Strategies to get the most value for
what you give, presented by John Westerman
If the holidays are a time that you enjoy “giving back”— whether that means donating to a favorite charity or helping out a family member financially, Houston-based Financial Services Advisor John Westerman recommends taking the time to build strategy into your gift giving.
“Before you make a donation or gift this year, pay close attention to potential tax and legal implications this could bring so that you and the receiver get more bang for your buck,” says John.
Types of charitable giving vehicles
Consider the vehicle you’ll use so that the value of your gift is at its optimal this holiday season.
· Outright gifts. These are pretty simple but just be sure to keep your receipts for income tax deductions you wish to claim.
· Donor-advised funds. Managed by a public charity for the purpose of distributing funds to other charities, these may carry tax advantages, but you should be aware that administrative fees could cut into your available funds.
· Charitable remainder trusts. Here the donor receives income from the trust for a specified term and when that term is complete, the remaining trust assets are distributed to a predetermined charity. The beauty of this type of trust is that you can receive immediate tax benefits while still using the assets. On the downside, charitable trusts are complex and may be expensive so you’ll want to consult financial services professionals.
· Charitable gift annuities. This split-interest gift is made directly to a charity that provides you with fixed income payments for life, leaving the charity typically with about half of your donation. While you get an immediate tax break and some guaranteed income, keep in mind that an annuity is a contract between you and the charity and your return isn’t guaranteed by the government.
· Private foundations. Established by an individual, family, or corporation, this vehicle offers donors a great deal of control over their gifts but can be costly to administer. It also must adhere to a strict set of rules designed to ensure that it carries out its charitable purpose.
· Bequests. If you wish to give to a charity after your death, you may make bequests by way of your will, trust provisions, or beneficiary designations. Although bequests offer simplicity and are easy to set up, they are not income tax-deductible during your life.
Gifting to family members
Giving back doesn’t always mean giving to charity. Here are several common strategies for gifting to family members:
· Make an outright cash gift. For tax year 2015, you may gift up to $14,000 to an individual without tax consequences, or without having to file a gift tax return.
· Pay college tuition or medical bills. As this is not a cash gift, the $14,000 limit does not apply and what a surprise this would be for your family member! However, you should be aware that this must be paid directly to the institution.
· Contribute to a 529 plan. 529 plans grow tax-deferred, and withdrawals for the beneficiary’s education are tax-free at the federal level. The $14,000 rule still applies and you can gift up to five years-worth but then you’re restricted from gifting that person for the next five.
“As you consider what gifts to buy for your family members this year, don’t forget the unbelievable emotional value gifts of these kind carry in comparison to the latest high-tech gadget,” says John.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
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John Westerman is a financial advisor for Selah Financial Services, with offices at 1550 W. Bay Area Blvd., Ste. 101, Friendswood, TX 77546 and One Sugar Creek Center Blvd., Ste. 150, Sugar Land, TX 77478. He offers securities and advisory services as a Registered Investment Advisor of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 281.990.7100 or at advisors@selahfs.com
