Recently, I had an opportunity to spend time on Necker Island in the British Virgin Islands with a group of people collaborating on ways to initiate change and have a greater impact on the world. A member of our group, New York Times NYT bestselling author Daniel Pink, who has written multiple books about business, work, creativity, and behavior, spoke on the topic of regret. Something he shared really got me thinking.
While compiling research for his recent book, The Power of Regret: How Looking Backward Moves Us Forward, Daniel set up a website and invited people to participate in a survey about their biggest regrets in life. Of all the regrets people posted from around the world, there was one that really stood out. It turns out, the chief regret people had was not ‘going for it’ when they reached a crossroads in their lives. They regretted not taking action when they had an opportunity to get out of their comfort zones and do something big. Even people who were unsure if their actions would have been successful regretted the fact that they never gave themselves a chance to find out. And that unknown is what drove them crazy.
Like failure, regrets can be very revealing. When people are able to express their regrets, they begin to understand what needs to change in their lives and what they’d like to do differently in the future. Living without regrets begins with introspection. You need to ask yourself if you’re letting life live you, or are you living life? Have you fallen into a comfortable rut? Do you have an opportunity to do something big but haven’t acted on it?
Leaving your imprint
It’s been my experience that one of the greatest by-products of success is the ability to affect change. Yet, the ability to do something big isn’t dependent upon achieving a certain financial, social or professional status. There are so many ways to influence change; from mentoring and volunteering, to running for a political office or advocating for change through grassroots social, community and environmental groups and organizations. Another way to influence the kind of change you’d like to see in the world now, and long after you’re gone, is through charitable giving.
This gives you an opportunity to express your values through supporting the causes and organizations that are most important to you. If you need help identifying organizations that align with your passions and values or want to vet organizations you plan to support through financial donations, visit Charity Navigator. In addition to providing free access to data, tools, and resources to help guide philanthropic decision-making, Charity Navigator rates nearly 200,000 charities on the cost-effectiveness and overall health of a charity’s programs, including measures of stability, efficiency, and sustainability.
After you decide which organizations you want to support, you’ll need to determine the best way to give. While gifts of cash or appreciated investments can be given directly to a charity, it makes sense to first develop a tax-smart strategy for how you will maximize your impact. Your professional tax, legal and financial professional can help you create a strategy that is fully aligned with your goals and financial plan. Below are four that you may want to consider to help create the impact you would like to see in the world.
1. Donor-advised funds
Many people choose to give to charity through donor-advised funds (DAFs) which help maximize giving while removing much of the administrative burden. A DAF is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization and handles all the administrative tasks and the grant administration process. When you make an irrevocable contribution to the DAF of cash or other assets, such as appreciated stock, you can claim the tax deduction the year you contribute assets to the DAF—as long as you itemize deductions on your return. DAFs can still play a valuable role in your tax and charitable giving strategies even if you normally are not able to itemize. That’s because you can donate up to five years’ worth of your donations to the DAF and get the tax deduction for the year that you donate.
For example, if you usually give $10,000 a year to charity, you can donate five years’ worth of donations ($50,000) and receive a tax deduction for the year you donate. The DAF will distribute the money to the charity over the ensuing five years. Keep in mind, you can only take the deduction for the year that you made the original donation to the DAF. As long as your donation is larger than the standard deduction in the year you make it, you could itemize taxes that year and take the standard deduction for the following four years, as appropriate.
2. Charitable Remainder Trusts
A charitable remainder trust is an irrevocable trust established to provide annual payments to current beneficiaries – which can be you – with the remainder balance distributed to a charity.
A CRT differs from a DAF in several ways. A CRTs is a trust created by your attorney and customized to your situation. So, it functions as an estate planning tool. You determine what asset you will put into the trust—cash, securities, or real property, such as art, collectibles or real estate—and your financial professional will run the numbers to determine the current and remainder payout parameters.
Keep in mind, the lifetime beneficiary payout has to be at least 5% of the trust assets but cannot exceed 50%. The chosen charity must receive at least 10% of actuarial value of the assets initially transferred to the CRT at the end of its term.1 Also, if the assets you donate are not cash or publicly traded securities, they may need to be appraised.
There are two types of CRTs:
- Charitable Remainder Unitrust (CRUT): distributes a fixed amount each year, but no additional contributions can be made.
- Charitable Remainder Annuity Trust (CRAT): distributes a fixed percentage on the balance of trust assets, but additional contributions can be made.
3. Qualified Charitable Distributions
A qualified charitable distribution (QCD) or ‘IRA to charity’ allows those who are subject to required minimum distributions (RMDs) from an IRA to offset any RMDs for that year up to $100,000. A QCD essentially functions as an above-the-line deduction and a dollar-for-dollar reduction in income. This avoids the distribution being considered taxable income to you. However, you must meet certain criteria or the deduction will be denied by the IRS, which means you’ll be stuck paying taxes on the distribution.
To initiate a QCD:
- You must be subject to taking RMDs. The minimum age to begin taking RMDs was increased to 73 in 2023.
- The donation must be a direct transfer from your IRA to the charity of your choice by your IRA custodian. In other words, you can’t take an RMD distribution from your IRA and then decide to donate all or part of it to charity later and still receive the tax deduction.
- You can donate to as many qualified charities as you want as long as you don’t exceed the combined limit of $100,000 per individual, per year. If you’re married, each spouse can make a QCD, so potentially a married couple could donate up to $200,000 to their favorite charitable organizations without having to pay taxes on that amount.
4. Appreciated stock
Donating appreciated publicly traded stock instead of cash to your favorite charities (as long as they accept stock) can offer significant tax benefits. When you donate appreciated stock, you receive a deduction for the fair market value of the stock at the date of the gift. As the donor, you avoid paying capital gains on the stock and the charity doesn’t pay taxes on the gift. However, there is a catch. Stock gifts can only be up to 30% of your adjusted gross income, whereas if you donate cash, you’re able to donate an amount up to 60% of your adjusted gross income.
Find your freedom to live without regret
There’s no question that regrets can weigh you down along the path to accomplishing your goals. My advice? Next time you’re presented with an opportunity to go for it—do it. Even if you fail, most likely you won’t regret taking a chance on yourself. Failure is simply an opportunity to learn and start over more intelligently the next time.
To learn more about ways to create the impact you’d like to see in your community or in the world, download our complimentary checklist: When to Use a Donor-Advised Fund for Charitable Giving.
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