Warren Buffett has persuaded more than 100 billionaires to give away large portions of their wealth to philanthropy over the past few years. People in Spokane may not have billions to donate to charity but they are generous when it comes to giving money to good causes, say local financial management professionals.

For some, retirement may be the driving force behind charitable giving, and an inheritance can be a motivator, but it’s also a reflective time when people are considering leaving behind a legacy. 

Baby boomers are retiring in droves and three-quarters of them make charitable contributions, according to the Next Generation of American Giving, a report commissioned by Blackbaud Inc., a publicly traded South Carolina-based company that provides software to nonprofits.

The study, published in Forbes Magazine last year, compared the giving habits of baby boomers (aged 49 to 67) with so-called matures (those 68 or older), generation Xers (33 to 48), and millennials (18 to 32), found that not only are boomers the largest group numerically, with 51 million individuals comprising 34 percent of the donor base, they also are the largest contributors, giving an estimated total of nearly $62 billion per year, equating to 43 percent of all the dollars donated. 

Donald Morgan, a financial adviser at Independent Wealth Connections in Spokane Valley, says the Spokane community has been generous. 

“Since 2008, a number of people have stepped up to make sure the charitable organizations here are thriving, and that’s a tribute to the kind of people who live in this community, and care about the organizations that they have faith in,” Morgan says. 

“One way or another everything will end up going to the government in the form of estate taxes,” he says. “People would rather their money go to a charity rather than the government.”

Morgan says he sees clients who have sold businesses, or they may own stock in a company where they’ve worked for a number of years. “When the time comes, those people choose to put assets in a trust,” he says. “There may be a lot of money there and the opportunity to do good things, and trusts are one of the vehicles to be able to do that.”

There are two broad types of charitable trusts, Morgan says, a charitable lead trust and charitable remainder trust. 

With a charitable remainder trust, an asset is transferred into the trust and held while the donor receives payments for a set number of years after which the asset goes to a charitable organization. The donor is able to take an income tax deduction in the year of the transfer and the asset isn’t included in a taxable estate, he says.

A key benefits from any one of three types of charitable remainder trusts is that it can provide a substantial income for the remainder of a donor’s life, he says. 

A charitable lead trust is almost the opposite of a charitable remainder trust, Morgan says.  

After an asset is transferred to a charitable lead trust, he says, the charitable organization receives the right to receive payments for a period of years, and then the assets in the trust pass to the donor or to designated beneficiaries at the end of the payment period.

“Typically, there is no income tax deduction for a charitable lead trust, but there may be substantial tax savings upon your death,” Morgan says. 

“With a charitable lead trust, you transfer your stock into the trust. The charity then retains either an annuity or unitrust interest in the trust for a period of years. At the end of the term, the assets in the trust revert to you or pass to a designated beneficiary,” he says.

Further there is a gift or estate tax deduction available for the value of the charity’s interest. This type of trust can be an effective way to pass assets to the next generation for a reduced gift or estate tax cost. There is no income from the assets.

Morgan says people may also choose to go with donor-advised funds such as through the Inland Northwest Community Foundation where donations are made to a foundation. 

A donor-advised fund offers an easy way to make significant charitable gifts over a long period of time, he says.  Such a fund is similar to a private foundation but requires less money, time, and legal assistance to establish and maintain. Because community foundations are public charities, they also enjoy greater tax advantages than private foundations. 

Contributions by donors to these foundations are generally tax deductible by the donor in the year they are paid, Morgan says. 

“The foundation creates a separate account to hold the assets but they own the assets and have ultimate control over distributions, although they will usually follow a donor’s recommendations about how grants to charities should be made. The foundation typically has control over which charities receive contributions and when they are made,” he says. 

Since retirement assets are heavily taxed at death unless they are going to a spouse, charitable gifts of retirement plans and IRA proceeds also have become popular tax planning strategies.  

Sarah Carlson, owner of the Fulcrum Financial Group on Spokane’s South Hill, says a transfer of wealth from parents encourages people to think outside their immediate family and may motivate a desire to make a substantial impact on the community. 

“There are definitely a lot of reasons people give,” Carlson says. “And one is they definitely want to feel the relevance of their efforts to make something happen. They want to make an impact.”

