The Four Easiest Things to Leave to Charity

Paul Wannemacher, Contributor, Forbes
September 9, 2016

Now that my kids are grown, I’m devoting more energy and resources to a couple of charitable causes I care a lot about. The average household gives $2,974 a year to charities, and in 2015 individuals gave over $268 billion to charitable causes, so there are lots of us giving money and time to improve the world. Who says there is no good news anymore?

A 2018 study found that 90 percent of high net worth households gave to charity, so it’s obvious that it’s easier to give to others once you have enough for yourself. It’s another reason why building a solid financial plan that gets you to a sustainable, comfortable retirement is so important. It’s not only for your own benefit, but for your community and the causes you care about.

But I also get the hesitation to give of those trying to avoid becoming charity cases themselves. 42 percent of Americans say they cannot afford to give, but even if your financial plan and situation has no room for you to give today, there are still ways to give to charity later that you might not have thought about. Once you’ve found that cause close to your heart that you’d like to donate to, here are four ways you can help that are almost painless:

Your orphan insurance policy 

When I was a kid, my dad bought a $5,000 whole life insurance policy on my life, presumably to pay for burial expenses if something happened to me. Back then, little insurance policies were pretty common, though lots of parents still buy modest permanent insurance on their children. If you still have one of those policies or you own a policy on yourself that won’t end up being a difference maker to your family, why not donate it to a charity or make a charity the beneficiary?

Donating the policy now can get you a current year income tax deduction of the lesser of the value or adjusted cost basis of the policy, but make sure you first contact your insurance company prior to making any policy donations to get an accurate valuation from them. Making a charity the final beneficiary won’t give you an income tax deduction, but doing that (as well as making a current gift) might land you on the “donor’s honor roll” at your charity now, allowing them a chance to thank you and get your input on how the gift might be put to work. You’ll also get a great feeling of accomplishment out of an asset that might have been an afterthought.

Your health savings account (HSA) 

If your workplace hasn’t already started offering high deductible health plans, it likely will soon, and fortunately many come with the health savings account (HSA) benefit. I previously wrote about HSAs to highlight the numerous benefits they offer, like tax-free saving and investing for healthcare expenses — an expense almost everyone expects to have in the future. But once you build your HSA, it has one disadvantage: If you and your spouse don’t use it up during your lifetimes, what’s left becomes taxable income to the beneficiaries you leave it to.

So what’s an obvious way out? Leave any leftover HSA balances first to your spouse, then contingently to the charities you care about. The tax issue goes away and you make an impact on a cause you love, a win-win all around.

Your historical heirlooms 

I just returned from New Orleans and saw the National World War II Museum, a must-see for any history buff. What made it so amazing was the combination of personal stories of those who took part in it and the precious artifacts from each donor family’s deceased soldier. Those items had to be extremely hard to part with, but history came alive because of those incredible gifts.

Do you have items stowed away that deserve a place where they can tell their story? Find a museum or local historical society who might love showing your items to complete their mission and offer you a tax deduction for the privilege. Though donating items and collectibles may involve getting an appraisal of the item if it’s valuable, having your items on display with your name or family featured can be very satisfying and contribute to everyone’s benefit.

Excess retirement assets

 According to a 2015 GAO study, the median amount of retirement savings among households age 55-64 with savings is about $104,000, so for most of us, the idea of having leftover retirement assets after we die seems like a fantasy. Still, I often meet with employees who are making enough sacrifices to manage spending, put their kids through college, and build a comfortable retirement. Some are so good at it that their problem isn’t having too little saved. It’s paying high taxes during retirement on big pre-tax deferrals.

If you are one of those super savers, remember that charities can receive gifts of pre-tax retirement assets and, unlike your heirs, avoid the tax dilution of the gift. If your heirs are in a high tax bracket because of their own personal success, consider making account withdrawals to fund life insurance benefits for them and leave the remaining pre-tax balances to charity. The IRA charitable rollover rule has been made permanent, allowing you to make direct gifts from your IRAs up to a total of $100,000 a year starting at age 70 ½. If you find yourself living on less than your required minimum distributions and other income sources, this technique can lower your taxes and satisfy your charitable objectives at the same time.

Don’t forget about charity when it comes to your financial planning. Think of how much good you can do and the warm feeling inside you’ll experience by doing what you’d like to do anyway. Doing it the easy way can make that feeling even better!

Editor's note: This article has been updated to ensure the content is up to date as of November 1, 2018.

This article was written by Paul Wannemacher from Forbes and was legally licensed through the NewsCred publisher network.

The strategies mentioned in this article may often have tax and legal consequences; therefore, it is important to bear in mind that First Republic does not provide tax or legal advice. Investors' tax and legal affairs are their own responsibility and readers should consult their own attorneys or other tax advisors in order to understand the tax and legal consequences of any strategies mentioned in this document.

The views of the author of this article do not necessarily represent the views of First Republic Bank.