081: Giving is Good

Full Transcript

Intro: 
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson: 
All right. Hey, Hey. Hey, welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. And today, we are going to be talking about giving.

Josh Robb: 
Great. One of the things I know. My kids love giving each other germs. That is where it’s at.

Austin Wilson: 
Well, not necessarily germs, Josh. We’re going to be talking about giving as it relates to nonprofits. You keep your diseases to yourselves.

Josh Robb: 
All right.

Austin Wilson: 
We’re going to trying to avoid-

Josh Robb: 
I’m a sharer.

Austin Wilson: 
… the giving of those.

Josh Robb: 
I’m a sharer.

Austin Wilson: 
Sharing is caring. That’s what it says on one of my daughter’s kid shows that she watches.

Josh Robb: 
Sharing is caring.

Austin Wilson: 
Sharing is really caring.

Josh Robb: 
Was it Daniel Tiger because he’s got a song for about everything?

Austin Wilson: 
No, I think… She’s got three options, okay? Three options, and they’re all on YouTube, which is great. Three options are Little Baby Bum-

Josh Robb: 
Little Baby Bum.

Austin Wilson: 
… obviously.

Josh Robb: 
It’s the best.

Austin Wilson: 
And number two, Cocomelon. And I like Cocomelon better. Cocomelon-

Josh Robb: 
And Little Baby Bum.

Austin Wilson: 
… is a little bit more real world. There are still animals that do talk and stuff, but mostly kids and family. I can do Cocomelon and then it’s Pinkfong and Pingfong-

Josh Robb: 
That’s Baby Shark.

Austin Wilson: 
… that’s Baby Shark.

Josh Robb: 
That’s what everybody knows, Baby Shark.

Austin Wilson: 
And I usually make her watch Pinkfong in Spanish-

Josh Robb: 
Just to give her some diversity?
 
Austin Wilson: 
Well, her name is Juliana so it’s Juliana so it’s her Hispanic heritage, I’m just saying. Maybe your native language is Spanish.
 
Josh Robb: 
Could be.

[1:40] – What is Charitable Giving? 

Austin Wilson: 
It could be. We don’t know. Anyway, we watch Pinkfong in Spanish on YouTube. It’s pretty great. Yes, Josh, we are talking about giving as it relates to nonprofits. I guess let’s probably start like we usually do, 50,000 feet and say-

Josh Robb: 
Up high.

Austin Wilson: 
… what is charitable giving?

Josh Robb: 
Normally when we’re talking about this, we’re talking about charitable gifts from your assets to an organization and normally that organization is a 501(c)(3).

Austin Wilson: 
That’s a lot. That’s like Star Wars thing.

Josh Robb: 
It’s a lot of words and stuff. Yeah, it’s like a little droid of some sort. It’s the tax code and within the tax code, that’s the section where it clarifies which companies are able to be tax exempt. And so, when you’re giving to a charity, a charitable organization or a nonprofit, just because they’re called a nonprofit doesn’t mean they don’t earn money or have money. It means that they’re not taxed so the profits don’t go distributed or anything. They’re used for future costs, future expenses.

Austin Wilson: 
Yeah, and I guess technically it probably goes to ownership as well. These are not formed as a sole proprietorship or a partnership or anything. The ownership is the entity itself, which is why those profits then get reinvested either into the entity or distributed to whatever those services or needs are.

Josh Robb: 
Yep. Today when we’re talking about 501(c)(3), tax-exempt, nonprofit, charity, those words are all interchangeable about what we’re talking about.

Austin Wilson: 
Here’s a fun fact, Josh. There are about 1.3 million with an M, 501(c)(3) organizations in the United States today.

Josh Robb: 
And I do know-

Austin Wilson: 
That’s a lot.

Josh Robb: 
Yeah, and there’s other types out there. There’s private foundations and all these other things that you can give to and all the different organizations. But yeah, that’s the main giving organization is a 501(c)(3) and there’s 1.3 million. That’s a lot.
 
Austin Wilson: 
That’s a lot, and if you think, there’s only 350 million people in the United States. That’s one for every whatever.
 
Josh Robb: 
Yep, and a lot of them are focusing on needs or certain-

Austin Wilson: 
Very niche, right? Another fun fact is that 92% of these 501(c)(3)’s operate on a budget that is less than $1 million per year.

Josh Robb: 
There’s a lot of smaller organizations out there.

