Enhancing Your Charitable Giving

Listen Now:

The Smart Take:

Subscribe:

Click the below links to subscribe to the podcast with your favorite service. If you don’t see your podcast listed with your favorite service, then let us know, and we’ll add it!

• Apple Podcasts
• Google Podcasts
• Spotify
• Stitcher
• TuneIn
• Amazon Music

The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Intro:
Hey, it’s another episode of Retire Smarter. Thanks for being with us today. Walter Storholt here alongside the great team at True Wealth Design, wealth advisors, and CERTIFIED FINANCIAL PLANNER™, Kevin Kroskey and Tyler Emrick, serving you throughout northeast Ohio, southwest Florida, and the greater Pittsburgh area. We’re online at truewealthdesign.com. Kevin, great to be with you this week. How are you, my friend?

Kevin Kroskey:
Walt, I think I had one of those moments this morning when, how do I phrase this? Well, what’s the opposite of the egghead alert?

Walter Storholt:
Oh, the opposite of the… Like the dunce cap or something.

Kevin Kroskey:
Yeah, so…

Walter Storholt:
Dunce cap moment.

Kevin Kroskey:
There’s certain areas where we all excel in, well, maybe we excel, I don’t know, I’m making platitudes here, but there’s other areas where we’re less good if you will. That might be saying it kindly.

Kevin Kroskey:
I’ve been with my wife for 20 years, and she just let me in on a secret that was a secret to me, but I feel not smart in admitting this, but hey, if you’re not going to laugh at yourself, what good is life? But I didn’t realize that you can wash a pillow, and this morning I washed my first pillow. Now there may be a lot of people cringing as I say this but let me just say that rest assured, I just went through pillows pretty regularly and buying new pillows, which is very inefficient, which is anti-Kevin Kroskey, but I didn’t realize you can wash a pillow. I don’t know, there was something about it I thought like, hey if you wash it, it’s ruined. It’s going to come out all mucky in the dryer, and it’s going to be lumpy, but I had this beautiful side sleeping pillow that I love, and I was lamenting about having to buy a new one, and my wife said, why don’t you just wash it? And it came out great. It is bristling white, and I will say being bald-

Walter Storholt:
Nice.

Kevin Kroskey:
… like all you people with hair on your head that maybe can collect some oils and other things that come out of your skin, when you’re bald, it ends up in your pillow, so yes, yes, this is how we’re starting out today. But yeah, so there we go, Walt.

Walter Storholt:
Amazing. Wow.

Tyler Emrick:
I just pictured Kevin in a light bulb moment coming on like, oh, I have an idea. I can do this.

Walter Storholt:
All these pillows I wasted over the year. Amazing. Oh, that’s great. I did not –

Kevin Kroskey:
… that pillow guy is going to be upset, I guess.

Walter Storholt:
That was a really interesting way to start the show this week. Tyler, can you top that, my friend?

Tyler Emrick:
No, I can’t Walt, we can just get right into it.

Walter Storholt:
Perfect. Well, great to be with you both once again. We’re approaching the end of 2022. So it seems like Kevin, this has kind of become an annual thing, something in the realm of charitable contributions and thinking about, it’s one of those end of year topics, but every year things are shifting and changing and always good to hit a reset button and kind of understand the new rules, the new things to be thinking about. And so it sounds like that’s our direction for the show today.

Kevin Kroskey:
Yeah, it sure is. It’s that wonderful time of season. People just seem to be nicer. You hear the Christmas carols going and the Christmas music on the radio, the holiday shopping, the lights, all that great stuff, and having kids, it certainly brings an extra special kind of joy to the season. A lot of clients and a lot of people, in general, make most of their charitable donations at the latter part of the year. Certainly, they’re often made maybe throughout the year, but I had served for a local community fund as a treasurer for many years, and I don’t know, I would say probably 90% of our donations came in December.

So there’s not only that giving time of year that we’re all benefiting from, but it is that time of year for many. And there’s different ways to do it, I would say smartly than others. You know, you don’t have to go out and buy a new pillow every six or 12 months, you can actually do things a little bit smarter, and so we’re going to try to do smart… I’m going to drop the pillow analogy, but we’re going to try to talk about smart ways to go ahead and do your gifting today.

Walter Storholt:
I like it. All about efficiency here on the show, as you talked about with the pillow element, and glad that we can now apply that mentality and that skill that you have, Tyler and Kevin, about being efficient, helping people’s finances, just something more grand than just pillow epiphanies here. So yeah, take us down the line. What are some things you’re thinking about?

