Maximizing Effectiveness of Charitable Giving

TEXT ON SCREEN: PIMCO

TEXT ON SCREEN: PIMCO EDUCATION – TITLE – Maximizing Effectiveness of Charitable Giving with John Nersesian (6 minutes)

TEXT ON SCREEN: John Nersesian, Head of Advisor Education

John Nersesian: Hi, I’m John Nersesian, head of advisor education at PIMCO. I know that as financial advisors, much of our energies are focused on helping our clients with their investment activities, but there are great ways for us as financial advisors to add value in other financial matters, including the very important subject of charitable giving.

Now, I know that our clients are actively involved in giving. However, I believe that many clients give unintentionally,

TEXT ON SCREEN: TITLE – Charitable giving

IMAGE: A split screen shows two boxes. On the left-hand side, a question reads, “What is unintentional giving?” On the right, unintentional giving is defined as “when investor clients give without consideration of how to optimize their gifts for the receiving organization and for them personally as well.”

without strategy, without acknowledgement of the best ways to make their giving most effective, both for the receiving organization and for them personally as well.

TEXT ON SCREEN: TITLE – 2021 total giving

IMAGE: A bulleted list on the left starts with the amount of total giving in 2021, at $484.85 billion. Other bullets note that it’s the largest number on record, and a 4% increase from 2020 but did not keep pace with inflation. Also noted is that $326 billion came individuals, or 67%, and $90 billion came from foundations. On the right, a line graph shows the annual amounts of total giving from 1981 to 2021. The amount increases over most of the period, reaching $484 billion by 2020, its highest level on the chart, and up from about $150 billion in 1981.

There are a number of reasons why clients are more engaged in charitable giving. They feel wealthier, as they’ve seen the values of their real estate and their investment portfolios grow. They recognize that charitable giving remains one of the few itemized deductions that provides a tax benefit at the end of the year.

But maybe there are other motivations as to why clients give money.

They love the idea of supporting causes that they’re close to, maybe those that have affected them personally. They love the idea of sharing their success with other organizations or those who are maybe less fortunate.

TEXT ON SCREEN: TITLE – Where did charitable dollars go in 2021?

IMAGE: A horizontal bar chart ranks the percentage of overall contributions received in 2021 by organization type. Religious organizations top the list, having received 27% of total contributions, or $135 billion. Education institutions are second, at 14%, with $71 billion, followed by human service organziations, at 13%, with $65 billion. This list continues as follows: foundations received a 13% share; public society benefits, 11%; health, 8%; international affairs, 5%; arts, culture, and humanities, 5%; environment/animals, 3%; and individuals, 2%. On the far left, the chart shows the year-over-year percentage increases for each category.Arts, culture and humanities had the biggest increase, at 27%, followed by Public society, at 23%, and enviroment/animals, at 11%.

Where do these charitable dollars go? Well, there are a variety of recipient organizations, but the top three include the following: religious organizations, educational services, and basic needs and human services remain the top three recipients or beneficiaries of our charitable giving here in the United States.

We also should recognize some of the tax related consequences of charitable giving. As mentioned before, charitable gifts are an available itemized deduction

TEXT ON SCREEN: TITLE – Deduction limits for charitable gifts

IMAGE: The top half of the screen shows a table that lists deduction and AGI limits for public charities and private foundations, for five different types of property. For example, cash to a public charity can offset up to 60% of AGI, versus 30% for a private foundation. Ordinary income property has a limit of 50% for public charities, and 30% for private foundations. Similarly, long-term capital gain property stock gifts are still limited to 30% with public charities, and 20% for private foundations. Similar differences are shown for same use personal property, with not-same use limited to 50% for public charities. On the bottom half of the screen, a table lists planning considerations: how the gift must be completed by year-end, the donor must give up control for the transaction to be complete, the IRS requires documentation from the charity, among others.

for those clients who choose to itemize on their tax return. There are, however, AGI limitations which cap the maximum annual deduction that a donor is able to take in a single calendar year.

The two receiving entities include public charities, which have either a 50% or 30% AGI cap, and private foundations that impose a 30% or 20% cap depending on the type of property given.

