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Six Strategies to Optimize Your Charitable Intentions 04.13.2021

By: Steve Pitchford, Director of Tax and Financial Planning and Matt Regan, Wealth Advisor
Published: April 13, 2021 updated October 22, 2021

Most individuals who are philanthropically inclined usually just take the path of least resistance and write a check directly to a charity. Of course, this is a straightforward approach and can qualify for an income tax deduction, but when being charitable, there are many different (and often economically more advantageous) options and strategies available to you. Indeed, with strategic and thoughtful planning, a taxpayer may be able to optimize their gifting strategy, meeting multiple objectives by maximizing the economic benefits 1.) to themselves, 2.) to their favorite charities, and even 3.) to their loved ones.

Are you optimizing your philanthropy and gifting strategy? Below you will find a myriad of different charitable strategies we regularly employ for Towerpoint Wealth clients, designed to help you better understand your options.

Cash/Direct to Charity

A cash gift is the simplest and (by far) most popular form of charitable giving.

The income tax deduction[1] for a cash gift is generally equal to the amount of cash donated less the value of any goods or services received in return. And while the benefit of a cash donation is its simplicity, as you will see below, it is not always optimal from a tax and gifting perspective.

Donor-Advised Fund

A Donor-Advised Fund (DAF) is a charitable fund, a 501(c)(3) entity in and of itself, that allows an individual to donate cash or appreciated securities, such as individual stocks, bonds, mutual funds, or exchange-traded funds (ETFs).[2]

Donor Advised Fund DAF Charitable Intentions White Paper

Donating appreciated securities can be a more tax advantageous way to fund a DAF, as donating an investment that has gone up in value generally provides the exact same tax deduction as donating cash, while at the same time provides the extra benefit of eliminating the capital gains tax that a taxpayer would normally pay upon selling the security.

How does it work? The donor makes an irrevocable gift of cash or appreciated securities to a DAF. The donor is then able to decide, on their own timeline, when to grant funds out of the DAF and directly to a charity or charities of their choice. If the contribution is appreciated securities, the DAF is allowed to sell these positions tax-free. The DAF will typically then, at the donor’s discretion, invest the funds in a manner consistent with the donor’s charitable goals and objectives. Once the donor is ready to make a grant from the DAF, he or she simply informs and authorizes the DAF custodian (usually via the custodian’s online platform) to send a check directly to the charity on the donor’s behalf.

Typically, the funding and operational costs of DAFs are low, and our clients also love that they provide a year-end summary report, eliminating the hassle and stress of tracking each contribution/grant out of the DAF individually.

Towerpoint Tip:

At Towerpoint Wealth, we also evaluate “frontloading” a DAF with several years’ worth of potential charitable contributions, allowing a taxpayer to “hurdle” the standard deduction and thus, not only eliminate the future capital gains tax of the donated funds, but also provide them with at least a partial tax deduction for their charitable contributions in a particular tax year.

Private Foundation

A private foundation is a 501(c)(3) organization set up solely for charitable purposes.

A private foundation may be structured either as a corporation managed by a board of directors, or as a trust managed by trustees. Unlike a public charity, the funding for a private foundation typically comes from a single individual, family, or corporation.

The primary benefit of a private foundation is the enhanced control that it provides, as it is able to formulate its own customized charitable gifting approach and platform (and continue to gift directly to other charities as well). A donation to a private foundation is an irrevocable charitable gift, and qualifies for a potential income tax deduction that, for most individuals, will be the exact same as gifting directly to another 501(c)(3) charity.[3]

Importantly, private foundations have administrative and tax reporting requirements that may be costly, and speaking further with a financial advisor and tax professional regarding the benefits and drawbacks of establishing one is recommended.

IRA Qualified Charitable Distribution

Individuals who are over the age of 72 are subject to annual required minimum distributions (RMDs) from their pre-tax IRA(s). These distributions are included on an individual’s tax return as taxable income and are subject to ordinary income tax.

