Thoughts On Money
How this all started
A few weeks ago my friend Mark sent me an email encouraging me to write an article for TOM on giving. Thank you, Mark, this was a great idea!
“Life’s most persistent and urgent question is, ‘What are you doing for others?’” – Martin Luther King Jr.
With a little help from my friends
One of my favorite podcasts, Invest Like the Best, hosted by Patrick O’Shaughnessy closes out each interview with the same question, “What is the kindest thing anyone has ever done for you?” Simple, yet a thought-provoking question, which elicits some beautiful stories from the guests.
Go ahead, close your eyes… take a moment to search your memories… what’s the kindest thing anyone has ever done for you?
I don’t know about you, but this thought exercise brings tears to my eyes and joy to my heart. Throughout my life, I’ve been greatly blessed by others. These acts of kindness tend to compound and have been the fuel that has got me to where I am today.
Why do we do it, Why do we help?
Human beings are social creatures and we are wired for community. So I suppose it should be somewhat intuitive that we would help one another and glean from the reciprocal social benefits, but have you ever read about the health benefits behind giving? Studies have linked generosity with lower blood pressure, reduced stress levels, and increased self-esteem. Neuroscientist and psychologists have deemed this phenomenon the “Helper’s High” and have documented the positive brain activity associated with giving. I like how one article describes it, “when doing good makes people feel good, these neurotransmitters can be addictive” (see article here). I’m sure you runners out there can relate as I’ve been told that the runners high is almost indescribable.
“I have observed 100,000 families over my years of investment counseling. I always saw greater prosperity and happiness among those families who tithed than among those who didn’t.” – Sir John Templeton
Are there financial incentives to “give?”
Herein lies the tension though – giving is good for you, but it’s also hard not to be selfish sometimes, right? Luckily Uncle Sam has some incentives to help encourage us to give. Let’s check out four tools/strategies for giving and discuss their benefits.
Did you know that you can donate Highly Appreciated Stock instead of just cash? Here is the benefit, typically if you were to sell this appreciated position and donate the cash you would create a taxable event for realizing the gain. So, if you just donate the position directly you can avoid creating a taxable event and you can get a deduction for the full fair market value of the donated asset. This is a popular tax strategy and therefore many charities are already set up to accept stock as a donation.
Perhaps this idea of donating highly appreciated stock sounds like a great plan, but you haven’t figured out what charity you want to give it to. Maybe you should set up a Donor Advised Fund (DAF) which would allow you to make the donation, realize the tax benefit, and allow you to continue to manage the investment until you are ready to allocate it to the charity of your choice.
Ok, this all sounds good, but is there a way you could donate the positions and still retain some benefit? Funny you should ask, a Charitable Remainder Trust is one estate planning tool to create a strategy that does just that. These trusts come in different formats, Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs) and allow the donor to retain different financial benefits from the investments and assign a charity as the ultimate beneficiary of the assets. A Charitable Lead Trust is also an alternative structure that could be explored as well.
Lastly, if none of the above seem fitting for your situation how about donating your Required Minimum Distributions (RMDs). When you reach the age of 70 ½ the IRS begins to require you to distribute portions of your pre-tax retirement accounts, like IRA’s. Maybe these required distributions are not needed to satisfy your expense needs and they are just causing you a tax burden. Here is what the IRS says, “Can a qualified charitable distribution satisfy my required minimum distribution from an IRA? Yes, your qualified charitable distributions can satisfy all or part the amount of your required minimum distribution from your IRA” (see more here).
Now these are just four off the cuff ideas for the financial benefits of giving, but there are many more*, so set aside some time to discuss these with your advisor to find out which strategies are best suited for your situation. As always, a quick TOM disclaimer, you will want to consult your financial advisor, tax professional, or legal counsel before implementing any of these ideas on your own.
* See Don Saulic’s Twelve Charitable Planning Ideas to Reduce Income Taxes in 2018 in issue #3 of The Financierge
Start small, plant a seed
Have you ever seen the movie Pay it Forward? It’s one of my favorites. A young boy by the name of Trevor is captivated by a project his Social Studies teacher assigns. The assignment is to think of something to change the world and put it into action. After considerable thought, Trevor’s conclusion is to help three people and ask those three people to pay it forward by helping three other people and allowing the good deed chain reaction to compound.
The point is that even small gestures can be world changing. Just like the tallest sequoia in the world started with just a small seed. I listened to an interview with Tony Robbins recently and he was encouraging people to start giving. He said it this way, “If you’re not willing to give a dime out of a dollar, then you’re not going to give $100 million out of a billion.”
So it’s ok to start small, just make sure you start today.
As I mentioned earlier, a friend/client Mark was the one who encouraged me to cover this subject matter. Mark also turned me onto two great resources that I thought would be good to share: www.guidestar.org and www.charitynavigator.org. GuideStar and Charity Navigator gather, organize, and distribute information about U.S. nonprofits. This data provides donors like you and I the information we need to make informed decisions about where we allocate our donations.
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The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.
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