Austin Wilson: 
Correct, and that’s also why a lot of these organizations need donors. They operate on small budgets and whatever niche market they’re trying to do, a need that they’re trying to meet, they’re doing that on the backs of donors. But it’s donor dollars that are making those things happen, which is why it’s a wonderful thing. It’s a need though. But a lot of them yeah, they don’t have billions in the bank to just make things happen here.

Josh Robb: 
Yep, and those are more of the private foundations.

Austin Wilson: 
Correct.

Josh Robb: 
We’re not going to talk much about those, but if you’re a ultra wealthy person, sometimes you create your own private foundation and that has its own rules on giving and all that stuff that you, in a sense, have more control over how that’s distributed, but that’s a whole other topic.

Austin Wilson: 
Let’s break down how those funds are acquired for these nonprofits in general. Nonprofit revenue comes 32% from government grants. The government entities know that these are great entities or organizations that meet needs that actually the government can’t, or doesn’t want to meet.

Josh Robb: 
Yep, or as not as efficient at it.

Austin Wilson: 
Right, so the government knows it can’t do everything so it is going to offer some incentives, whether that be credits or grants or whatever that may be for these organizations to do things that the government’s not going to do. They’re happy to support them. That’s happens. 32%, so about a third, comes from government grants. 14% comes from donations and that’s from people like you and me who are giving our hard earned dollars to these organizations that we feel led to. Half of the overall revenue comes from private fees and services. Go into that a little bit.

Josh Robb: 
Yeah. You said… Wait a minute. You just said it’s a nonprofit. How do they have private fees and services?

Austin Wilson: 
Exactly.

Josh Robb: 
All right. Here’s a good example. My kids are in sports and we play in the local rec league here in the area and they are actually a nonprofit organization. And you pay though for your team to participate. When you sign your kid up, you pay the registration fee. That fee goes into the nonprofit. They use it for their overriding expenses and to cover the referees and umpires and everything like that. But there’s a charge and that’s what this is talking about. Another example would be Boy Scouts or Girl Scouts, another nonprofits organization, but you pay to be a part of that. Those are the private fees and services that they offer. They’re still a nonprofit entity because of what they do and how they’re structured, but they charge to be a part of that. Nothing wrong with that. Nothing illegal but you could see a lot of nonprofits in order to maintain themselves, have to charge something-
 
Austin Wilson: 
If there are costs-

Josh Robb: 
… 49% of revenue coming in.

Austin Wilson: 
Yeah., if there are costs associated with the service you’re providing, then you have to have income in some way shape or form. It ain’t free. There is no free lunch. We’ve talked about this. I love lunch. It’s just not free. And Josh, guess what?

Josh Robb: 
What’s that?

Austin Wilson: 
There is one more bucket.

Josh Robb: 
If you do the math, 32 + 14-

Austin Wilson: 
You do the math, we’re at 95%

Josh Robb: 
… + 49%, that’s 95%. Okay.

Austin Wilson: 
You have 5% and that 5% comes from other.

Josh Robb: 
Other, that’s a good bucket that drops in there.

Austin Wilson: 
Just sits, it’s the catch-all. Yeah, that can be a lot of different things.

Josh Robb: 
It could be, and I don’t know how they broke donations down, but if there’s estate giving and stuff, which we’ll get to later in this episode, but that may not count as a donation because the person’s passed away. It’s actually not a donation anymore. It’s considered a estate gift and so maybe that’s where that bucket comes from. I don’t know. All right. Overall though, if we look at giving, because we’re going to be talking about that, in 2019, which is the most recent data I could find, 449.64 billion, almost $450 billion-

Austin Wilson: 
Almost half a trillion.

Josh Robb: 
Yes, was given or donated in 2019.

Austin Wilson: 
That’s a lot. I would-

Josh Robb: 
And actually, it was a 5.1% increase from the prior year.

Austin Wilson: 
When we revisit this episode in the future, I wonder how that looked in 2020-

Josh Robb: 
Interesting.

Austin Wilson: 
… when COVID was going on. Were people more or less generous?

Josh Robb: 
Yes, and there were some stimulus money where people got extra cash. Some might know what we’re talking about, giving a portion of that way as a way of helping out-

Austin Wilson: 
You either bought Bitcoin or you gave it away.
 
Josh Robb: 
One of those two.

Austin Wilson: 
Two options.

Josh Robb: 
Now I do know in this research, that on average, the increase of giving overall, if we look at the overall giving in America, is about one third the growth of the stock market for that year.

Austin Wilson: 
Wow.