As an alternative to taking a “normal” RMD, an individual can instead execute a Qualified Charitable Distribution (QCD), which allows them to both satisfy their RMD and their charitable intention at the same time.

How does a QCD work? Instead of a “normal” RMD, which usually is deposited into an individual’s checking, savings, or brokerage account, a QCD is paid directly from the IRA to a qualified charity. This distribution not only offsets – or, depending on the amount, fully satisfies – an individual’s RMD, but it is also excluded from taxable income.[4]

And unlike other gifting strategies, a QCD’s net effect as an “above the line” dollar-for-dollar tax deduction can offer additional economic benefits when compared to a “typical” itemized charitable tax deduction.

Charitable Remainder Trust

A charitable remainder trust (CRT) allows a donor to make a future charitable gift, while at the same time, receive an income stream during their lifetime for their own spending goals and needs. There are two types of CRTs: Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs). The two main differences are how the annual distribution to the income beneficiary(ies) is calculated and how often assets can be contributed to the trusts.[5]

When the donor establishes and contributes to a CRT, they are entitled to a current income tax deduction that is equal to the future expected value of the trust assets that will ultimately pass to the charitable beneficiary(ies). The deduction calculation is based on a number of different factors, such as the annual income stream payout set by the CRT, the age(s) of the income beneficiary(ies), the trust’s specified term of years, and the published IRS monthly interest rate.

At either 1.) the donor’s death, 2.) the death of the beneficiary, or 3.) the completion of the trust’s term, the trustee will distribute the balance of the trust assets directly to the chosen charity(ies).

The primary benefit of a CRT is that an individual may receive a substantial tax deduction in the year they open and fund the CRT, while at the same time, continue to receive income for themselves (or other income beneficiaries) during their lifetime. If the CRT is funded with cash, the donor can claim a deduction of up to 60% of adjusted gross income (AGI); if appreciated assets are used to fund the trust, up to 30% of their AGI may be deducted. In addition, if the trustee decides to sell contributed appreciated securities, he or she can do so tax-free.

Towerpoint Tip:

Opening, funding, and administrating a CRT is complicated and there are important ongoing tax filing obligations. As such, it is highly recommended to work with a trusted financial advisor and tax professional to ensure that a CRT is the right choice. Further, the tax deduction calculation may be audited, so it is important to hire a qualified professional to appraise this value.

Charitable Lead Trust

In the simplest sense, a charitable lead trust (CLT) is the reverse of a CRT. The income generated by the contributed assets is distributed to the chosen charity, and the beneficiaries receive the remainder interest. Like a CRT, a CLT can be an annuity trust (CLAT) or a unitrust (CLUT), but different distribution rules apply.

There are two main types of CLTs: a grantor CLT and a non-grantor CLT. A grantor CLT, like a CRT, is designed to give the donor an upfront charitable income tax deduction. However, to receive the charitable deduction, the donor must be willing to be taxed on all trust income. Since the gift is “for the use of” a charity instead of “to” a charity, cash contributions to a grantor CLT are subject to reduced deduction limits of 30% of AGI, and appreciated asset contributions are subject to deduction limits of 20% of AGI. For non-grantor CLTs, the grantor does not receive a charitable income tax deduction, nor are they taxed on the income of the trust. Instead, the trust pays tax on the income, and the trust claims a charitable deduction for the amounts it pays to the charity. It is very important to note that since they are not tax-exempt, neither type of CLT offers the ability to avoid or defer tax on the sale of appreciated assets like a CRT does.

A CLT may be a better option than a CRT if an individual has no need for current income and wants to ensure that, upon their death, their loved ones receive an inheritance.

Towerpoint Tip:

A charitable lead trust is often structured to provide gift-tax benefits, not necessarily a current income tax deduction. A donor is able to gift more to family members with a reduced gift-tax effect because the gift’s present value is discounted by the calculated income to be paid to the charity(ies). The tax deduction the individual receives is based on the annual amount provided to the charity.

