving opportunities, you really do end up making an impact in your kids and grandkids that you couldn’t make if you just left them a big hunk of cash.

Bob:
Right now, right around Christmas time and New Year’s, the families are getting together. We’re keeping our social distancing, but we’re still getting together. This is a good time to talk about these giving strategies. I can watch my children’s eyes light up when I start talking about this. They’re like wow. This is pretty cool. I mean, you’d be surprised how your children don’t mind. I mean, mine haven’t minded and we’ve shared with them, how we’re going to give a percentage from our estate plan to the donor advised fund. So let’s get into the second strategy. So we have the estate plan and the second strategy I’d like to share is retirement plan assets. Now this is like your 401k or your IRA. And, Ryan, I’m amazed how many people I see every single day, they have the large asset. Those 401ks can easily be 500 to 1.5 Million dollars. And they’ve never thought about including a charity or a donor advised fund or a giving fund as part of the primary beneficiaries or the contingent beneficiaries, which it makes so much sense too, financially, because all that money that’s going to go to the heirs is going to be taxed 100%, where if you give it to the charity, it’s not. So I think this is one of the greatest assets to give away at death to a charity is using your retirement plan assets.

Ryan:
Absolutely, absolutely. These IRAs, 401ks, just like you talked about, these qualified plans where you get to a place where you have to take a required minimum distribution, obviously through your life, you take those RMDs, you use them for your lifestyle and then at your death, there is generally something left and the question becomes how do you plan? What do you do with that something? And one of the things you can do is use it as your charitable giving vehicle. It becomes a great tax efficient passing of assets to just give this to charity. The other thing that I would say about it that we see most frequently is for people who are taking their required minimum distributions, they are taking their RMDs, and they are utilizing those monies for their lifestyle. If they are receiving their RMD and then writing checks to charity, they’re leaving money on the table.

Bob:
Yes, they are. That’s right.

Ryan:
A tax burden, but they don’t have to. They can send qualified charitable distributions from their IRAs directly to charity. There’s a double benefit here. It counts against your required minimum distribution, but you never actually have to recognize it as income. So, you’ve skipped the taxes on the income recognition and you send money directly to the charities you care about most. Each individual taxpayer can do this up to a hundred thousand dollars every year. So if you have an RMD that you are taking and then making charitable gifts from that income, I would tell you, please reverse that scenario. Give from your RMD first, and then only take the portion of your RMD that you need to fund your lifestyle. You will, number one, pay less in taxes, and number two, send more to the causes you care about most with these qualified charitable distributions.

Bob:
Ryan, this is one of the biggest things that we do at Christian Financial Advisors. I’d say the majority of our retirees, and they’re very fortunate, most of them have a nice pension plan and we have a lot of retired military. So, they’re making a good pension there and then maybe social security on top of that. So, they don’t need their RMD. And we send hundreds of thousands of dollars every year to charities utilizing this strategy.

Ryan:
Yes. Yeah, it’s a great strategy. It’s super efficient. And for folks who are again in that stage of life where they’re taking their RMDs, our encouragement is give first, and the benefits are tremendous.

Bob:
Now, the third strategy I have here is highly appreciated stocks. And as we are getting towards the end of the year and we’re rebalancing our accounts, we balance many times often anyway. And because we did that back in March when the market was at all time lows, we have a lot of appreciated assets in our portfolios. I imagine a lot of our listeners do too as well. So here at the end of the year, think about instead of giving cash, give the highly appreciated stock. Now, Ryan speak into that.