Tyler Emrick:
Absolutely. Well, and I guess before we jump into it too much, I think Kevin, you brought up a pretty good point there, right? I mean the timing and being more thoughtful. I think sometimes, or at least some of the families that I speak with, sometimes they don’t think about their gifting. It’s just something that they’re doing when they go into church or once a month, or they do it at the end of the year to the university and might not realize with a little bit extra thought or maybe some tweaking, there might be some advantage that they can take advantage of. Advantages they can take advantage of. I didn’t mean to do that, but yeah, obviously, we never gift for tax reasons or to get anything out of it. We’re just gifting because they want to but if there is something we can take advantage of, seems to be worth it.

Kevin Kroskey:
You know, you just made me think of something Tyler that really I think is really important, and it really wasn’t on my short list of, I think as financial planners, oftentimes our mind goes right to, hey, if we can save somebody in tax or hey, let’s do this cool planning strategy, or if we do this to the investments, it’s likely going to improve things, but Simon Sinek kind of start with a why, really, what’s the purpose? Certainly, we do that in planning, but candidly, for me anyway, just being really into math and into the technical part, I kind of had to retrain my brain over the years to really start with the why and making sure that I start with the person rather than I got into the stuff, and it’s common that people will do that too. I know Tyler, you kind of have a similar, very strong math background, so it’s what brings you in maybe is kind of into the business, into the profession are those technical things.

But then what keeps me here anyway is really the people and the impacts that we can have positively on their lives, but related to that, something that I went through this year was my own, I guess, kind of personal / family journey in philanthropy and here we sit in Akron, Ohio, northeast Ohio today recording this and I did a program with our local community foundation, the Akron Community Foundation, called the Emerging Philanthropist and it was about a six class endeavor that we did over a period of months where not only did we learn about a little bit of the tax stuff that was a minority point and something that I was already strong in, but really about the why behind it and doing it smartly and maybe having a personal or family philanthropic mission statement and really learning and getting exposed to a lot of the different charities and the needs in the community that candidly, I wasn’t fully aware of and didn’t appreciate.

So it was a really interesting experience. It was something that my wife and I didn’t have when we were growing up. We had in most months, it was… It was not uncommon that there was more month than there was money in our households growing up, and charity and philanthropy, I’m not saying that you have to have a lot of money to do that, but it just wasn’t prevalent in our households, and then as we had children and we got more involved in our community, it was something that was important to us that we started. So I started with learning. I didn’t know what I didn’t know, just like we kind of talked about in prior episode, right Walt? The unknown unknowns.

Walter Storholt:
Known unknowns and unknown knowns, yes, we all remembered the…

Kevin Kroskey:
So, and there’s still a lot that I don’t know, but some of the things that we just did personally that I’ll share that may be helpful for some people, we just wanted to get our kids involved, so we go to the parks a lot. We would take them through and just walk with our family and the dogs and enjoy the parks, and we talk about how the parks were funded through public funds and then maybe even some donations, and we would see benches that we would sit on, and there would be a little placard for somebody that maybe donated to the park, and we talk with our kids about that and why that’s important and just try to make it very concrete and tangible to them. So that was a good way to start getting them involved. So my family and I set up the Kroskey Family Fund through the Akron Community Foundation. It’s a donor-advised fund that we contributed stock to, that was appreciated, and again, we’ll kind of weave this into some of the tax benefits here as we move forward.

But then we really incorporate into it just into some of our family discussions. It sounds really boring, family discussions, but pragmatically what we did, I logged into the Akron Community Foundation’s website, brought up on our big screen TV, just their website with some pre-approved charities that they have in our local community. We kind of peruse these, what’s their mission? Who are they helping? How much are they asking for? All those sorts of things. I just wanted to make it tangible to my girls. And I wanted to just start moving the ball in that direction where something that we could do collectively as a family and hopefully inspire that in them and continue to learn and grow ourselves as well as their parents in getting more involved in helping more people. And it was great. So beyond the parks and helping those in our local community and helping our local community fund, we helped an inner city soccer program.

My one daughter was into soccer, she’s no longer into soccer, but at the time, she was, and that was something that resonated with her, and we talked about places where mommy and daddy grew up, how that was not dissimilar from the areas where this certain group was trying to help people. And it helped us tell our origin story and how we’ve been able to work hard and achieve things in life that we didn’t dream was possible before. And just a lot of good stuff that really came out of that, hopefully from a life lesson standpoint and really just instilling a foundation of things that we can build upon and get our kids to just pass our values down, that hard work, that caring, caring about your community, all those sorts of things. So it was a really great way to take a step in that direction, something that we’re just embarking upon as myself, personally, as our family, all those things.

