What’s better? Giving to family or giving to others?

During this holiday season, we shopped for gifts for family and friends and made year-end contributions to charities. This concept of giving is intriguing. When giving thanks takes on a monetary aspect, how and to whom can call for a little forethought. “Giving” is part of a much larger conversation.

Figuring out viable options for gifts brings factors into play:

  • What elements affect whether you give money to your family?
  • Do you have a defined goal and target for charitable giving?
  • Are you facing tax implications that could influence your giving decisions?

Family giving includes money that is given throughout your life, as well as money set aside to be left as an inheritance.

The easiest topic to lock down is money left as an inheritance, as it has likely come up and been defined in conversations with your financial advisor. Beyond that, we all have stories we tell ourselves about what it means to inherit money. And those stories are usually full with emotion.

Money is rife with emotion, even in death. Still, it needs to be part of your estate planning.

But what about family giving in life? Guidelines of how and when money is given are best when followed consistently from early childhood. How you actually act – not what you say – is what will establish expectations among your offspring and heirs.

While defining a strategy later in the game can be difficult, it is still worthwhile to minimize arguments or long faces at each life event that requires money.

Family giving in life is probably the cause of the greatest manipulating, guilt-enhancing, guilt-assuaging or you-love-him-more-than-me arguments your family will ever experience.

Add to that the volatility that comes with any changed life circumstance: a divorce, the death of a parent or a loss of income. Suddenly, even what seemed clear cut starts getting fuzzy. Ignore at your own peril the task of thinking through your “family giving in life” strategies.

Charitable giving is far less emotional. When so many subjects are verboten at family gatherings, bringing the family together to discuss charitable giving provides the perfect opportunity to identify your shared values and to start a new annual tradition.

Your children’s young age is not a problem. In fact, the younger they are involved in the practice of giving back, the better. They can help the family pick a specific passion to support, as well as select individual charities.

  • Are you avid campers who support environmental issues?
  • Do you volunteer as a family and want to contribute to children’s hospitals or community outreach?
  • Has an illness touched your family in a way that inspires donations to a particular cause?
  • Where would your family like to make a mark?

Once defined, philanthropy is a meaningful way that families can pass along their shared values and beliefs, creating a powerful bond in the process.

A recent study of the values considered most important to pass down to the next generation included respect for others, responsibility, taking care of family and being smart with money. Attributes included caring, gratitude, empathy and generosity. [Source: https://www.fidelitycharitable.org/docs/family-giving-traditions.pdf]

How much will be donated will likely be decided in advance in the context of the family’s overall finances, perhaps with the help of a financial advisor. However, giving both young and old a voice in allocating those funds – especially around the holidays – uniquely warms everyone’s heart. Good things come to families that give.

Sometimes practical aspects like taxes play a role in giving decisions. When the Tax Cuts and Jobs Act (TCJA) of 2017 doubled the size of the standard deduction and limited other deductions, the number of taxpayers itemizing deductions will drop dramatically. For many, the motivation to give to charity dropped, too. However, some strategies still exist.

In one, taxpayers add together or “bunch” the donations of a few years and make them all in one year to maximize their deductibility by exceeding the new standard deduction.

In another, taxpayers over age 70 1/2 use “qualified charitable distributions” (QCDs) with direct transfers to charities from IRA balances of up to $100,000 each year and access extra tax benefits in the process.

Lastly, donors use “donor-advised funds” for lumped contributions, which can also include appreciated non-cash assets (which avoids the tax on gains). Immediate tax deductions can be taken against the full irrevocable contribution, with no payout time requirement. Meanwhile, funds can be invested while awaiting distribution.

Obviously, a good financial advisor can help you get the most significant bang for the buck when you want to contribute. As St. Francis of Assisi stated, “For it is in the giving that we receive.”

Once retired, you can make the most of your saving efforts by aligning your spending with your resources – and by always withdrawing funds from your nest egg in a tax-smart way. This guide can help you do that. Download Guide – Qualified Charitable Donations: Giving, with Tax Benefits

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