Ryan:
So yeah, giving highly appreciated stock is tremendously tax efficient. I will say in the unique scenario that is 2020, you have to be a little bit careful with this strategy, because when you’re giving away gains like this, you need to make sure you’re giving away long-term capital gains. Gains that are less than a year old are not as efficient as games that are a year and a day old. So what we would tell you, though, is anytime you’re rebalancing your portfolio, look for your long-term capital gains. Look for your biggest winners. This is where people who are rebalancing, this is what they’re looking for anyway, right? Because you want to buy low and sell high, right? So you’re looking for things to sell so that you can take cash and then buy something that is soon to run up against, something that might be low. So what we would say, instead of buy low and sell high, we would say give high. We would say give away your winners, because that’s where you have the most capital gains exposure to give away. So, for somebody who, let’s say they’re giving away $20,000 to $25,000 a year, maybe it’s a lot more than that. Maybe it’s a lot less than that, but let’s just pick that number. Somebody has given away about $25,000 a year, we would say, Hey, quit writing checks to charity. Quit writing checks from your cash that has already been taxed. Take $25,000 of your most appreciated stocks. Give those in kind. In other words, don’t sell them then give the cash. Give them as stocks. You’ll get the full deduction for a non-cash gift. That is it didn’t cost you any cash to get that deduction, then take your cash that you were going to give to charity and reuse it to rebalance your portfolio. At the end of the day, your portfolio has lost no value, but you have increased your cost basis in your portfolio so that when you do start selling investments for your own lifestyle purposes, you have a lower tax burden that day. So not only do you give pre-tax assets to charity, which equates to more money to charity over time, you also continuously reset your basis in your portfolio, lowering your tax burden over years and years and years. People who do that strategy all their life long and give stock from a taxable portfolio and then rebalance with cash, they find themselves, once they near a retirement, with a efficient cost basis in their portfolio, meaning they don’t have a lot of tax to pay upon retirement. And they’ve given away more for decades.

Bob:
So Ryan, you’re the expert in giving. So, you can’t do this with short term gains.

Ryan:
That’s correct. You can give away short term gains. Don’t ever say you can’t. It’s just not as efficient. So when you give away something you’ve owned for less than a year, your deduction is your cost of basis in that investment. If you give away something that’s long-term capital gains, it’s a true capital asset. Your deduct-ability is now based on fair market value at the time of the gift.

Bob:
Okay. I’m glad you clarified that.

Ryan:
Yeah. So for short term capital gains, your deduction is limited to your cost basis.

Bob:
All right. So man, we’ve got 10 of these we’ve got to go through. So we’ve gone through three so far.

Ryan:
I’m talking a lot. Sorry, Bob. I get pretty excited when people are talking about giving strategies.

Bob:
You get kind of excited, don’t you?

Ryan:
I do.

Bob:
Yeah, that’s a good thing. All right. So the giving strategy number four is real estate. And man, I mean, when people think of real estate, they normally just think of their house, but they don’t think of that little residential lot they own somewhere or some of the acreage, a couple acres they own, or maybe it’s a condominium or it’s an office building. But by the way, I want to mention, no timeshares here. That doesn’t work, but they don’t think of all the different types of real estate there. I bet you’ve seen some big gifts from real estate.

Ryan:
We’ve seen some great gifts from real estate and yeah, you’ve listed a lot of them – empty lots, right? Commercial lots, residential lots, apartment complexes, rental property of any sort, office buildings. Real estate’s a great gift for several reasons. Number one is you get a fair market value. You get a deduction that’s based on fair market value. And number two is a really efficient flow of funds to charity either if it’s ongoing rental income, or if it’s sales proceeds, assuming their real estate has little to no debt. Debt is always a question mark with real estate because so much of our real property assets are financed with debt. We do a pretty thorough evaluation to decide is a gift of real estate really going to send more to charity or not? But at NCF, we have a team of attorneys and accountants on staff in-house that evaluates real estate gifts to determine whether or not they really are more efficient. But man, if you’ve got passive income being produced from a debt-free source, there’s not a better charitable giving vehicle. A charity can own that asset indefinitely and not have to deal with unrelated business income tax on our side. And so, the donor gets a big deduction, and the charity gets an ongoing income stream to continue to support your fund as long as you want us to own the asset.

Bob:
Okay. So you can give away that rental income. Let’s say you have a rental house and you want to put the rental house in a charitable program of some kind, can you give the rental house and keep the income or vice versa?

Ryan:
Yeah. When you give the rental house, you give it to a donor advised fund, you give away the income stream, but then that becomes the vehicle that funds your giving. So instead of recognizing that rental income personally, and then writing checks to charity, the charity just owns the income stream. And so that flows into your giving fund for you to recommend grants to your church and your favorite charities.

Bob:
Okay. So that can hold on to that real estate or it can sell it. And either way, there’s not going to be a tax burden and you’ll get a tax deduction for it. Okay. All right. So our giving strategy number five that I have for the 10 ways of giving is a business interest. I know you’ve got some pretty cool stories. Let’s not share all of them, Ryan. We only have 45 minutes to do this, but pick one of your stories that you really like about where someone’s given away some of their business interests, but they continue to own the business.