Pooled-Income Fund

A Pooled-Income Fund (PIF) is a type of charitable trust that functions like a mutual fund.

A PIF is comprised of assets from many different donors, pooled and invested together. Each donor is assigned units in the fund that reflect his or her share of the fund’s total assets. Each year, the donors are paid their proportionate share of the net income earned by the fund – the distribution amount depends on the fund’s performance and, importantly, is taxable income to the beneficiary (which is typically the donor but may also be a family member, friend, etc.). At the death of each income beneficiary, the charity receives an amount equal to that donor’s share in the fund.

PIF contributions provide a tax deduction to the donor upon contribution and, like the other charitable gifting vehicles described previously, affords the donor the ability to avoid paying any capital gains taxes on the contributed appreciated securities.

Pooled Income Fund Donor Charity

A primary drawback of a PIF is that the donor has no control over how the assets are invested, as the investment of the fund is directed by a professional manager. As such, it is important that individuals speak with a financial advisor to ensure that a PIF is thoughtfully incorporated into their overall investment allocation and strategy, as well as philanthropic and charitable giving plan.

How can we help?

At Towerpoint Wealth, we are a legal fiduciary to you, and embrace the professional obligation we have to work 100% in your best interests. If you would like to learn more about charitable giving strategies, we encourage you to contact us to open an objective dialogue.

Steve: 916-405-9166, spitchford@towerpointwealth.com


[1] In order for an individual to receive a tax deduction, their combined itemized deductions must exceed their standard deduction.

[2] Appreciated securities may be donated directly to certain charities as well. However, doing so is typically an administrative hassle for both the individual and the receiving organization.

[3] Donations to a private foundation are tax deductible up to 30% of adjusted gross income (AGI) for cash, and up to 20% of AGI for appreciated securities, with a five-year carry forward

[4] Up to an annual maximum of $100,000, per taxpayer.

[5] A CRAT pays a fixed percentage (at least 5%) of the trust’s initial value every year until the trust terminates. The donor cannot make additional contributions to a CRAT after the initial contribution. A CRUT, by contrast, pays a fixed percentage (at least 5%) of the trust’s value as determined annually. A donor can make additional contributions to a CRUT.

Matt Regan No Comments

Cryptocurrency – Wait, I Have to Pay Taxes??!!

Do you own/trade cryptocurrency? Interested in investing in BitcoinEthereum, or any of the other 4,000 cryptocurrencies currently available to own and trade?

If so, it is important you understand the income tax consequences of owning crypto.

If you are thinking about buying, selling, or trading cryptocurrencies, watch this quick video from our Wealth Advisor, Matt Regan, to learn the tax consequences of doing so.


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One Minute Tax Tips – Roth IRA conversions

Wealth advisor Matt Regan, with the first in a weekly series, One Minute Tax Tips, discussing Roth IRA conversions.

In today’s low (and possibly temporary) current income tax environment, considering paying some tax *this year*, in 2020, to do a partial Roth conversion and gain the benefit of having sheltered additional money in a tax free Roth IRA may make sense.

Watch Matt’s 60 second video to better understand what this strategy entails, and email us at info@towerpointwealth.com to discuss if this strategy may make sense for you.

Towerpoint Wealth No Comments

Should We Fret Over the Threat of $27 trillion of U.S. Debt?

$27 trillion. That is where the United States’ current debt load currently stands as of 10:40 a.m. today:

The budget deficit is expected to be $3.3 trillion just for 2020, as the Federal government seeks to provide stimulus to our economy in the face of the COVID-19 crisis. This has added $2 trillion to our national debt, on which in most months we are spending more than $1 billion a day just in interest. 

