Strategies for a Giver's Heart

FIVE THINGS YOU SHOULD KNOW

1. Equity Markets – were lower this week with U.S. stocks (S&P 500) down -4.48% while international stocks (EAFE) fell -3.16%.
2. Fixed Income Markets – were mixed with investment grade bonds (AGG) up 1.05% while high yield bonds (JNK) fell -1.73%.
3. Biden Proposals – this week, President Biden during his budget requests to Congress proposed a series of new tax increases on billionaires and corporations. The plan calls for a 25% minimum tax on billionaires while almost doubling the current capital gains tax rate from 20% to 39.6%. While this proposal has very little chance of actually passing through the Republican-controlled House of Representatives, it does set the stage for impending negotiations around governmental spending and the debt ceiling.
4. Powell Speaks – at his biannual monetary policy testimony this week on Capitol Hill Fed Chairman Powell acknowledged that a recent surge of strong economic data has changed the Fed’s view one their policy path and that higher interest rates will likely be around longer. After the comments the bond markets further priced in the likelihood of a U.S. recession with traders bracing for a full percentage point of rate hikes over the next four Fed meeting, while Goldman Sachs raised their peak rate expectations to the 5.5%-5.75% range.
5. Key Insight – [VIDEO] [ARTICLE] Charitable donations can be an invaluable piece of one’s financial plan and can have benefits for all parties involved. This week, Ben provides a roadmap on charitable giving and outlines some best practices to maximize your gift while saving on taxes.

INSIGHTS for INVESTORS

If you’ve gone through financial planning with us here at TEN Capital, you know that as part our planning process our hope is to help you unpack those areas of life that you and your family find the most important. That discussion does not begin by focusing on numbers, but rather around values.

One area that often comes up is the desire to “leave a legacy” or “support those I care about.” Recently I co-hosted a Lunch & Learn here at our office with our friends from our local community foundation (Innovia) focused on how we can help clients bring the sentiments behind those phrases to life. Today we’ll cover some best practices on how you can support the organizations or causes you care most about.

One attendee at the Lunch & Learn, who has been a well-respected estate planning attorney in Spokane for many years, spoke up toward the end and shared with us that in all gift planning strategies, you need to have the heart for the gift. If your intention is to make a gift to an organization, the number one priority shouldn’t be about the tax savings, but the cause. Both myself and those in attendance really resonated with his words.

If the heart is there, there are many techniques we can use to ensure the organization gets the largest gift, while also minimizing one’s taxable burden as best as is possible without sacrificing what the donor hopes to accomplish.

Here are three of the most common approaches/vehicles to gifting, beyond just an outright cash gift, that we at TEN Capital see with our clients.

1. Qualified Charitable Distribution (QCD)

A QCD is a wonderful technique to benefit an organization you care about, lower your taxable income, satisfy your RMD (Required Minimum Distribution), and still get a deduction. The RMD is the amount of money the IRS mandates you pull from your IRA beginning at age 73-75 depending on current age so the account doesn’t grow tax differed in perpetuity, thus keeping the government from ever being able to tax that income.

For many, after the tax code was changed a few years ago, they no longer itemized their tax deductions and switched to the higher standard deduction. In some cases, this means they lost the benefit of some write-offs. With the QCD, one can send a check directly from their IRA to a qualifying non-profit and they get the benefit of it directly lowering their taxable RMD while still being able to claim the standard deduction on their tax return. A true win-win!

1. Gifting Appreciated Stock

This technique can be used for: 1) an outright gift to a non-profit, 2) a gift to a qualifying investment account at a local foundation, or 3) one of the types of accounts I will discuss below in point #3. If you were lucky enough to buy Apple shortly after it went public and have held it, you likely have massive un-realized gains. You don’t pay capital gains tax on that gain until you decide to sell it (assuming it is not held in a qualified retirement account).

While the Federal government would welcome your tax revenue upon selling the stock, there’s a better way to go if you are looking to make a donation and keep your tax liabilities down. In this scenario, you could gift that stock directly to a non-profit entity who can then sell the stock and pay no tax. Remember, non-profits are tax exempt entities! You would then get the benefit of the Fair Market Value (FMV) of the gift for if you do itemize on your tax return, NOT pay capital gains tax, and the non-profit benefits from getting the entirety of the gift. Win-Win-Win!

1. Donor Advised Fund

One of the more common vehicles that we see used for clients that would like to give charitability but don’t necessarily want to give a large gift at once or they want the gift to be portioned out over time, is a Donor Advised Fund (DAF). Your local community foundation, like Innovia, can help you create the legal structure around a DAF with a common theme for your investment fund. You get the benefit of a write-off whenever you contribute to the fund, which could be the appreciated stock we talked about in point 2, a gift of appreciated property, or a remainder of an estate. This can then be overseen by the foundation who will do the annual filings but still be managed as an investment account by your financial advisor depending on the amount of the gift or account value.

In conclusion, when it comes to giving, there are many ways to do so. Never hesitate to reach out to us TEN and we’ll be more than happy to sit down and talk about what may make the most sense for you and your family based upon your values. Until next time, have a wonderful weekend.

Ben and the crew at TEN Capital

Link to Innovia

DATA, JUST THE DATA

Data points this week included:

• U.S. Jobless Claims – jumped by 21K from the week previous to 211K for the week ending March 4^th and marks the most claims since December 2022. This was far above market forecasts of 195K and the four-week moving average rose by 4K to 197K.
• U.S. Balance of Trade – increased to a three-month high of ($68.3B) for January and was roughly in line with market forecasts of ($68.9B). Exports rose 3.4% to $257.5B thanks to civilian aircraft, pharmaceuticals, and telecommunications equipment. Imports rose 3% to ($325.8B) due to purchases in cell phones, toys, games, trucks, buses, and special purpose vehicles. The trade deficit with China has come in at ($21.9B) and the EU at ($18.5B).
• U.S. Jobs Added – the economy added 311K jobs in February, blowing forecast of 205K out of the water. This heightens the already tight labor market as the economy has added an average of 343K jobs per month over the past six months. Leisure and hospitality rose 105K, as retail trade jumped up 50K, and professional and business services added 45K. The unemployment rate slightly crept up from 3.4% to 3.6% for February.
• Eurozone Retail Sales – increased by 0.3% MoM from the previous month in January after a (1.7%) drop from December. Sales for food rose 1.8%, and non-food sales slightly increased 0.8%. Online trade declined for the fourth month in a row, down (2.9%) and fuel sales also dipped (1.5%). YoY. Retail sales have declined (2.3%).