Josh Robb: 
I don’t know how that correlates, but that’s just what I saw.

Austin Wilson: 
Well, let’s put a round number on it. Say the stock market has increased 9% per year because that’s a nice divided by three number, historically speaking, which pretty darn close to accurate, then 3% is your average giving rate.

Josh Robb: 
Increase, yeah.

Austin Wilson: 
Which is… Yeah, giving increase. What that also means is that Americans are getting wealthier in general if they’re invested in the market faster than they’re giving their money away.

Josh Robb: 
They’re not giving away everything that they’re earning.

Austin Wilson: 
Exactly.

Josh Robb: 
Which I guess if you look at that 5% increase, 2019, the stock markets were up. It was a pretty good year so-

Austin Wilson: 
It was a really good year.

Josh Robb: 
… yeah, maybe that correlates to that.

[8:55] – Dad Joke of the Week 

 Austin Wilson: 
Maybe it does. Okay, Josh, let’s take… Before we dig into the nitty gritties of this, I want to make you chuckle a little bit.

Josh Robb: 
Yeah, I’m ready.

Austin Wilson: 
Josh, I got a joke and I got another-

Josh Robb:
Is it from Reddit?

Austin Wilson: 
This is from Reddit, r/dad jokes. I’m on it. It’s my go-to right now.

Josh Robb: 
It’s where it’s at.

Austin Wilson: 
I have two punchlines for the same joke.

Josh Robb: 
Oh, there’s two options-

Austin Wilson: 
I’m going to give you both. For number one, why did the astronaut break up with his girlfriend?

Josh Robb: 
Ooh, why did the astronaut break up with his girlfriend? I don’t know. Why?

Austin Wilson: 
Because he wanted space.
 
Josh Robb: 
He wanted space.

Austin Wilson: 
Get it?

Josh Robb: 
That’s good. I like it.

Austin Wilson: 
Punchline number two. Why did the astronaut-

Josh Robb: 
The other reason, okay.

Austin Wilson: 
Yeah, why did the astronaut break up with his girlfriend?

Josh Robb: 
Yes.

Austin Wilson: 
Because she cosmo problems for him.

Josh Robb: 
Cosmo. I like it. Cosmo problems.
 
Austin Wilson: 
Reddit, r/dadjokes. I’m plugging that. That’s good stuff. You have to have a filter.
 
Josh Robb: 
Yeah, you got to be careful.
 
Austin Wilson: 
We are very select about-

Josh Robb: 
The internet can be a crazy place.

[9:51] – Why Give to Charity 

Austin Wilson: 
And don’t believe everything on the internet. Anyway, that’s your dad joke of the week everyone. Hope you enjoyed it. Josh, let’s have a discussion. Why? Why would we give to charity? And I want to preface this by saying when you get to the numbers of it… There are a number of reasons to do it, okay? But in general, my opinion is that giving really comes down to your heart because you can give zero money away if that’s what you want to do and that is one way to do things. But it really goes down to your motives and what your values are and how you can align your finances with your values and that is how that works. I really think that when it comes to charity and giving in general, it goes to what your passionate about and that’s what my motive around the whole topic of charity. But you had a couple other thoughts on that.

Josh Robb: 
Yeah, if we’re just talking high level, why would people be motivated to give? And like you said, the big thing is most people give… At least the organizations they choose to give to are the ones that they’re passionate about. They do something. They provide a service. They’re reaching out to the ones that you’re passionate about. For instance, if you are passionate about animals, maybe you donate your time or your money to the Humane Society or something like that. Where do I find my passion? That is usually where my money will flow to. Like you said, it’s a hard thing. Something I’m passionate about. But the other side is, when it comes to giving, there’s also an incentive. There are tax benefits to giving.

Austin Wilson: 
True.

Josh Robb: 
And so when we’re talking about giving, a lot of times, people will say, “Well, I want to give, but what’s the most efficient way of giving, right? What is the way I can get the most bang for my buck when it comes to going that way? And that’s what we’re going to talk about.

Austin Wilson: 
Because you can give as much money as you want away and if you don’t track it well or put it in the right way that it should go, you’re just giving it away and you’re not going to realize any of the financial benefits of the offset of it-

Josh Robb: 
Yep. 

Austin Wilson: 
… which we’re going to hope people don’t do.

