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Last year I took part in a study group of other Certified Financial Planners to specifically look at the financial planning needs of childless couples and individuals.
Gary Logan
Wes Shannon
A book we were reading in the study group presented a philosophical thought that I have since come to adopt. The idea that the amount of an estate a person leaves at death represents the value of joy that person failed to experience during their life. For example, if a person dies with a $1 million estate, that is $1 million of joy that person was denied during their lifetime.
The joy of doing something they love or the joy of giving that money to others.
We are having more discussions with clients, both with heirs and those without heirs, about making sure they experience as much joy as possible from their lifetime of savings. Some elderly clients have hired our firm to help them give away their estate in a tax-sensible way and to make sure they don’t run out of money for themselves.
Many people have found themselves in their senior years of life giving to their favorite charities but not getting a tax deduction because of the increased standard deductions that apply to people over 65. Often these clients don’t have mortgages or if they do, they are at very low interest rates. Because they don’t have many deductions to itemize even their charitable contributions are not higher than the standard deductions.
However, there are strategies to get around such rules and to allow more tax benefits to the donors. Here are some popular options:
- Qualified Charitable Deductions from an IRA. If you are over the age of 70 ½ you may make a QCD directly to the charity you choose from your IRA. One can give up to $105,000 individually ($210,000 if married) each year. This gift from the IRA can satisfy Required Minimum Distributions, so, in effect, it is a full tax deduction over and above the standard deductions.
- Gift of life insurance or annuities. Giving old life insurance policies or annuities that are no longer needed can avoid recognizing the taxable gains in the contracts, give a tax deduction equal to the premiums paid, and help a favorite charity.
- Setting up a Donor Advised Fund. DAFs are separate accounts administered by financial institutions, mutual fund companies, and foundations that allow a person to make irrevocable, tax-deductible contributions and then instruct the fund to pay out the proceeds to qualified charitable organizations that the donor selects. If a person is giving $10,000 a year to a charitable organization and not getting above the standard deduction, the same person could give $50,000 in one year to the DAF (exceeding the standard deduction) and make $10,000 annual gifts to the charitable organization over the next five years. DAFs do not have a limit on the amount of money donated to them in a year but the donations are subject to the IRS charitable limits. Gifts from the DAF are made anonymously and there are no required minimum amounts that must be given each year. Gifts can only be to qualified charitable organizations and not to individuals.
- Private Foundations. Private foundations act like DAFs, except the gifts are from the named foundation, allowing relationships to be made with the donor and charitable organizations. PFs must give out each year at least 5% of the foundation’s principal endowment. Gifts can be made to individuals who qualify for the policies laid down by the foundation to achieve its goals. Goals can be for scholarships, support of small businesses, poverty relief, or whatever the donor sets as a foundations goal and purpose.
In addition to supporting charitable organizations, a client will wish to give to children, grandchildren, nieces, and nephews, and other individuals. For 2025, one can give up to $19,000 to any one individual without having to submit a gift tax return. A husband and wife could double this and give $38,000 to each child or individual. For clients who have large estates, I encourage them to give gifts while they are alive to help the children and grandchildren, thus experiencing that joy of gifting while alive.
All of these strategies have costs and rules with them, and the guidance of a Certified Financial Planner practitioner™ is recommended before deciding whether one or more of these ideas are right for you. Think about the joy that can be experienced while you are alive.
Wes Shannon CFP® is a Certified Financial Planning Professional for Brazos Wealth Advisors in Fort Worth.