Ryan:
Yeah. So we’ve had a couple. Just a few things here, but one of the most significant ones is there was a giver who gave us a piece of their business each year and received a deduction each time they it did it for about four years running. And at the end of the day, we ended up with a substantial piece of their business as charity there. That is to say there, the benefits flowing to their donor advised fund. So we owned the business. We owned a non-controlling piece of the business. That’s important. As a grant making charity, we are looking to not be in control of the business interest gifts that are given to us, except that we have a say in what to do with them and how to dispose of them. But we really want to follow our donors lead because again, they’re the best stewards of these assets.

Ryan:
We don’t know how to run all these businesses, but we can be passive shareholder with an owner who does know what they’re doing. And then charity is like a silent partner, like a limited partner investor in the company at that point. And we receive dividends or sales proceeds as they are generated from the business. We can own these businesses across multiple tax years. Sometimes, we have to dispose of our interest in five years. Sometimes, we do not depending on a lot of different factors, but we can hold a gift of business interest in an ongoing way over time. And that can become really beneficial for a charitable business owner to share in the ownership of his company with charity.

Bob:
So he can say, I’m going to hold back. I’m going to own 90%. I’m going to allow the charity to own 10%.

Ryan:
That’s correct. They can do 1% or 2% or 10% or 99%. We’ve taken business interests gifts all over the spectrum. And it’s very encouraging to watch business owners. In our communities, it’s not uncommon to have somebody who says, I really want to operate this business like it’s God’s. I want to operate this business like it’s his. We were sort of bought into the theological idea that God owns it all, and we’re merely stewards. I think that’s a good, solid, biblical idea to buy into, but it sometimes can be hard to work out, but it’s true that God owns it all. And if that’s true, people will come to us and say, Hey, I want God to own my business and what we would say is, well, I can’t make God an owner, but you can give it away. There is a charity that supports kingdom causes that can be an owner of your business with you and help you think about how to steward it from a godly perspective and help you think about how to flow funds into kingdom causes in the most efficient way possible.

Bob:
So many questions go through my mind. We could spend another 30 minutes on this. I mean, I’m just thinking about the way you own your business and what kind of structure, et cetera. But hey, if this peaks your interest and you’re hearing us on the podcast and you’re a business owner, contact us and I’ll get you in touch with Ryan and we can talk about that.

Ryan:
We love having those conversations, and we have them all the time. One of the joys of working with NCF, I mentioned our team of in-house attorneys and tax counsel. We have received over the last call it 20 years or so, 20-25 years, over $3.7 billion in value of different business interest gifts, thousands upon thousands of business interests gifts have been made to our organization over the years. Our team is very well versed on how to walk through or how to create particular kinds of ownership structures so that your charitable goals are met, and your business continues to operate effectively.

Bob:
Was that with a B?

Ryan:
That was with a B, yeah.

Bob:
3.7 Billion. I think y’all know what you’re doing, then. So if you’re a business owner, and you love the Lord or know one that does, definitely look at this strategy. All right. The sixth strategy, boy, this is a big one for those of us in Texas or a listener up in Pennsylvania, anybody that’s around oil and gas and that’s the oil and gas interests. And this could be so big here in South Texas. Have you seen any examples like this?

Ryan:
We have. We have. Yeah, several different kinds. We’ve got people who have given us oil and gas rights. Generally, the passive mineral interests are the best gifts to make here. And so, there’s a lot of tax implications around gifts of oil and gas that might have to do with depreciation or depletion and recapture and how that plays into things. These are complex gifts, I will say. But again, that’s where a team like NCF comes alongside you to be helpful and can create a lot of value. We’ve seen some givers give royalty streams and basically sort of works a little bit like a gift of passive income from debt-free real estate, right, Where you’ve got this ongoing cashflow. In many cases is being recognized by a donor who, or an individual who doesn’t need it for their lifestyle, right? Aagain, they’re already inclined to be charitable. They’re going to give money away anyway. So what we come alongside and say is, Hey, let’s do that in the most efficient way possible. Frequently, that is give the mineral interestS themselves and let the royalty streams flow offline for you, totallY outside of any tax burden you might incur and flow directly into your charitable fund so that more money goes to the causes you care about.

Bob:
Now, can they do a percentage of the mineral rights?