[12:01] – Ways to Give 

Josh Robb:
We’re going to spend a little time on that now. There’s a lot that goes into this and there’s a lot that you can do tax-wise when it comes to giving. This is just high level so we encourage you to speak to your advisor and speak to a tax professional when it comes to your unique situation. But high level, there’s ways to give, right? First, like we’ve talked about is writing a check, or if you don’t know what a checkbook is, giving cash, or if you don’t know what cash is, using Venmo or some app to directly give money from your bank account, all right? The first piece is direct donations with your cash, all right? It’s great. You can get a deduction on your tax return when you do that. In fact, last year, everybody got one even if they took a standard or itemized deduction, you got an extra credit on your tax returns. That was part of the stimulus bill.

But in general, you get the value when you take an itemized deduction. Now we’ve talked about that a little bit in tax planning, but an itemized deduction is where you say, “Okay, I’ll put all my income in my taxes and then I’m going to start deducting the different things that the IRS says I can reduce my income with,” one of those being charitable giving. Now the standard deduction is pretty high now.
 
Austin Wilson:
That’s what I was just… Yeah.

Josh Robb: 
The current tax rate is 12,000 for a single one and it slightly moves higher, but roughly 24,000 for a couple.

Austin Wilson: 
You have to give a lot,.

Josh Robb: 
You have to have a total deductions of over that to make it worthwhile.
 
Austin Wilson: 
Yeah, that can come from things like mortgage interests, that can come from things like giving. Those are the two big ones that come to mind.
 
Josh Robb: 
Health costs. There’s certain stipulations with that as well. Most people-

Austin Wilson: 
It’s a lot harder.
 
Josh Robb: 
… just take a standard deduction. If I give cash donations or some direct donations out of my cash, whether it’s checks or however you want to do it, if I’m not taking an itemized deduction, I really don’t get any credit for that on my taxes, except for again, this last year where they gave everybody one regardless. It was $300 extra. There’s other ways of doing it but that’s one way, and I would say the most people do that. I mean, just think about-

Austin Wilson: 
Yeah, write a check.

Josh Robb: 
You’re just, “I’m going to write a check.”

Austin Wilson: 
Write a check or whatever or I know a lot of places you can do it online.

Josh Robb: 
Yeah, online or drop it in a box. A lot of times you go to a state park and stuff and they have a donation. You just drop some cash in there and you don’t get a deduction for that.

Austin Wilson: 
Now I will say this is a really good plug to say that if you are literally giving cash to something that does not have your name-

Josh Robb: 
Fold it in half.

Austin Wilson: 
What I would say is make sure that somehow you keep track of that because at the end of the day, when you want to do your taxes and you’re writing all of these deductions down, regardless of if I plan on getting the standard deduction or not, which like you said, it’s a lot higher so most people take it, I always keep track of all of my giving so that I can run it both ways and see how it works out. Anyway, if you’re giving cash- Yeah, suppose that you just give 50 bucks at whatever. You have it in your pocket. If you don’t write it down, A, it’s hard to remember that I did that on whatever day it was, but B, you don’t have any documentation. Even if you just write yourself a little receipt. 

Josh Robb: 
Yeah, you get audited you got to prove it.
 
Austin Wilson: 
Exactly. Cash is a really hard thing to do, which a lot of, I’m thinking of churches and stuff, if you are a frequent member or whatever, they’ll tie it to your name and give you statements and stuff, which is handy. I mean, a lot of other 501(c)(3)’s do as well. It’s tied to your name-

Josh Robb: 
There’s strict rules about if you give a certain amount, they actually have to provide a reason.

Austin Wilson: 
Exactly. Just keep track of every dollar that you give away to a qualified charity.

Josh Robb: 
Yep. Along with that, since we’re talking about it, we’re talking really about giving money in assets, but assets are beyond just cash, right? If you donate stuff to Goodwill or anything like that, that actually can be a tax deduction, again, if you’re in the itemized. If you take a bunch of furniture or clothes or whatever, you can have them give you a receipt and then it’s your job to put a value on that and make sure it’s reasonable.

Austin Wilson: 
And there’s formulas actually, for-

Josh Robb: 
Yeah, they tell you that.

Austin Wilson: 
… what that stuff is.

Josh Robb: 
But just keep that in mind. Like you said, make sure you track it all. Another option is appreciated securities. That doesn’t mean, “Hey, I appreciate that.”
 
Austin Wilson: 
I like these there. I appreciate them.

Josh Robb:
Not that. Appreciated securities are, let’s say I bought something for $200 and now it’s worth a thousand dollars. It’s appreciated from $200 to a $1000, so that’s $800 gain. If I were to sell that, I would realize $1,000, and let’s say, I’ve held it for more than a year so I have to pay long-term capital gains-

Austin Wilson: 
On $800 as gains.