For perspective, here is a sobering infographic (yes, that is a football field in front of the Statue of Liberty) depicting what $20 trillion looks like. Each pallet, or “brick,” represents $100 million:

Infographic courtesy of www.demoncracy.info

Unless there is some new economic or societal model that none of us are aware of, our country’s debt will almost assuredly never be paid back. Politicians love promising us the world, and when the cash is not there to keep their promises, our government borrows money. Paying back this debt would require making extremely difficult decisions, and concurrently, losing votes. It is much easier to avoid this problem, kick the can down the road, and borrow from our children’s future than responsibly address it.

The politicians’ solution? Inflate our way out of the problem. The path of least resistance is to manufacture (read: print more) money to pay the debt back. By doing so, we are able to meet and satisfy our debt obligations (at least on paper). However, what this means is the holders of U.S. debt will receive back less than they loan in real dollars, as the purchasing power of a dollar declines as inflation occurs.

Most economists agree with and are untroubled by such massive amounts of borrowing, understanding our economy is currently in peril. The national debt was barely a concern when we passed the CARES Act, a cornerstone $2.2 trillion coronavirus economic stimulus bill, almost unanimously in March.

The two major concerns about carrying such a major debt load (higher interest rates and higher inflation) have not yet come to pass, as interest rates are extremely low and inflation remains quite muted. And because of that, our government is able to focus on providing the above-mentioned stimulus to combat the COVID-19 pandemic, and not have our national debt constrain our response. Seeing that we have been “forced” to borrow aggressively, at least we have been able to do so quite cheaply!


Make no mistake about it, questions remain about what the actual impact of this aggressive borrowing and economic stimulus will be. At Towerpoint Wealth, we believe the politics will eventually have to switch towards reining in the deficit. As this occurs, expect potentially massive implications for government spending, focused in areas like pension and medical spending, especially as our economy and our citizens age.


However, while we do feel there may be a transition to and an increased focus on debt reduction here in the United States at some point, the way we see it for the foreseeable future:

  1. The U.S. economic engine will remain a powerful one
  2. The urgency of the COVID-19 crisis will continue to underscore the demand for “safe haven” assets like U.S. Treasurys 
  3. The U.S. dollar will remain the world’s reserve currency
  4. The U.S. Federal Reserve will continue to print vast amounts of money to buy our debt
  5. Once business start to reopen and growth returns to more “normal” levels, tax revenues will increase substantially.

What’s Happening at TPW?

It was great to have a Towerpoint Wealth quorum downtown yesterday, with everyone looking good and dressed nicely to boot!

She said yes!

Our Partner, Wealth Manager, Jonathan LaTurner, *finally* popped the question to his long-time partner, Katie McDonald, while at Carmel by the Sea this past weekend.


A huge congratulations to both Jon and Katie, we can’t wait for your wedding!

TPW Service Highlight – Concentrated Stock Management

Have you amassed personal wealth through equity-based compensation, the inheritance of a large single-stock position, or from receiving stock as part of the sale of a closely-held business? Does this stock represent more than 10 or 15% of your overall portfolio? Do you recognize and are you concerned about the risk that this position may represent to your overall net worth? If the stock has appreciated, are you worried about the potential income and capital gains tax consequences of selling it?

We are experts in helping our clients manage and mitigate the risk and tax consequences of owning a concentrated stock position – click HERE or scroll to the bottom of this newsletter to download the white paper we recently published on this very important issue.

Graph of the Week

Researchers around the world are working around the clock to find a vaccine against COVID-19. In addition to a number of individual companies, the pandemic has created a number of unprecedented public/private partnerships in search of promising vaccine candidates:

  • BioNTech / Pfizer
  • Oxford / AstraZeneca
  • GSK / Sanofi
  • Novavax
  • Gamaleya Research Institute of Epidemiology and Microbiology
  • Moderna
  • Sinovac
  • Janssen
  • Valneva
  • CureVac

Below you will find a chart that outlines these current major partnerships and companies, as well as geographic distribution of the anticipated vaccine.

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Nathan, Raquel, Steve, Joseph, Lori, Jonathan, and Matt

Towerpoint Wealth Team : Sacramento Financial Advisor