Episode 14: Giving Thanks

Wit, Wisdom, and What Matters Most Podcast Episode 14 Giving Thanks Kyle: Investment advisory services offered by Moneta Group Investment Advisors, LLC, an investment adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level of skill or training. The information discussed in this podcast is for informational and educational purposes only. You should consult with an appropriately credentialed professional before making any financial, investment, tax, or legal decision. Past performance is not indicative of future returns. All investments are subject to risk of loss. And welcome to another edition of Wit to Wisdom and What Matters Most. It is a podcast by Moneta's Gast Freeman Troyer Racen Team. My name is Kyle Luetters, an advisor on the team, joined by Danton Troyer, one of the partners. Danton, we are literally falling into the back half of this year and really the back two months. It is holiday season, and we wanted to take this edition of the podcast to talk about things that we're thankful for. Thankful for you, thankful for this podcast, but in addition to that, it also really causes us to think about maybe giving, especially this time of year, you'll start to see maybe some more requests for giving. And we wanted to touch on a couple of things as we get to this part of the year about maybe some ways that folks could do some gifting and giving, so we'll just kind of dive on into that. But as clients continue to grow, charitable giving really seems like it's one of the most fun and most rewarding things that clients get to do with their money. Danton: Yeah, and I think we're seeing more people put more thought into it than we ever have in the past. You know, churches are always a big recipient of donations, and that's certainly not the easy button, but I mean, people are affiliated with the church, they kind of know where to go. But then beyond that, they want to have an impact, and it's not just, you know, donate to United Way; they do great things, but they want to have their own personal impact, and how are they evaluating that? I think it's changed more so, especially over the last several years, I've seen more and more people want to be more involved. Kyle: They want to be more involved, and then giving really speaks to causes or even stories that are deeply personal. You know, if you're a cancer survivor, there may be an organization that targets the type of cancer that you survived, or there may be an organization that really did a lot of good for your children. There's one couple that I'm aware of that they love Shriners Children's Hospital because of what Shriners has done for their child, and they tell all of their friends, this is what this organization did for us. But you know, there's obviously the emotional side of giving, but then there's also, too, a mechanical tax-efficiency side, a financial side to giving, if you will. And we wanted to go over a few of those ideas and those topics today, so really, you know, the place for anyone to start with charitable giving is as a cause that speaks to them. You know, first and foremost, there's got to be a desire because you are parting with these dollars, and the intention, your hope, is these dollars go to further that cause's mission and their goals. Beyond that, then we start to get into the weeds and start to get more to the technical side of how all this works. And so one of the things I wanted to bring up first and foremost is donor-advised funds. So up until maybe a handful of years ago, there was this thought that if we were going to do maybe some large gifting or some ongoing gifting that maybe like a family foundation or something like that would be the thing that we have to have. But really, donor-advised funds have kind of come onto the scene here lately, and they've really opened up a lot of opportunity for a lot of folks. Before we get any deeper in the weeds, do you want to kind of go over what the concept of a donor-advised fund is, kind of what it is and how it works? Danton: Yeah, I think just to keep it at a high level, it allows folks, I think historically everyone thought you needed to be millions upon millions of dollars to start, quote-unquote, your trust to potentially help these charities. But now they simplified that process and administration, especially the administration, so you're able to contribute dollars into this account, and you still get to direct those dollars to the charity that means the most to you, or charities as well, but it doesn't have to be given right then. So you're allowed to take those dollars, invest them, and let that grow and basically create a fund to support the charities that mean the most to you and have a greater impact for a longer period of time, potentially. Kyle: These are fantastic vehicles. There's a number of conversations we're having with clients right now, clients really that are at all stages of their giving, they're either just starting out, or they've been gifting for a long time through other methods, and now they've found this vehicle, that to your point, does allow them to contribute dollars or appreciated securities into the donor-advised fund, have those funds be invested and carry over year after year until you're ready to make the gift. And then by the way, as long as it's a 501c3 organization, you direct the funds back out of the donor-advised fund to the charities to make the impact. Danton: Yeah, we've seen a lot. This has become more popular obviously just with the increase in the standard deductions, so you're not getting as much benefit just from donating the $1,000 gift anymore, but if you're able to lump these all together, you get a little bit more benefit at least in your tax return. So it's just we're never really advocating to obviously donate money to increase your net worth, but if you're going to donate money, let's do it in the most efficient way possible. And then how you use specifically this type of tool is different for everybody, and that's kind of why we like it, is it is fairly flexible in how it is used. So it's become probably one of the easiest ways to manage your donations in a tax-efficient way. Kyle: 100%, and there's a story that rattles around in the back of my mind where prior to the last handful of years, we had a client that sold his business and had a very large capital gain in that year. He went ahead and contributed a portion of those proceeds into a donor advised fund to help offset his tax liability that year. I won't give the exact number that he contributed, yet I will say it was a healthy six-figure sum, and this was in 2019. And he went ahead and he invested those funds inside the donor advised fund, and 2020, 2021 are very robust years in the equities markets, and he remained aggressive with those funds. He was able to give away the amount that he had put in, but he still had that original principal left over. So if you think about that, the leveraging power of growth with those investments, and he was able to basically double the amount that he gave, and he got his tax write-off and all these other things, but it brought him and his wife so much joy, so much joy, and what he shared with us was it is so fulfilling to be able to say yes. When they would meet someone out at a function or they would see something either in the news or this or that, think of any time a natural disaster strikes and the Red Cross or someone's organizing relief efforts, to be able to say yes in those times of needs because you already, by the way, with the donor advised fund, have a set-aside bucket. You don't really necessarily have to think about, oh, well, do I give this out of checking or my investments? No, there is a dedicated bucket that is set aside for these types of things. It makes giving, it almost gives you permission to give. Danton: Yeah, in that case too, if you're able to put in a large enough dollar amount where the growth on that alone is going to be a substantial donation, it's kind of paying for itself and creating that income stream, if you will, within the donor advised fund to fund these charities. So, especially in that type of situation, it makes it pretty easy to continue to give those dollars and feel good about it and know also it's not really even pulling from your assets that you're using for just day-to-day life. Kyle: Yeah, so donor advised funds, I think that's a very good starting place and that's accessible to just nearly anybody. Now let's talk about something that is pretty effective as well too, the scope, the population that can utilize it is a bit smaller, and that is the Qualified Charitable Distribution or QCD for short. This really kicks in when you get to age 70 and a half. That is the minimum age on it. And it basically allows you to gift directly from your IRA to a charity and not have that income come to your tax return as taxable income. Danton: Yeah, I remember when I think I started my career, I used to always tell people, once it's in that IRA, there's no way to get it out without paying taxes. So, I kind of got to eat my words now because there is a way to get it out of your IRA and not pay taxes. We always say eventually you got to pay tax on those, but I guess it's not entirely true. But the caveat is you don't get to use those dollars necessarily, they do need to be directed. But if you're already going to be directing dollars to that charity, again, let's do it more officially with pre-tax dollars that you would have had to pay taxes on. Kyle: And there is a cap on this one as well to the amount of money you can direct out of it. It's $108,000 per taxpayer in 2025. So if you're a married couple, that's $216,000. But we do anticipate now with some recent legislation passed that that will inflate over time. It used to just be for the longest time that I was doing this,...