TEXT ON SCREEN: TITLE – Potential benefits of Donor Advised Funds

IMAGE: A bulleted list includes four benefits. Donor advised funds facilitate bunching of deductions, and contributions are tax deductible in the year they are made. Donor advised funds also avoid capital gains taxes on appreciated securities, and appreciation within a DAF is not taxable.

Donor advised funds are a very effective tool to help our clients give in a more beneficial manner. They allow them to bunch their gifts in a single calendar year for maximum benefit.

Here’s an example. Let’s assume that I give annually to my church an amount of $10,000 per year. Over the next 25 years, that would of course result in $250,000 of aggregate giving.

But instead of writing an undetermined check each and every year without understanding the tax benefits or consequences,

TEXT ON SCREEN: TITLE –Donor advised funds help facilitate bunching

IMAGE: A list on the right shows four more potential benefits of donor advised funds in addition to those mentioned in the previous screen. DAFs also allow for a contribution to removed from a donor’s taxable estate, and there are low minimums for an initial contribution and for ongoing grants. There are also no wash sale implications. Below the potential benefits, planning considerations are listed. These include AGI limitations, how assets are irrevocabley removed from donor’s resources, how there’s less control over assets, how there’s no income stream, among others. To the left of the information, a cropped video shows John speaking.

maybe I derive a better tax outcome by giving or bunching the maximum amount in a single calendar year, allowing me to exceed the standard deduction and to claim a substantial tax benefit in the year of my completed gift.

This also allows me to contribute appreciated property as opposed to a check, helping me avoid the associated capital gain that would ordinarily come from the liquidation of those securities. The money grows tax free inside the account and is immediately removed from my ownership, thereby reducing my estate tax consequences as well.

And of course, given the convenience of a donor advised fund, I can contribute these dollars or distribute them to a number of intended beneficiaries at my convenience.

So how can financial advisors continue to advise their clients in this very important manner? We’ve assembled a list of questions that may help to facilitate the conversation about not giving away more money, but making our giving more impactful and beneficial.

TEXT ON SCREEN: TITLE – Engage in charitable conversations

IMAGE: Three talking points are listed as part of engaging in charitable conversations, and are read by John Nersesian. To the left of the information, a cropped video shows John speaking.

Do you typically claim the itemized deductions on your tax return, or do you claim the standard deduction? Is charitable giving an important part of that equation? Tell me about your charitable giving history. Who do you give to? What motivates you to give? And how do you give to these associate charities?

Looking forward, how do you anticipate your charitable giving endeavors to change? Do you anticipate continuing to give in a similar fashion, or might that evolve over time?

TEXT ON SCREEN: TITLE – Potential benefits of Donor Advised Funds

IMAGE: The screen shows the next three talking points for engaging in charitable conversations, and are read by John Nersesian. To the left of the information, a cropped video shows John speaking.

How has your family been involved in your charitable giving efforts? Have you embraced the opportunity of including your children in your philanthropic efforts to help motivate your children to give back to others and to instill or to share the important values that you have with your children as well?

And then finally, how can I as your financial advisor provide education or guidance around the charitable giving activities that you and your family have embraced?

I hope that you’ve enjoyed this conversation around charitable giving. We encourage you to visit us at pimco.com or to contact your PIMCO account manager for more information on this very important subject.

Text on screen: To learn more visit pimco.com/advisoreducation or speak with your account manager

Text on screen: PIMCO closer

Disclosure

PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Any tax statements contained herein are not intended or written to be used, and cannot be relied upon or used for the purpose of avoiding penalties imposed by the Internal Revenue Service or state and local tax authorities. Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

The information contained herein is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as, a forecast, research, investment advice or a recommendation for any specific PIMCO or other strategy, product or service. Individuals should consult with their own financial advisors to determine the most appropriate allocations for their financial situation, including their investment objectives, time frame, risk tolerance, savings and other investments.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2021, PIMCO.

PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Any tax statements contained herein are not intended or written to be used, and cannot be relied upon or used for the purpose of avoiding penalties imposed by the Internal Revenue Service or state and local tax authorities. Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

The information contained herein is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as, a forecast, research, investment advice or a recommendation for any specific PIMCO or other strategy, product or service. Individuals should consult with their own financial advisors to determine the most appropriate allocations for their financial situation, including their investment objectives, time frame, risk tolerance, savings and other investments.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2022, PIMCO.

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CMR2022-1004-2456527