Chuck Feeney has finally achieved his goal—he’s broke. More importantly, Chuck Feeney is proud of his accomplishment. Feeney, the 89-year-old who amassed billions as the cofounder of airport retailer Duty Free Shoppers in 1960, has spent the last few decades of his life disbursing his financial wealth (upwards of $8 billion) to worthy nonprofits around the world. He has championed the concept of Giving While Living, which is the notion that it’s better to make a charitable impact while you’re alive and can see the fruits of your work rather than leaving your wealth to a foundation at your passing. To use the nomenclature clients at Carlson Capital Management have become accustomed to through conversations about their Wealth Equation, Chuck Feeney has prioritized his “C1” giving.
Chuck Feeney’s story is interesting and thought provoking to be sure, but the takeaway is less about the perfect timing for charitable gifting and more about intentionality. Our charitably minded clients have varied preferences when it comes to the form, structure, and timing of their charitable support. Some clients strongly prefer inter vivos gifting, choosing, as Chuck Feeney has, to distribute their wealth to their charitable causes while still alive. Others are captivated by the notion of a legacy gift that will continue to impact a cause or community in perpetuity.
When it comes to charitable gifting and the timing, the structure, the amount, and the beneficiary of the gift, it’s clear that there is no single “right” answer. Every donor is different. However, there may very well be a wrong answer. We often see this in cases where the donor doesn’t act with intentionality.
Which Account to Designate
The best example is classic, simple, and tragically common. The donor has decided to leave a legacy gift to charity and has options as where to source the gift. That is, the donor has assets spread between different accounts and thus needs to decide which account will be designated as the one that will pass to charity instead of the donor’s heirs. Most often the choice is between a pre-tax retirement account, such as an IRA or 401(k), and an after-tax investment account, such as a brokerage account or Roth account. It’s common to see the brokerage account owned by the donor’s trust. It’s also common to see the donor’s trust documentation contain legacy distribution provisions in favor of the donor’s favorite charitable organizations. In that case, the choice has been made—the donor has sourced their charitable legacy gifting from the trust account. Had the donor been more intentional in the process, the donor would likely have sourced the charitable gifting from a pre-tax retirement account instead. Unlike heirs who must pay income taxes on distributions from inherited pre-tax accounts, charitable beneficiaries who inherit pre-tax accounts don’t pay income taxes. That’s an incredibly important distinction and should be a determining factor in the sourcing decision. If the donor had the option to source the gift from a pre-tax retirement account instead, then selecting the trust account almost certainly means that more taxes were paid than was necessary.
The recently enacted SECURE Act changes the timing and taxation of distributions from pre-tax retirement accounts to non-charitable beneficiaries, so now it’s even more important to be intentional when sourcing legacy charitable gifts.
As the season of charitable gifting is upon us and many people are revisiting their estate plans, we encourage you to connect with your CCM advisor to ensure your charitable intentions will be best fulfilled.