Illustration by ROB DOBI December 2020 | InspiredByPenta.com | 27
Active Planning
For Philanthropy
Charitable giving should be considered
within a broader wealth strategy
By KAREN HUBE
P
hilanthropic planning isn’t
typically viewed with the
same urgency as other areas
of wealth management. But
the idea that philanthropy
belongs in a quiet and slow-moving
corner of a wealth plan is outdated, and
advisors are encouraging folks to view
gifting plans as tactical and integral to
broader wealth-management goals, such
as tax minimization, wealth transfer,
and income generation.
While a single gifting method in
itself may have compelling benefits,
when paired with other wealth-planning
strategies, it can be much more
powerful, says Avery Fontaine, head of
strategic philanthropy at BNY Mellon
Wealth Management in Atlanta. “With
a well-thought-out plan, philanthropic
capital can achieve double and triple
goals at once. But it has to be dynamic—
if it’s static, it won’t endure.”
Consider the ability in 2020 to
deduct unlimited cash donations. Nor-
mally, cash gifts are only deductible up
to 60% of adjusted gross income (AGI),
but the Cares Act, which was passed in
March as an economic stimulus bill,
lifted that limit temporarily.
James Sonneborn, a partner and
wealth advisor at RegentAtlantic in New
York, says he has helped clients leverage
that temporary tax perk by pairing large
cash contributions with a conversion of a
regular IRA to a Roth IRA.
From a wealth-transfer standpoint,
a Roth IRA can mean far more money
in heirs’ pockets than a traditional
IRA. While the Secure Act, passed in
late 2019, requires that both types
of IRAs pay assets to heirs within 10
years, the Roth has a clear edge: Heirs
can take assets out tax free. In con-
trast, they would owe income taxes on
distributions from a traditional IRA.
But many IRA investors forgo con-
verting to a Roth IRA because the
transaction comes at a price: Income
taxes are owed on converted amounts in
the year of the transaction.
To reduce or eliminate that tax hit
and make a conversion more palatable,
Sonneborn has been advising some
clients who normally make contribu-
tions of appreciated stock to their favorite
charities to make big-cash donations
instead. Appreciated stock can be
deducted, but only up to 30% of AGI.
The generous deduction for large
cash contributions in 2020 can be used
to offset taxes on the Roth IRA rollover,
Sonneborn says. To reduce the tax
hit further, investors can benefit from
current stock market volatility by
converting after a big dip so the value of
the converted assets is lower.
On a basic level, a philanthropic plan
involves selecting a charity, determining
which assets are best to give—cash in a
bank account? Appreciated stock? Fine
art?—and which combination of charita-
ble-giving tools accomplish the task
optimally for the donor and the charity.
At the highest level, a philanthropic
plan can blur the lines between invest-
ing, estate planning, and all aspects of
an individual’s financial and personal
life, says Dien Yuen, assistant professor
of philanthropy at The American
College of Financial Services in King of
Prussia, Pa. She describes a client, flush
with $100 million after the sale of her
business, who is determined to help
women entrepreneurs in technology.
She created a limited liability company
with the intention of furthering her
cause, not only with traditional charitable
contributions, but through potentially
investing in for-profit companies
launched by women, and by mentoring
and sitting on company boards.
A philanthropic plan is a road map
that requires regular checkups, Yuen
says, adding that however complex the
plan, it should be dynamic, evolving
with changes in the markets, economy,
and regulations.
“ It has to be
dynamic—
if it’s static,
it won’t
endure.”
Avery
Fontaine