But it’s really that why that we started with. It was important for us, for our family, to do that, and I know others have very important values and beliefs and causes that they support too. So whatever your why is, that’s great. I think our job as advisers is really to kind of understand what it is, understand that why, understand what it is that you want to do, sometimes nudge you and show you that you can do more, and then whatever that goal is that you decide upon that we can do it in the most efficient way possible tax-wise, operationally, which we’ll talk about today.

Tyler Emrick:
I got to say this. So my oldest is a toddler, she’s three. And Kevin, if you could tell me how to get my toddler to share with her sister and play and not take her toys, boy, I would get to that level and the charitable. So I hope, all jokes aside, I think that was a very good way to approach it, and as my girls get older, I’m definitely going to hopefully get to that point and do that, but yeah, if I could just get her to share with her sister, I’d consider that a win.

Kevin Kroskey:
Baby steps.

Tyler Emrick:
Right?

Kevin Kroskey:
Well, why don’t we get into some of the dollars and cents aspect of it? Tyler, since I’ve been doing most of the talking, why don’t… I know a big shift in kind of giving really started when we had tax reform in 2017 that applied for the 2018 tax year, so why don’t I throw it over to you and just kind of talk through what the standard deduction, what those changes looked like, and then we can set the stage for some more beyond that.

Tyler Emrick:
Yeah, so when that tax law happened in 2017, essentially what happened is the standard deduction essentially doubled for everybody. So as you look at that from your family aspect, what that means is, is you looked at your gifting traditionally, one of the biggest tax advantages that you get is you’re able to deduct it off of your income each year. However, if you take the standard deduction, then that is not going to be the case, and typically you’re looking at a standard deduction around the mid-twenties, 26, 27,000. There are a few variables there, depending on your age, and so on and so forth.

That’s for a married couple, so that is a significant amount of gifting that would need to be done each year. Now certainly, you’re going to have other deductions, state and local taxes, and maybe a host of other things, maybe some mortgage interest but other than that, on top of it, that gifting needs to make up that other big piece, and so for some families, that’s just not the case, and maybe they’re not gifting that much, so it kind of opened the door for some big planning opportunities that we look at with families each year, such as bunching strategies, maybe gifting appreciated stock and some of those other things that Kevin lightly mentioned earlier.

Kevin Kroskey:
So if… Awesome. Yeah, perfect. And when I think about, maybe we’ll just go through a little example, try to make this crystal, but the SALT tax of the State And Local and Property Tax deduction is now capped at $10,000. So if you are, just use round numbers, the standard deduction is 26,000, and you have $10,000 in state and local and property taxes then, and you don’t have a mortgage, let’s set that aside. Even if you do, until recently, mortgage interest rates went so low, so people’s-

Tyler Emrick:
Right.

Kevin Kroskey:
… interest expense went significantly down but let’s just set this mortgage aside. Let’s just say that you do have the $10,000 in state and local property taxes. Really the next 16,000 that you will give to a charity does zero for you tax-wise. Only until you get over and above that standard deduction threshold are those dollars going to benefit you from an income tax standpoint. So $16,000 is a lot to give for many people in a year, and it’s great that you’re able to benefit your charity, but if that situation we just described applies to you, that $16,000 really did nothing for you tax-wise, income tax wise.

Tyler Emrick:
You’re right, Kevin, $16,000, that’s a lot. And I think that’s where that bunching strategy comes into play, where we might look out over the next 2, 3, 4 years and say, hey, if this gifting is really a part of the fabric of what you’re going to do, it’s going to happen. You’re fine committing to it, and it’s something that’s going to happen whether you get that tax deduction or not. Well, the question becomes, is there an opportunity for us to essentially make two to three years’ worth of gifts all at once to maybe get up above that $16,000 threshold?

So if let’s say, for example, you’re gifting $5,000 per year, it’s a commitment you’re willing to make, and you’re saying, hey, why don’t we take the next four years, do a $20,000 gift in this year on top of what we’ve already done, so that’d be $25,000 of total gifting that would get you over that $16,000, and then now you turn from taking the standard deduction to now being able to itemize and actually be able to deduct that gift off on your tax return. We do that with many of the retirees.

Kevin Kroskey:
Can you go longer than the four or five years you mentioned there, Tyler?