Josh Robb: 
… on $800, that gains. I owe tax because that’s new money. I would then pay my 15 to 20% tax and then whatever’s left, I could give to charity. But instead of selling, I could just give that security directly to a charity and I get to then take the full fair market value, that $1,000, as a deduction on my taxes.

Austin Wilson: 
You’re double saving there.

Josh Robb: 
You really are. The charity gets more money and I get a higher deduction on my taxes.

Austin Wilson: 
Right, because your deduction is the cost difference and the tax difference combined. You’re getting a double whammy and the church-

Josh Robb: 
The charity gets more.

Austin Wilson: 
… or the 501(c)(3) or whatever that is, is getting more money. It’s a good deal.

Josh Robb: 
When you’re comparing the two, appreciated securities, you get more bang for your buck during that time between cash and that. There are certain rules on how much percent of your adjusted gross income you can give between those two. Last year, they said 100% of your income. They were just saying, “You can give whatever you want and still get a deduction.” They were trying to encourage giving, but normally cash is 50% and appreciated securities, it varies, but it’s about 30%.

Austin Wilson: 
It’s also worth noting that if you’re going to do this, it is only going to be beneficial to do it in a taxable account.

Josh Robb: 
Yes, we’re going to get to that, yes, but very good. These are all things that are tax deductions so they’re in a taxable account.

Austin Wilson: 
Correct. Yeah, don’t look at your IRAs and whatever and be like-
 
Josh Robb: 
Yeah, and we’ll get to what you do with an IRA-

Austin Wilson: 
Exactly.

Josh Robb: 
… but yeah. That’s how you could do giving right now. Let’s say I have some assets and I want to help out a 501(c)(3), but I also want these assets either to continue to help my family or in the end, I want them back, which seems weird.

Austin Wilson: 
That does seem weird.
 
Josh Robb: 
But there’s ways of doing it. There’s a charitable remainder trust and charitable lead trust, so CRT, CLT, and there’s units within there so they’re CRUTs and CRATs and all these fun, little acronyms.

Austin Wilson: 
Those acronyms.

Josh Robb: 
Long story short, a charitable remainder trust, and the way you can remember these is how they’re worded. It’s talking about the asset to the charity. Charitable remainder trust says, “I’m going to give something to a charity. They’re going to then pay me some set amount per, for either a time period or the rest of my life, or however we set this up. And then at the end of that time period, they’ll get whatever’s left, the remainder.” That’s charitable remainder trust. And so, an example would be that… A lot of universities do these types of things. And so, there’s a local university that I’m a part of. I love what they’re doing and I say, “You know what? I have this investment portfolio or whatever, and I’m going to gift it in this charitable remainder trust. It’s at an actual trust and the trust dictates, “Okay, now it’s in possession of the university.” They own it now. I’ve given it out of my estate. Now we’re talking about this estate planning thing. Now I have fewer assets in my estate, which may be a good thing from tax planning and estate planning.

They’ll then say, “Okay, it was X amount of dollars. We’ll give you this percentage annually for the next 20 years,” or whatever they set up and so that I get this money and I can use it to continue living the way I wanted to. And then when I pass or when that 20 years is up, if they manage it right, it’s probably not only still there, but grown because the percentage they give, there’s this whole calculation and table they do, and now they have that asset for them. That’s great. Flip it the other way.

Charitable lead trust goes the other direction. You give this money. They get a set income throughout this timeframe. It’s lead so they get it ahead of time. And then when it’s all done, it comes back into your estate or it goes to your inheritance or wherever that’s going. There’s two different ways of doing it, both directions. In fact, the charitable lead trust is actually really beneficial in times like now when interest rates are really low because they value that at a future value and when it comes back to the present value, because you’re using lower interest rates, you get a higher present value so you get more charitable deduction from that gift.

Austin Wilson: 
It’s discount rate. Classic.

Josh Robb: 
Really confusing. Don’t worry about that. Only to know there’s ways of giving assets to either provide income or to give income to charity, and then get the asset back later. They’re deductible in taxes. Again, talk to your CPA about how it fits because they are a trust. They have to be worded correctly and fit in there.
 
Austin Wilson: 
CPA and an attorney.

Josh Robb: 
Oh, talk to them all.

Austin Wilson: 
Yeah, talk them all.