Ryan:
They can. They can. And Bob, to be fair, that’s what we most often see. It’s pretty rare when somebody will say, yeah, I want to give you 100% of this royalty stream I’ve got, right. Most people need some of it for their lifestyle or something personal to fund other investments or other business activity. The most often we see a percentage interest gift.

Bob:
Okay. So, and y’all just think about all the different mineral rights. There’s oil rights. There’s natural gas. There’s even water rights that come into play here. So, the seventh strategy is an interesting one many people never think about, and this is miscellaneous valuables and collectibles. I’ve got some really cool examples and you’ve seen my presentation, so let’s go over some of them.

Ryan:
Yeah. So I’ll start by saying these gifts are also complex and you need a good advisor walking with you through the process. It is not uncommon. I’ll speak like a charity representative for a bit here. It’s not uncommon for good hearted charitably minded individuals to make a gift to a charity that ends up being a burden to that charity. What I mean by that is, imagine this scenario, and this is actually a real life scenario. We had a good hearted individual who loved the Lord and loved charity, want to give an old school bus to a new school that was forming, right. And the bus itself was actually really old, to the point where it was broken down and needed a tremendous amount of repair work. It was a hassle, so to speak, for the person who owned it and they thought it would be good to give it to somebody who could use it. Well, if the school bus doesn’t run, the school can’t use it, right. It’s going to be a real headache to take it somewhere, to get it fixed, to service it, to get it back in use, and become functional, to the point where there were several schools that looked at that bus and said, no, thank you. I’d rather not have the hassle. So, when you’re giving gifts like these, my encouragement to the donor is put yourself in the seat of the charity and ask the question is the gift actually usable. And one of the things we see frequently these days is an old laptop, right? You get an old laptop or two or three, and somebody says, Hey, I want to give this to a missionary school overseas. Well, you know what? If that laptop can’t get on the internet at your house, it can’t get on the internet overseas either. So, it’s not a gift that’s necessarily going to be really usable. So I appreciate the heart behind all of these gifts, but you do want to think about are you giving something that’s valuable, that’s usable, or are you giving something that you just want to get rid of? And if it’s something that you just want to get rid of, be careful with that, because you might be creating a burden for a charity that is not good for them and their mission. So with that disclaimer, let me say, if you’re talking about artwork and antiques and automobiles and boats and airplanes and these kinds of things that do have significant value, they can be great charitable gifts. They really can be. You do need to give these sorts of assets, most frequently, to a charity that is going to use them for their charitable purposes. That’s where you’re going to get the highest and best tax deduction. In other words, if you give a piece of art to somebody like me as a donor advised fund provider, because I’m somebody who’s going to probably just take that art and sell it and then you use the cash to put it in your donor advised fund. You’re not going to get much of a deduction for that. You’ll get a better deduction if you take that artwork and give it to a museum that’s going to display your art and use that art as a part of its charitable purpose.

Bob:
What about the classic automobile? Let’s say the automobile is worth $30,000. Can’t they give that to the charity or donor advised fund and then a donor advised fund can sell that automobile for $30,000? Now, is that a $30,000 deduction?

Ryan:
It is, but interestingly enough with automobiles, and we had looked into this earlier this year for one of our donors, with automobiles, the deduction does not become usable until the charity sells the asset. For that $30,000 car, the charities got to sell it for the donor to take that deduction. So there’s a series of paperwork issues that have to be handled correctly to substantiate the value of the deduction and the gift of a car, frequently, it’s kind of the same. If the donor takes the car and sells it and then gives the cash as opposed to the donor giving the car to charity and having charity sell it.

Bob:
All right. All right, let’s go to the next strategy. Boy, this is one I’ve seen over the years. People collect a lot of gold and silver and they had these gold bars, and they don’t know what to do. I mean, I’ve seen some of our clients inherit huge amounts of gold from their parents and they don’t know what to do with it and how to get rid of it, and it’s expensive and the commissions can be high. Let’s say they’ve got $25,000 worth of gold and silver. Can they give that to a charity and receive that deduction for it? Or, does it have to be sold again before they receive that deduction?

Ryan:
They can give precious metals like this and receive a deduction. And the caveat here is they have to actually give it to a charity that can, and will, take physical possession of it. And so if you think about just the mechanics and the logistics of giving away gold coins or gold bars, you will need to give that again to a charity who is equipped to take physical possession. So, that might mean special safes or special transport or something like that. So that the charity can say, yes, I’ve taken physical possession of this precious metal or stone. And then you’ve got an appraiser who will say here’s how much that is worth. And that becomes the value of your deduction.