Tyler Emrick:
You can, but I would say that we definitely want to make sure that it’s something that we’d be mindful of because once that money goes into the donor advised fund, it is a gift, or that’s the type of account that we would use for that one-time gift. So, as you’re looking at making that maybe one-time big gift of $20,000, it would go into the donor advised fund in this year, you would get the tax deduction for it, and then you would dole out those future gifts over the course of that next three to four years. And once we start getting farther out into the future, now we starting to look at, well, there might be some uncertainty from tax law changes, there’s the commitment about potential gifting changing, maybe your tax situation changes. So I think we want to be mindful of all those things.

And to maybe piggyback off this a bit, I just met with a family yesterday where we were having this very same conversation and one of the factors that really went into how much they were going to potentially gift or maybe fund a donor advised fund with this year was, well, what’s their tax situation going to look like? This was an individual where he knew his income was going to start to increase significantly over the next year or two, so we really wanted to take a good hard look at, well, where’s their income at this year for them? They were going to be at roughly the top of the 24% tax bracket, but as we looked at the next year or the year after with that income increase, they were actually going to start creeping up into the 32%, potentially even the 35% bracket.

So, as you look at that, in their case, they were going to get much more of a tax advantage to the tune of potentially up to 10% more off on their taxes by doing maybe that bunching strategy or that gifting all in next year’s taxes. So I think those are the few things to consider there.

Kevin Kroskey:
Yeah, no, I agree. I’ll give you another example on the other side of that, and I know we’ve both kind of collaborated on these cases, but it’s not uncommon that somebody’s in the tail end of their working years, they’re in the highest tax bracket that they’re going to be, maybe in their late ’50s, early ’60s, and they’ve been gifting for pretty much their entire life, and so it’s not, for some people, they would categorize that gifting expense, that charitable donation as a want, others will put it as a need, and it’s more of a tithing or just a higher up on the priority list if you will.

So they’re going to continue to do it, they have for decades, and so in those cases, we’ve had many cases where they’ve gone and maybe gifted as much as 10 years of their future planned giving, all the while taking that immediate tax deduction in the last year or two or three, whatever the case may be, of their working years when they are in that higher tax bracket and then knowing that hey, they’re going to get the immediate tax deduction in the current year, they’re going to go ahead, and yes, they’re going to lose out a little bit of the standard deduction in year one, but because they’re going to really accelerate those contributions into the donor fund and then dole it out over 10 years, it’s going to make it even more efficient.

It’s kind of and point taken on a few years versus maybe a decade, and there’s part of that because it is an irrevocable gift, even though you are a trustee of this donor advised fund, and you can go ahead and make the grant request and have the money sent out to a 501(c)(3), you are giving up control, so it’s pragmatically people you talk about it and say, okay, yeah, that sounds good, this makes sense, but I don’t know if I’m comfortable just putting a hundred grand into it right now. So, you know, you kind of work through all those sorts of things for sure.

Tyler Emrick:
Yeah. Well, how does it fit in your plan? And what are you trying to accomplish and all the more reason to marry some of these decisions and why it’s so important to go back on, hey, having some type of financial plan in place because, for one family, it might make sense and one it might not. And I think to maybe one other point I’d like to add on for that individual you’re speaking with, maybe 10 years’ worth of gifting all at once. It’s not like you can’t invest inside of those donor advised funds and maybe take advantage of some tax-free growth and maybe some additional gifting depending on how the market shakes out.

Kevin Kroskey:
Yeah, no, totally. And that’s a great point. So in the case where, and there are some logistical challenges with anything, I think these donor funds are great, but a lot of them have minimum amounts that you need to put in. So if you’re just looking to open up a donor fund for $5,000, a lot of places won’t do that. Maybe it’s a $10,000 minimum or something more than that. Minimum check sizes that go out, maybe like $250 or so. So if you wanted to do $50 to some telethon once a year sort of thing, that may not work that well. So, there’s a little bit of operational issues to kind of go through, but compared to the alternative, what most people do of like, hey, let me just give some cash, then I got to track all this stuff, and I got to convey it to my tax person, make sure it ends up on my return.

Just making a one-time gift to the donor fund and then doling it out over time for most people is much, much easier. You just log into the account, it’s just like your online bank bill pay. You could set it up where the gift is recurring every month or every quarter or once a year, whatever the case may be, and after you get it set up, it’s kind of like on autopilot, which is great. So there’s a lot of different benefits. I guess one other thing that we would say, rather than using cash, if you can use an appreciated asset, that’s always more beneficial tax-wise. So not only are you going to get the income tax deduction, but if you donate a stock that’s appreciated a lot in value, then you’re also going to avoid that potential capital gain.