Josh Robb: 
A lot of people to talk to but for certain groups of people it makes a lot of sense.
 
Austin Wilson: 
Absolutely. Josh, one more acronym. I love acronyms.

Josh Robb: 
Acronyms are the greatest.

Austin Wilson: 
Give me one more.

Josh Robb: 
Yeah. QCD. Yes.

Austin Wilson: 
I’m going to make up a word for this. Questionable?

Josh Robb: 
Yep.

Austin Wilson: 
Charity.

Josh Robb: 
Charity.

Austin Wilson: 
Disbursement.

Josh Robb: 
Disbursement. Nope, that’s when they’re doing weird stuff. No, that’s not what we’re talking about. We’ve talked about RMDs, required minimum distribution. That’s when you have an IRA and you hit a certain age, the IRS says you have to take some money out. A QCD is a qualified charitable distribution, meaning it’s a distribution out of your IRA that’s qualified in that there’s something special about it. And so, what this does is after you pass the 70 and a half birthday-

Austin Wilson: 
The magic number.

Josh Robb: 
… because again, going back to government and how confusing life is, that half birthday, it matters.

Austin Wilson: 
Yeah, because the RMD age moved, but the QCD age did not.

Josh Robb: 
Yes, right. Right, so RMDs are 72. This is 70 and a half. You can actually start giving out of your IRA before you-

Austin Wilson: 
Before you need to take RMDs.

Josh Robb:
… your qualified required distribution. QCD, qualified charitable distribution, just says, “If I give the money directly from my IRA to a charity and I don’t touch the money, then there’s no tax on that distribution,” because we know when you take money out of an IRA, and we’re talking about a traditional IRA, something that’s pre-taxed, you owe income tax on that, right? It counts as income. But if I don’t ever touch it and it goes straight to a charity, the IRS says, “We will not count it as income so we’ll keep your income loader and you don’t owe tax on it.” Again, going back to this scenario of why would this works on taxes is to say, “Okay, let’s say I am 73 years old,” this is when it makes the most sense, “And I have a required distribution RMD of $50,000 and between my social security income, whatever. I don’t need $50,000 to live on. That $50,000 is more than I wanted to take out.”

Austin Wilson: 
Yeah. In fact, you’d rather not because-
 
Josh Robb: 
And let’s say I only do 30.

Austin Wilson: 
Yeah, you’d rather not because you’re paying tax on it.

Josh Robb: 
Right, let’s say only needed 30 for the year because my social security covers everything else. That extra $20,000 I would pay income tax on and they move me brackets or whatever and mess up life. I say, “Okay, I want to take my 30 out.” I’m going to give the other $20,000 directly to a charity so then I’m only going show $30,000 income. I’m not going to pay any tax on that and that charity is going to get more because it’s pre-taxed money they’re getting. That’s why it’s very valuable. We tell clients that once you hit that 72 age, all of your giving should be considered first through that QCD because you can offset income. 

Austin Wilson: 
Yeah, if you’re giving every week to your church or whatever, you could just-

Josh Robb: 
Set it up automatically.

Austin Wilson: 
… set it up automatically, or you could do it one time through the year because you might, at that point, you might know what you want your income to be for the year and just say, “X percent? Do it.”  

[23:29] – Your Giving Legacy 

Josh Robb: 
Those are ways to give to charity. We got cash donations, appreciated security, giving assets, and then there’s the delayed giving, which we talked about through those special trusts, QCDs which are the IRA, that really, the only way to give from an IRA is that QCD. The last one, and this is one we didn’t really… Well, estate planning. That’s giving while you’re alive. And so then the next step is, “Okay, what if I want to do something post my death? What if I want to benefit a charity afterwards?”

Austin Wilson: 
Keep on giving.

Josh Robb: 
How do I do that? The first one is pretty simple. You just name a charity as a beneficiary. Going back to IRA accounts, all IRA accounts need, need, need, listen to that, very important, need a beneficiary because they bypass your will. Whatever’s listed on there is what happens. And so if you wanted to, you could name a charity as a beneficiary. And again, with beneficiaries, it’s not an all or nothing. I could have 50 beneficiaries and split it out however I want. It’s very confusing. I wouldn’t recommend that, but you can have multiple beneficiaries. You could say, “You know what? I’m going to have this IRA. This is where I saved up my 401k. I rolled it over. I got this IRA. 10% goes to a charity. 90% goes to my kids.” You could set it up that way or however you want.