Bob:
Does the National Christian Foundation do this kind of thing?

Ryan:
We unfortunately do not, at least as a rule, because we are scattered all over the place. We just don’t have the infrastructure to support these kinds of gifts.

Bob:
Okay. All right. Maybe your local church though, could, I don’t know. You’d have to go to them and talk to them about it.

Ryan:
That’s right. You do. That’s that’s the key, Bob, is you’d have to go to the individual charity and discuss this with them and discuss their capacity to receive the gift appropriately.

Bob:
Well, I think you’d be surprised, Ryan, how many people have gold and silver coins like this, or gold, bars and it’s worth a lot and they don’t know what to do with it, and they’re trying to figure it out.

Ryan:
Yep. It can be a challenge. And it’s a great thing to think about how to be generous with it. You just want to be careful. In the charitable giving space, most of us are accustomed to a charity receiving a check, right? Cause that’s how we give, again, back to that kind of 80% of all charitable gifts happen in cash. Most of us go, oh, there’s nothing to receiving a gift. I just write my charity a check, and they take it. Yes, that is true with cash. The receiving of a gift gets complicated as the assets get more complicated. You want to make sure you’re having an individual conversation with the charity you want to support about can you actually receive this gift?

Bob:
So let’s get to number 9, we’ve got 9 and 10, and then we’re going to get into four different time periods of giving and different vehicles that we use. So planned giving strategy number 9 is very simply things like life insurance policies or anything that has a beneficiary name to it. Like we said earlier, that could be your IRAs, but a lot of life insurance policies, you get to a point in your life and you still have that policy. And at that point, you’re debt free and the kids are out of the nest and you could go in and just change the beneficiary designation on your life insurance policy to a donor advised fund or to those charities that you really love.

Ryan:
That’s exactly right. That’s exactly right. And that can create a tremendous future benefit to charitable causes. Now, again, in the scenario as you’ve described it, you’re setting up your heirs to give more than you being a part of your giving, but this can be a great blessing to lots of different churches, lots of different charities, lots of different organizations when they are a part of somebody’s life insurance proceeds. Absolutely.

Bob:
And it could be a partial beneficiary. It doesn’t have to be all the way.

Ryan:
That’s exactly right. It’s exactly right. Let’s say you have three children and you divide your life insurance proceeds equally between the three or however you divide it up. Well, you could divide by four, right. And you said give some to each of your children and some to your charitable fund, lot of ways to think about.

Bob:
Okay. And then our last one is the power of giving before selling. This is something that I’ve always been very intrigued by. Actually, the first time I heard this was from you and the National Christian Foundation. So we take an example here of a $300,000 asset that’s been completely depreciated. And example number one is you’re going to sell the asset and then give some of the cash to charity, maybe like 10% or example number two, give a portion of the asset and then sell it. So let’s go over this scenario and try to bring this to where somebody can hear this on the podcast and understand what we’re talking about.

Ryan:
Yeah. So giving before a sale event can be dramatically consequential. The benefit that can be created by giving an asset before a taxable event is significant. So what you’ve listed here with a $300,000 asset that’s fully depreciated, you sell the assets, then give cash, and again, you’ve got your 10% gift. But if you said, okay, let’s figure out where that puts me as an individual in terms of my take-home. And that’s going to be a certain number. You could say, all right, if I want to end up in the same place, but I give first then how does that change my giving? What you’ve written here is, somebody can give a portion of the asset and then sell. And then there ends up being an extra 10 grand in this scenario given to charity that is fantastic. And the family typically ends up in the same place, maybe a little bit better place, if they give before they sell. What I mean by that is when you think about walking through a sale of an asset, the proceeds are going to end up in probably one of three buckets. They’re going to go to you, they’re going to go to pay your tax bill, or they’re going to go to charity. And when you give before a sale, what frequently happens is that you’re able to convert tax dollars into charitable dollars without affecting what you take home. So you give more by giving pre tax. Sometimes, depending on the dynamics of cost basis and debt and capital gains versus ordinary income recognition and how those things work, if you’re looking at all capital gains on a debt-free asset, then it is possible to take home the same number and increase your giving by 50% or more just by changing the timing of the sale. Meaning, if you give your business, let’s say, before a sale, instead of giving cash after the sale, then you’ll end up giving 50% more to charity with this process by giving before you sell.

