The Practical Planner Podcast
Episode: The Role of Charitable Giving in Estate Planning
Release Date: December 17, 2024
Hosts: Thomas Kopelman & Dave Haughton

Episode Overview

This episode explores how charitable giving can serve as a cornerstone within effective estate planning, providing value to both clients and heirs while supporting philanthropic goals. Hosts Thomas Kopelman and Dave Haughton dissect the primary tools and strategies for advisors to implement charitable giving in estate plans. The conversation covers donor-advised funds, charitable trusts, tax efficiency, and generational impact—offering actionable tips for advisors to deepen relationships with clients and their families.

Key Discussion Points & Insights

1. Charitable Giving and Estate Planning: The Connection

[00:20] – [01:15]

• Charitable giving is integral to estate planning: assets ultimately go to loved ones, charity, or the government.
• “Most people aren't going to say government. They want to protect from the government. Right. But most of them are going to circle that C [charity].” – Dave [00:13]
• Many clients wish to embed charitable values in their families through their estate.

2. Donor Advised Funds (DAFs) – Flexibility and Family Engagement

[01:15] – [06:25]

• Donor advised funds are popular for their flexibility; assets can be earmarked for charity without specifying recipients in estate documents.
• DAFs allow control over how and when distributions occur, and can be updated without redoing legal documents.
• An excellent way to involve children and grandchildren in decision-making, instilling charitable values:
  • “It can be fun too, you know, for the kids… it's this pot of money to be able to support the organizations that they think deserve it or they think will benefit society.” – Dave [04:37]
• Also serves as a bridge for advisors to build relationships with heirs, potentially retaining assets during the generational transfer.
  • “About 90% of assets leave an advisor's control at an intergenerational transfer… It's also a way for the advisor to form a relationship with that next generation.” – Dave [06:25]

3. Advisor Strategies: Bringing in the Next Generation

[07:18] – [08:42]

• Advisors can expand their value by serving clients’ children, e.g., helping them set up estate plans or educating them on holistic financial planning.
• Building trust and rapport through education—not immediate business expectations—pays off long-term:
  • “I didn't get anybody because of one touch. I got people because I educated and helped them without asking for anything for a really long time.” – Thomas [08:17]

4. Charitable Remainder Trusts (CRTs) – Income, Tax Deferral, and Legacy

[08:44] – [15:15]

• CRTs let donors gift assets, defer capital gains, and receive an income stream over time, with the remainder going to charity after a term or death.
• Useful for business owners facing liquidity events or those with low-basis concentrated positions:
  • “If you are about to sell a business or you have a concentrated position with a low basis, you can actually contribute this property to the charitable remainder trust and then sell it from there… there’s going to be no taxable event at that time.” – Dave [09:52]
• The deduction varies based on the income stream structure (more income retained = less deduction).
• Testamentary application: CRTs can be funded with retirement accounts to stretch distributions and optimize post-SECURE Act tax outcomes.
  • “You could set up a testamentary charitable remainder trust and leave the IRA… and then spread out those distributions over the beneficiary's lifetime.” – Dave [13:14]
• Combining CRTs with DAFs for ongoing flexibility:
  • “You can set it up for at the end… it can actually go to a donor advised fund and then you can choose how you want to allocate it from there over time.” – Thomas [15:16]

5. Charitable Lead Trusts (CLTs) – Estate Tax Savings & Timing

[16:12] – [17:18]

• CLTs are essentially the inverse of CRTs: income goes to charity during the term; leftovers revert to heirs.
• Primarily used for estate tax efficiency, not for generating ongoing donor income.
  • “Charitable lead trust is really a way to get assets out of the estate, freeze the value so that they grow over time, they benefit the charity… and then it goes, all that appreciation goes out to the beneficiaries.” – Dave [16:18]

6. Optimal Charitable Assets: What to Give, When, and Why

[18:05] – [23:59]

• Advisors and clients often make the mistake of treating all assets as equal pots for charity and heirs.
• “Any assets that are going to charity, they're going tax free… So really important to think about, okay, what am I leaving from my estate and who could ultimately have to pay taxes on it.” – Dave [18:05]
• Retirement accounts (pre-tax IRAs) are usually best to earmark for charity, as heirs would otherwise owe income tax—especially when inheriting during high-earning years.
  • Example breakdown:
    “Why are you giving a third of Roth accounts to a charity… you have this pre tax account, they're going to get it and it's going to shoot up their income. …if you said I want a third and now that IRA goes to charity, right? No tax there. Now they inherit Roth and taxable. You set them up in a really good situation.” – Thomas [20:23]
• Consider estate and income tax rates, heirs’ personal tax situations, and state residency to maximize efficiency.
• “When you look at, at the end of the day, if they have really disparate income tax situations… the after-tax inheritance, it's not going to be equal at all.” – Dave [22:17]

Notable Quotes & Memorable Moments

• On the value of charity in estate planning:
  “Charitable giving, estate planning, because, you know, that's ultimately what your estate plan is, is where are you going to leave your assets when you're done with them, essentially.” – Dave [00:36]

• On multigenerational values:
  “This is a way to like put some good core values into them and say, you know, giving is a part of who we are. That started with my parents and we're continuing this on through the generations.” – Thomas [06:25]

• On advisor business practices:
  “You're just adding these free areas of let me give to you and let me help you. And ultimately one day when you need my help, I'm here, but I don't expect it.” – Thomas [08:22]

• On tax-efficient charitable giving:
  “To the extent that you can satisfy your estate plan distributions to charity from IRAs, it's almost a no brainer.” – Dave [19:11]

• On striving for perfection:
  “If you want it perfect, you got to go permanent life insurance. ... in general, it's not going to work out perfect with different taxable assets.” – Thomas [23:59]

Important Segment Timestamps

• [01:15] Donor Advised Funds explained and practical uses
• [04:37] Involving children and instilling values through DAFs
• [06:25] Advisor-client multigenerational relationships
• [08:44] Charitable Remainder Trusts deep-dive
• [13:14] Using CRTs for inherited retirement accounts
• [15:16] Pairing CRTs with Donor Advised Funds
• [16:18] Charitable Lead Trusts overview
• [18:05] Asset selection for optimal charitable giving
• [20:23] Illustrative client example: asset allocation for heirs and charity
• [22:17] Importance of considering heirs’ individual tax situations

Takeaways for Advisors

• Use donor advised funds and charitable trusts to provide flexibility, maximize tax advantages, and establish lasting family legacies.
• Prioritize retirement accounts for charitable bequests to minimize taxable income for heirs.
• Engage the next generation and solidify advisor-client relationships by involving heirs early in planning and philanthropy.
• Customize estate plans with an eye toward the unique financial and tax profiles of both clients and their beneficiaries.
• The goal isn't perfection but significant progress in maximizing impact and minimizing taxes.

Summary prepared for advisors seeking actionable, strategic insights on integrating charitable giving into estate planning, while fostering multigenerational client relationships and maximizing tax benefits.