Giving that way, there really is no tax benefit because it’s in your estate and it’s going to be taxed in your estate, regardless of who the beneficiary is. They don’t get a tax break just because a charity is listed as a beneficiary. It’s not necessarily tax efficient but if you’re within the estate planning where you don’t owe any estate tax, then it’s irrelevant. It’s a good way of doing it. There is though, if you have permanent life insurance, that would be like whole life or universal life that has cash value, gifting that to a charity. Life insurance has beneficiaries as well. Instead of just having a beneficiary but actually gifting it to them is actually a tax deduction or possibly can be. It depends on what asset you’re talking about. There could be some, but naming a beneficiary is a great way of giving post your life. But just keep in mind, your estate will still count it as an asset normally because you haven’t given that up yet.

Austin Wilson: 
And this is-

Josh Robb: 
You’ve had it all the way through to death.
 
Austin Wilson: 
These are some examples of why it’s good to plan these things ahead of time because-
 
Josh Robb: 
Yes, definitely.

Austin Wilson: 
Yeah, don’t wait. You can’t really wait until you’re on your death bed to put all these things in motion because-
 
Josh Robb: 
It could be challenged because were you in the right mind, all that. Think through, and I know a lot of people though that say, “Hey, you know what? I have a good amount of assets. My family is going to be fine. I would love to make a legacy at these organizations where there’s some continued giving,” type of thing and naming them as a beneficiary or listing in your will or trust as a portion of that during the distribution phase is great. It’s awesome.
 
Austin Wilson: 
And again, this is where having people like your CPA and your attorney and your financial advisor, the three amigos I’m going to call them-

Josh Robb: 
All on the same page.
 
Austin Wilson: 
… all should be on the same page and all should be working together at the plan. If everyone’s on the same page, there aren’t any surprises and it’s all planned out ahead of time, I mean, the charities that you’re ultimately trying to benefit in the long run are going to be more benefited because of that. 

Josh Robb: 
Definitely. And next one, and this is estate planning, but it also is current as well as future, is a donor advised fund or a DAF, D-A-F. There’s your other acronym. Donor-advised fund is a fund that is controlled by the donor, hence donor-advised fund. It’s advised in that they make recommendations on the distributions. Whoever’s maintaining those donor-advised fund actually has the final say in it, but most of those are set up so that they really do what the donor wants. As long as they’re a legitimate organization you’re giving to, the donor-advised fund is great. Now what’s cool about these is I give and whatever year I put money into the donor-advised fund is the year I get the tax break, not when I distribute out.

An example is, let’s say… Again, going back to the $24,000 standard deduction and normally I’m in there so giving doesn’t give me any extra benefit from that standpoint. One thing I could do is give three years worth into a donor-advised fund. I get higher than that standard deduction so itemize that first year. And then in the next two years, because I already put all this money in donor-advised fund, I don’t give anything more. I just spend out of that donor-advised fund. And so, you net a better tax over those three year period and so it’s grouping in your deductions. Donor-advised funds are nice because they have no distribution mandates. Once the money goes in, you get the tax deduction. From then on, it stays in a donor-advised fund. You can invest it. It can grow. It could do whatever and you can distribute as much as you want in any year or as little as you want.

There’s no restrictions on that. It’s great. The downside to those are one, you can’t do certain things with a donor-advised fund when it comes to… For instance, QCDs can not go into donor-advised fund. That qualified charitable straight from IRA cannot go into donor-advised fund. There’s certain restrictions, but overall, if you’re giving cash or appreciated securities, a donor-advised fund is a great thing to do. The other thing is you control it so you can choose how you distribute it. You could stretch it out. Again, beneficiaries are important. If something happens to you, you should list somebody to take that over, to continue to give out of that as well. Overall, donor-advised funds, going again back to 2019, had a 141.95 billion, almost 142 billion with a B in assets.

Austin Wilson: 
That’s a lot.

Josh Robb: 
There’s a lot of money sitting there ready to be distributed out to nonprofits because again, the rule goes, they have to go to a legitimate 501(c)(3). They have to be a nonprofit. On the reverse side of a donor-advice fund, again, go back to estate planning, private foundations. We talked about that a little bit. It’s where you set up your own foundation and you can have staff. You can have this whole thing. Depending on the size of it, you could have it, but they have rules. I think they have to distribute about 5% per year of their overall assets. They have these certain requirements that the IRS puts on them. There’s a lot of paperwork and stuff but you have complete control.

Austin Wilson: 
Some of those are huge too.

