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Financial Planning > Charitable Giving

Help make your client's gifts count

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It stands to reason, as an investment professional, that you are mindful of maximizing all of your clients’ investments, even their charitable ones, right?

I recently attended an event to learn more about these investment options and spoke about their importance with Dr. Douglas Jackson, president and CEO of Centennial, Colo.-based Project C.U.R.E., an international volunteer aid organization which collects and distributes medical supplies and equipment to needy people in developing nations.

Dr. Jackson, an attorney who holds both a Juris Doctorate and a Ph.D. in Finance, reported, “A good financial planner will work to maximize the return on their clients’ portfolios, and achieve the investment objectives of these clients. The same should be said for their charitable investments. Financial planners have a critical role in guiding their clients to achieve a maximum return on their charitable investments, and realizing their objectives in a ‘Giving Portfolio.’”

Dr. Jackson says it’s a big business to consider. “There are currently over 1 million nonprofits, and with the growth of the nonprofit sector, the increasing sophistication of nonprofit operational models and the importance of private philanthropy, this is an area of increasing potential for those financial managers who are alert to changing trends and eager to help their clients in new avenues of investment.”

With that said, it brings forth discussion of the new law that allows for tax-free giving from IRAs – the Pension Protection Act of 2006. The new law includes a charitable giving provision that permits new tax-free distributions from IRAs, known as the charitable IRA rollover. It provides an exclusion from gross income for certain distributions of up to $100,000 from an individual retirement account (traditional or Roth), which would otherwise be considered taxable income. To qualify, the charitable gift must be made to a tax-exempt organization.

If a client has saved tax-deferred income in an IRA and must begin taking required minimum distributions from that account or accounts at age 70 1/2, she’ll pay income tax on that amount. By making a gift to charity from her IRA in an amount equal to or more than the required minimum distribution for that year, she can accomplish her charitable goals and reduce her tax liability.

These are the requirements: The person must be 701/2 years of age; tax benefits apply to gifts up to $100,000 per year in tax years 2006 and 2007; the provision expires December 31, 2007; and the amount must be in the form of an outright gift.

For example, Mrs. Smith has several traditional IRAs totaling $1,500,000. In May, she celebrated her 71st birthday. That means that, in 2006, her required minimum distribution from these accounts will be $54,745. Under the new law, Mrs. Smith can transfer that amount to a tax-exempt organization as a charitable gift to avoid the taxable event that additional income would have triggered.

Since women continue to top the lists for charitable giving, represent half of all stock market investors, control 48 percent of estates worth more than $5 million and, by 2010, will control 60 percent of the wealth in the United States – this new tax provision not only provides you with important information to attract prospective clients but also new conversations for educating and retaining current ones.


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