Bob:
Well, we’ll go through that with you. So if that sounds something that intrigues you to be able to give more, but have the same net effect to yourself, give us a call and we’ll go over that with you. All right. So there, we’ve gone through the 10 strategies for giving, and then we have the 4 giving time periods, and that breaks down into, of course, “you can give it now”, “you can give it later”, like we mentioned a lot of this through your beneficiaries and through your estate plan. There’s a third way. You can “give an asset now, but keep the income”, or “you can keep the asset, but give the income”. So there’s those 4 different ways. Examples of things that you can give right now would be stocks, real estate, collectibles, business interests, precious metals, miscellaneous valuables, and oil and gas interests. Or later would be things like your estate plan, the beneficiary of your IRAs, beneficiary of annuities, beneficiary of life insurance policies, even a donor advised giving fund, which that’s what we’ve done. We’ve got the donor advised giving fund/family fund. It’s 20% of our estate plan. We’ll give later at our death that will go into the donor advised fund, but there’s also the “give now, but keep the income for your lifetime”. And that’s a charitable gift annuity. So I want you to talk a little bit about how a charitable gift annuity and a charitable remainder trust works, where you can give now, but keep the income.

Ryan:
Sure. Yeah. Let me say these two gifts types – the charitable gift annuity and charitable remainder trust – fall into a category of gifts that we refer to as split interest gifts. And what that means is you’re going to make a gift, but the interest flowing from that gift is going to be split between the original donor and charity. And so, a charitable gift annuity works pretty well like any annuity investment would work. You buy an annuity. In this case, you make a gift that purchases an annuity. You receive the income from that annuity for your life or you and your spouse’s life or a set number of years, depending on how you set up the annuity. But you receive an income stream, basically, for the rest of your life. And then charity gets the residual. It gets what’s left over when you pass. So it is a way of generating a bit of a charitable income tax deduction now that’s going to be defined by some actuarial tables and your life expectancy and what the anticipated value going to charity in the future is, but you’ll get an income tax deduction now. You’ll get an income stream flowing from that asset, but you will also know that you are supporting charity at your passing with what is left in that annuity. And that can become a really effective planning strategy for somebody who likes an annuity as an investment, and believes that buying a guaranteed income stream for the rest of their life is a really good thing for them to do, but they want to support charity as well.

Bob:
Why you wouldn’t do this, the charitable gift annuity, over a commercial annuity with an insurance company because the insurance company is going to keep the money or the charitable organization could keep what’s left over, and I’d rather the charity keep it.

Ryan:
I would agree. I think that’s a great way to look at it. And for those of you who work for insurance companies, we still love you, but there are a lot of charities out there that can use that money. And it’s a great way to think about the value that the Lord has allowed you to create and steward over your lifespan and are you really handling it in a way that honors him?

Bob:
Let me ask you something here real quick, the National Christian Foundation, they offer these charitable gift annuities, correct?

Ryan:
We do. We do offer charitable gift annuities, not all charities do, but we offer charitable gift annuities. What’s unique about a CGA at National Christian Foundation is we take the residual value that is, again, an actuarially defined number that will be given to charity upon your death. And we forward that to your giving fund when you buy the annuity so that you can start giving now, and you can actually do that giving while you can be a part of it. And so, that becomes a great thing for our givers who want to give now, but they want the charitable gift annuity to support some of their lifestyle needs.

Bob:
Well, we’re saving some of the best for last as we’re getting near the end of today’s podcast. Your church can be involved in this, correct, with the National Christian Foundation. So what’s left in that charitable gift annuity could go back to your church.

Ryan:
That’s exactly right. That’s exactly right. It’s a great way to support a ministry that’s undoubtedly poured into you all your lifelong.

Bob:
Wow. I’ve always been excited about this, and I’ve always said this needs to be my second calling in life is to go just promote charitable gift annuities, because it’s a way to help yourself, it’s a guaranteed income for life, and then to help what’s ever left in there to go to your church. And like we said, we like insurance companies, but I’d rather it go to my church.