Josh Robb: 
There’s some really big ones and really-

Austin Wilson: 
Small ones.

Josh Robb: 
… small ones. Anybody can open one. There’s just cost to it so most of the time it makes sense to departure.

Austin Wilson: 
I’m thinking of the Gates’-

Josh Robb: 
Yeah, Bill Gates… There’s a lot of foundations out there that do those and there’s millions or billions of dollars in those but private foundations, you have complete control because you’re the one choosing everything. Donor-advised fund, you’re recommending a grant and the fund itself, or whoever’s managing it says yes or no. Now, again, almost everything is approved as long as it’s a legitimate organization, but that’s just something to keep in mind.

[29:49] – Final Thoughts 

Austin Wilson: 
All right, Josh. Let’s close it up by some final thoughts, and I wanted to start off by saying that we hit in general talking about 501(c)(3)s but I think that tithing and giving on a regular basis from your income as it relates to your church or faith organization probably deserves its own episode.

Josh Robb: 
Yep. There’s two-fold, while I’m working, what does that look like? When I’m retired, what does that look like?

Austin Wilson: 
I think we should dedicate a full episode to that. We’re going to go more into detail of what that will look like in the future. Not that it doesn’t apply to what we had just talked about. It does, certainly, but I think we can definitely dig deeper into that. And a couple of reminders that we had already mentioned is that standard deduction makes it a lot harder to have enough deductions to claim them on an itemized fashion. Just keep that in the back of your mind and keep track of your cash donations because even if it’s just a note on your phone, you have the receipts in a box, you have them all laid out so that when you get to tax time in the spring, you’re ready to go. Somehow keep track of those things because in the unlikely event, let’s hope it’s unlikely, that you could audited, you have to be able to pull out that receipt or whatever.

Josh Robb: 
Prove it. My final thoughts, first foremost, when it comes to giving to charity like I mentioned before, there’s really your time, your talents and your treasures. Those are how I always think of the three T’s.

Austin Wilson: 
That’s so cute, Josh. Three T’s.

Josh Robb: 
I know. Your time and your talents, those are your skills and your availability, right? There’s a lot of nonprofits out there that could use help, right? And so don’t overlook that, right? Don’t think, “I only can give through money.” Think of those two, as well as your money and cash. And the second is find an organization that you are passionate about, but do your research. All right. Not everybody’s as efficient with their donations as they should be. And so, look at where that is.

Now, again, keep in mind, these are organizations. There are overhead costs, right? There are staff. There’s a lot that goes on to it. And so, keep in mind, you’re not going to find one that 100% goes to… I’m sure there might be some out there that are all volunteer-led, but in general, you’ll find some overhead charges. But just make sure they’re being good stewards of the money that you’re giving them.

Austin Wilson: 
Absolutely.

Josh Robb: 
Always do your research. Pay attention. And then finally, while taxes are great, that’s not the primary reason most people give. It’s just an added benefit. Help optimize it. Talk to your advisor. Talk to your CPA. Talk to your attorney. Optimize what you’re doing because again, you don’t want to waste money that could be going to a good organization, but keep in mind, that’s not the end all, which we saw in the last couple of years. When the standard deduction went up, one of the worries was, especially in nonprofit world-

Austin Wilson: 
People were going to stop giving.

Josh Robb: 
…. people are going to stop giving and We really did not see that-

Austin Wilson: 
Correct.

Josh Robb: 
… which is a positive. Most people are giving because they care about the organization that they’re giving to.
 
Austin Wilson: 
Well, as always, check out our free gift to you. It’s a brief list of eight principles of timeless investing. These are overarching investment themes meant to keep you on track to meet your long-term goals. And yes, giving can be a part of that. That’s something to plan ahead for. Check it out. It’s free on our website. Josh, how can people help us to continue to grow this podcast and help more people?

Josh Robb: 
Yeah. First of all, make sure you’re subscribed so that you get the alert every Thursday when we drop an new-

Austin Wilson: 
Every Thursday.

Josh Robb: 
… episode, every Thursday. Leave your reviews on Apple podcasts. That helps us rank higher. Helps us rank higher means that more people see us. More people can hopefully benefit from it. And then if you have any ideas, email us at hello@theinvesteddads.com. And then finally, if you know somebody who was asking about giving or would like to know some of this information, make sure you share this episode with them.

Austin Wilson: 
All right. Well, until next Thursday, have a great week.
 
Josh Robb: 
All right, talk to you later. Bye.

Outro: 
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to the investeddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode.

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.