Share Your Financial Abundance Tax-Effi ciently


By Caroline Wetzel, Certifi ed Financial PlannerTM


gratefulness, abundance, and sharing with others. As you donate your wealth, how confi dent are you that you are giving as tax-effi ciently as possible?


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There are a variety of ways you can contribute to IRS-qualifi ed charities and benefi t from tax deductions:


• Donating stock that has grown signifi cantly in value from its original purchase price (also known as highly appreciated stock).


• Contributing a portion of Required Minimum Distributions (RMDs) from an Individual Retirement Account (IRA)


• Establishing Charitable Trusts • Creating Foundations • Setting up a Donor Advised Fund The most appropriate charitable


giving strategy for you depends on your specifi c fi nancial situation. In the spirit of sharing, I offer you the following story of how I recently helped clients change their approach to giving to their favorite charities and optimize their fi nancial and tax plans.


A few months ago, Sam and Judy


(names have been changed) decided that they needed something more than just investment management from their fi nancial advisor at a big-name company. As we began working together, I learned that Sam and Judy gave a portion of their income every year to charities. So, we made charitable giving a recurring annual goal in their fi nancial plan.


ith Thanksgiving and the holi- days on the horizon, there’s lots of focus this time of year on


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After understanding Sam and Judy’s other goals as well as their sensitivity to risk, I reviewed their investments. A signif- icant portion of Sam and Judy’s portfolio was held in a single stock. Sam explained that he and Judy inherited the stock from a beloved family member years ago. Having a signifi cant portion of a portfolio in one stock holding is a “concentrated posi- tion.” Concentrated positions need to be carefully managed. They may expose their owners to additional risks connected to a business, sector, or industry. Depending on when the owner acquired the concen- trated position, the holdings may have grown in value and have signifi cant capi- tal gains. So, tax consequences of chang- ing the position need to be considered.


Sam, Judy, and I talked about how likely they were to achieve their fi nancial goals given their income, savings, spend- ing and current investment allocation. We spent a lot of time discussing changes we would make together over time to improve their likelihood of fi nancial success.


One of the fi rst changes I recom- mended we initiate was decreasing their concentrated stock position in tax-effi cient ways. Using sophisticated fi nancial plan- ning software, I showed Sam and Judy just how negatively and quickly their lives could change if their concentrated stock position dropped in value. They realized that they might not be able to enjoy and share their wealth as they wished. Given their specifi c situation and charitable giv- ing goal, I suggested they consider setting up a Donor Advised Fund and frontload- ing several years of future charitable giving now.


I explained a Donor Advised Fund


(DAF) is like an investment account that exists only to provide grants to IRS-qual- ifi ed charities. Sam and Judy could open a DAF and contribute up to 30% of their adjusted gross income in the form of their concentrated stock as an irrevocable gift to the DAF. Then their concentrated stock would be re-invested tax-free into dif- ferent funds within their DAF. Whenever


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