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Year-end Strategies For Charitable Planning And Seed Planting

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People often contemplate making charitable contributions at the end of the year. Coupling this with that closing window of time when we still can receive charitable deductions on donations made by Dec. 31, it is no surprise that charitable organizations receive a large percentage of donations toward the end of the year.

This year there is an additional cutoff.

The Katrina Emergency Tax Relief Act allows increased charitable deductions but only through the end of 2005. For clients that have large IRAs, qualified and asset holdings, this is a unique opportunity to engage them in discussions about estate and charitable planning.

Inform your clients that KETRA, the act Congress passed for Hurricane Katrina relief, permits unlimited deductible gifts to charity up to a donor’s total income until the end of 2005. Withdrawals from IRAs can be made without 20% withholding or any automatic reduction for income tax.

This IRA “withdrawal and gift” is limited only by adjusted gross income (AGI), but remember that IRA withdrawals increase AGI. Who can receive the gift? For individual (not corporate) grantors, most public charities will qualify; it is not necessary that the gift benefit Katrina relief.

KETRA permits cash gifts only, so gifts of property, stock or land will not qualify. KETRA is not available for private foundations, supporting organization or donor advised funds.

For high income individuals the deductible contribution can be gifted to charity with no Sec. 68-mandated 3% reduction for itemized gifts. The Sec. 68 AGI for 2005 is $145,950.

Planners should recommend counsel from the client’s tax advisor because the Sec. 68 limitation still applies to other deductions. State tax, the alternative minimum tax (AMT) and other calculations also could be affected.


Many of us have been waiting for a “charitable IRA rollover” or “CARE” bill that has been proposed and re-proposed several times since 2002. The CARE Act of 2005, introduced in the House and Senate in September, differs from KETRA in that it permits tax-free gifts directly from IRAs.

People over age 70 1/2 can make this direct gift (vs. withdrawal and gift) to charity. Tax-free rollovers to gift annuities and charitable remainder trusts are allowed for IRA owners over age 59 1/2 (Senate) or over age 70 1/2 (House).

If the CARE Act passes this year or next, there may be additional opportunities for contributions of IRAs and qualified money. The need for continuing hurricane-related relief efforts may give Congress the impetus to pass CARE 2005 or extend KETRA. Act quickly: IRA custodians can take a few weeks to process withdrawal requests.

Seed Planting: Reap What You Sow

Financial planning is akin to planting. Though clients may not take advantage of KETRA, year-end is a good time to plant the seeds for estate and charitable planning for 2006. Before you engage clients in discussions, however, bear in mind the four myths of charitable planning.

Myth #1: Family is the No. 1 priority.

What do the wealthy want to become of their wealth? Often, we assume that most clients want it to go to their children, but this is far from reality for many. Advisor-client discussions, if conducted thoughtfully and professionally, may open the doors for people to consider many options, including charitable contributions.

Myth #2: Philanthropic planning is only for the charitably inclined.

The belief that pervades the financial services industry is that charitable planning is only for those who are inclined to give and who already give significantly to charities. A majority of individuals surveyed by a 1992 Gallup Poll said that “those with more should help those with less.”

Although some are not predisposed toward charitable giving, it is true that some people have not made the time to think about it with the proper perspective. Discussions with clients about “social capital planning” or “leaving a legacy” can open doors.

Myth #3: Tax deductions are the key motivator.

Surprisingly, one of the least popular reasons for making contributions was to obtain tax deductions. In fact, giving increased in the 80s during the Reagan administration when estate and income tax rates declined from the historically high tax rates of the 70s. Tax deductions are just that added incentive to help people give.

Myth #4: Charitable planning is just for the elderly.

Surprisingly, statistics indicate that the two major groups of wealthy people who employ planned giving devices are over 65 and under 45. Don’t wait for clients to reach their senior years to bring charitable planning into the discussion.

Three Methods of Wealth Distribution

All to the family.

Bill Gates wisely chose not to burden his children with too much wealth. Excessive bequests often lead to unproductive lives for the recipients. For most children, funding of educational and entrepreneurial opportunities is more than adequate.


Charitable bequests can be implemented at death by wills. Andrew Carnegie asked, “[Why should man] be content to wait until he is dead before [money] becomes of much good in the world?” Why not enjoy directing wealth now, so that it can be used and managed in the intended manner.

Inter vivos.

Benefactors who engage in philanthropic goals while alive can manage assets using their experience and judgment in a way that would have the most impact for society. They also can employ trusts and insurance products to give more to charities and family than can be achieved only using bequests.

Year-end opportunities for charitable planning may provide benefits for you and your clients yet this year but more likely will plant the seeds for many years to come.

Kent Irwin, CLU, ChFC, CAP, is a chartered advisor in philanthropy, and associate vice president and senior financial planner with Waller Financial Planning Group in Columbus, Ohio. Kent can be reached at [email protected].


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