So it’s kind of almost, if you think of it, if we’re going to bunch and we’re going to make that more efficient, and we’re not going to lose out on a standard deduction in many years, maybe taking that deduction in a higher tax year, we’re going to get the income deduction immediately, and we’re going to avoid capital gains. I mean, it’s kind of like a, I don’t know how you want to count it, it’s like a trip or a quadruple tax benefit if you do it smartly.

And then one last thing I kind of think about, since we really, I’m putting my investment planning hat on here for the moment, but if you have a holding that’s overweight in the portfolio, and if it’s in a non-retirement account and you have to sell it to bring it back down to target, there’s that old saying that you never want let the tax tail wag the investment dog because hey, the investment can just go down in value and boom, you don’t have a tax problem anymore, but maybe a smart way to kind of conjoin some of these is, hey, if I have something that’s overweight and I want to do this sort of donor advised fund, charitable strategy, I want a bunch, if you can go ahead and cherry pick the holding that is overweight in the portfolio, now you can bring your portfolio back to target and accomplish all the other things that we just discussed.

Walter Storholt:
Pretty cool to hear all the different levers that you guys are able to pull and change and shift and really adapt these types of, do you call this a product, or are these plans, if you will?

Kevin Kroskey:
I mean, the donor fund, I mean, it’s just an account type. You can have them in Schwab, Fidelity, Fidelity’s the largest one in the country, Schwab is large as well. Your local community foundations have them and sponsor them. We use an independent one for many of our clients that will also accept more non-traditional assets compared to a Fidelity or Schwab and allow for more investment options within those funds. So you, like with most things, we’re in America, it’s kind of like Baskin Robbins, and you have all your different flavors of things, but it’s really our job as advisers to figure out what makes most sense for the client and kind of weave it into their plan, pick the appropriate products, talk through those costs and benefits as make smart decisions.

Tyler Emrick:
Yeah, I think it’s a pretty simplified approach too. I mean, I definitely wouldn’t let it deter me if this is a strategy that might benefit you in the long run. I think it’s not something from the logistics standpoint to be too concerned about. I mean, I think it sounds pretty grandiose, hey, donor fund your own charity, but Kevin put it pretty well, it’s really just an account type separate account that you’d be funding and pulling money from as you’re looking at your gifts and I would say there are some timing things to consider, so as you’re working with a financial adviser, you’re working with us, our team here at True Wealth, we’re going to be very mindful of the timing constraints and some of the things that you need to get done prior to year-end.

As with most things, as you’re looking at your gifting at the year-end, if you’re gifting stock and getting these accounts open potentially for the first time, it does take a little bit of time, so this is something that you do need to be prepared for just from a logistics standpoint or have a good team in place that’s kind of doing it, making sure that you meet the deadlines that you need to, to get the deduction in the year you want.

Walter Storholt:
Very good. Anything else as we approach the end of the year here that comes to mind as we talk about charitable giving and some of these different opportunities that are out there for people?

Kevin Kroskey:
No, just don’t forget to wash your pillow.

Tyler Emrick:
Yeah, don’t forget to wash your pillow.

Walter Storholt:
Bring it back full circle, right? Perhaps fellows, that’s it’s hinting at our new charity. We could start something related to new pillows for kids, you know, something like that, I think. Maybe this is some inspiration here, I don’t know. We’ll let Kevin lead the way since this was his epiphany on that, but it’s good stuff.

Well, thank you both for breaking all of that down for us today, and if you have questions about something you heard on the show today or want to take this discussion a little bit further, I invite you to reach out to the True Wealth Design team. You can do that easily by going to truewealthdesign.com, and the best way to start is click the Are We Right for You button on the website to schedule a 15-minute call with an experienced financial advisor on the team. Again, you go to truewealthdesign.com, and you can also find that link in the description of today’s show, or you can call the old-fashioned way, 855-TWD-PLAN. 855-TWD-PLAN.

Fellas, thanks so much for the help today, appreciate it, and we’ll have another episode before the year wraps up. But until then, take care.

Kevin Kroskey:
Thanks, Walt.

Tyler Emrick:
Thanks, Walt.

Walter Storholt:
Appreciate it. This has been Retire Smarter. Thanks for joining us. We’ll see you next time.

Disclaimer:
Information provided is for informational purposes only and does not constitute investment tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance references are historical are not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.