Ryan:
There you go. Charitable remainder trust, the other split interest gift you mentioned, is another vehicle where you could put an asset frequently if it’s a business before a sale or a piece of real estate or something like that. You can put an asset in a trust, receive an income stream off of that trust for a designated period or your lifespan, and then the remaining value that’s left in that charitable trust at the end of the life of the trust goes to the charities that you’ve chosen to support, which can be a donor advised fund, again, for greater flexibility down the road. A charitable remainder trust is something where the charity benefits from the remainder of what’s left over in the trust.

Bob:
But you benefit enormously to yourself by, as I say, you have an enormous capital gain in an asset like real estate or stocks, a gain in the millions. And you could use the charitable remainder trust by giving that to the trust. The trust sells it. There’s no income tax due. You get the income from it for your lifetime, and maybe even a second generation, and then it goes to the charity. So that’s why it’s called charitable remainder trust. And then the last thing for the day is we “keep the asset, but give the income”. And we’re going to go over some of the tools to do this too. So is that what is referred to as a lead trust to do that?

Ryan:
Yes and no. It’s hard to think about it in terms of keep the asset, but give the income. Legally, you transfer the asset, right? So, there is a gift there, but what happens with a lead trust, actually, is you can place an asset in a trust. The charity is going to get the benefit at the front end, meaning for the life of the trust that asset is going to be producing income for charity. But at the end of the lifespan of the trust, the asset’s going to revert back to the family. If you do give now, and you give an income stream to charity, they benefit first, and then the asset reverts to family at the end of the life of the trust. So, it can go to your heirs. It can go back to you. The asset will return to you after the lifespan of the trust.

Bob:
So in a second example, a rental home, you could give the rental home to this trust. The income that’s going to come off of it is going to go to the trust, but at the end of that time period, that rental home actually comes back to you. Is that a way of saying that correctly?

Ryan:
That’s right.

Bob:
Well, we’ve pretty much discussed the 4 giving tools. We’ve gone through the donor advised fund, the family giving fund, the charitable gift annuity. And then, if you want to see some of these examples of this, give us call. There’s really just so many benefits to planned giving. One of the things I always share at the end of the presentation is the benefits of planned giving. There’s income tax advantages. There’s capital gain tax advantages. It helps the charities further their mission. Giving is thought out and intentional. It teaches your family the importance of giving. It releases the stronghold of materialism. It’s scriptural, because it’s more blessed to give than to receive. It’s an excellent estate planning strategy. It helps fulfill the great commission, and the last one is really great. It creates positive change in the lives of others in our society. So, we want to help you in all of these different ways to give. I work with the National Christian Foundation. Ryan, I want to thank you for coming on with your expertise today. You definitely helped me get through this. We need to give this presentation together in front of a church, and I think it would be amazing.

Ryan:
I look forward to it. That’d be fun.

Bob:
All right, well, that’s going to do it for today. Y’all have a great Christmas and Happy New Year and we’ll talk to you next year.

[CONCLUSION]

That’s all for now.

We invite you to listen to all of our past episodes covering many financial topics from a Christian Perspective. To make sure you don’t miss any of Bob’s upcoming episodes you can subscribe to Christian Financial Perspectives on iTunes, Google Play Music, Spotify, or Stitcher. To learn more about integrating your faith with your finances, visit ciswealth.com or call 830-609-6986.

[DISCLOSURES]

Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the host, Bob Barber. Bob does not provide tax advice and encourages you to seek guidance from a tax professional.

Charitable Gift Annuities offered by the National Christian Foundation may be re-insured through a fixed insurance annuity product utilizing Charitable Solutions, LLC to obtain competitive quotes through commercial fixed annuity carriers. This re-insurance may be placed directly with the insurance companies or through national annuity brokers. While these annuities provide a lifetime annuity payment, only donors who do not need access to the principal balance being gifted should consider a Charitable Gift Annuity (CGA) since it is irrevocable. The lifetime annuity payment is only guaranteed based on the claims paying ability of the underlying fixed annuity company. When a CGA is executed the rate and income amount are permanently established for life. Donors should be advised that under the terms of a CGA contract this amount may not be changed or renegotiated. All payments are the responsibility of the charitable organization and/or insurance company and care should be taken to ensure the contractual obligation with the Donor is met. Regulation and government oversight of CGA’s varies from state to state. You should consult with legal and tax professionals before entering into a CGA.

The Insurance Agent will ensure that concentration levels in a CGA are appropriate for given objectives and goals.