Carlson says it’s not usually about tax deductions but that people can give more if it’s given pre-tax.

“If people have had a stock for a long time and it’s worth, say $1,000, and they wanted to give cash, they could sell it for maybe $900 and then would have to pay capital gains tax on that in order to have cash. Or you can give the stock to a charity and then you’re giving $1,000 and not paying tax on it,” she says. 

Another strategy is to give IRAs to a charity instead of cashing them out, she says. Unless an IRA is a Roth IRA, the account owner is required to start taking withdrawals at 70 ½ years of age and pay taxes on that withdrawal. With a charitable IRA rollover, a donation can count toward the minimum required distribution. “That strategy allows a donor to take a charitable deduction for the fair market value of the stock and avoid the capital gains tax that would be required if the stocks had been sold and the proceeds donated to charity,” Carlson says. 

Charities aren’t required to pay income tax on withdrawals from IRA accounts. 

“Giving retirement assets is the largest-growing area in charitable giving,” Carlson contends. 

Depending on the charity and its gift acceptance policies, securities, bonds and even real estate can be donated in this way. 

Carlson says the clients she sees tend to make small gifts consistently perhaps to a community foundation, or they might give an endowment to a school or other entity, to sustain a growing organization.

“With donor-advised funds, you have a prudent money manager who knows the risks of investment but the nest egg, or seed money, is intact and continues to grow,” she says. “Professionals from the community then become stewards of the funds and make sure the money is giving back to the community.” ‘

Rob Blume, a managing director of wealth management and advisory services at Washington Trust Bank in Spokane, says he uses a goal-based approach and talks about living arrangements, long-term care, property, and securities. He also inquires whether there is enough to provide for children and grandchildren.

“We talk to them about what their plans are, and we ask if they have enough to live on. Do they want to dissipate their funds … is their goal to give away all their money like Bill Gates? We want to make sure we understand their estate plan and their will,” Blume says. 

 “Some may want to ‘test’ charities while they’re alive, so they know whether they can trust the charity to do what they’re asked with the money they’re donating—before they leave money to the charity upon their death. Other people give outright during their lifetime,” he says. 

Blume wants to ensure charitable giving will not adversely affect someone’s lifestyle. 

“We have seen people who have outlived their resources,” he says. “People need to be careful making those gifts to not overly deplete their resources.” 

Blume suggests people start thinking about planning between age 50 and 60, and discuss options with a financial planner or banker who can be objective. 

Blume says private foundations also can be created.

“We send them to an attorney to do that, or they can contribute specifically to a charitable organization or school and we can point them in the right direction for that,” he says, adding, “The largest number of contributions are made as an outright gift to a charity. Those are the majority by far and they go to colleges, universities, and organizations like Boy Scouts or churches.” 

Whatever someone decides, he says, people get the satisfaction of doing something of intrinsic value for the community. “And that’s hard to define … the satisfaction of knowing that you’ve done something good in the community,” he says. 

P.J. Watters, director of gift planning at the Inland Northwest Community Foundation, says the organization is one of more than 700 independent community foundations that operate in urban and rural areas throughout the United States. “Community foundations are public charities that steward philanthropic resources from institutions and individual donors to community-based organizations,” Watters says.  

Watters says every type of asset, including cash, real estate, stock, and artwork, can be contributed to a community foundation through various types of funds and giving vehicles. 

The INWCF manages and invests donors’ charitable dollars, making sure the money is used as the donors intend, and monitors the use of funds to ensure they’re making a difference, she says. 

Watters says a donor contributes a minimum of $10,000 in a charitable checking account to get a fund started, which is then set up in the donor’s name or any name they choose. A receipt is provided for tax purposes.  

 “Then we pool that money with about $60 million that’s invested with us, it’s all accounted for separately, we provide some portion of earnings to the donor each year and we help protect the principal. We get much better investment opportunities because we’re pooling it with such large investments,” she says.

Since 1974, the INWCF has awarded more than $45 million in grants and scholarships in 10 counties in eastern Washington and 10 counties in North Idaho. 

Today, the INWCF has total assets of $76 million with 374 funds, and it awards $3 million in grants every year. Its group of 374 charitable funds provides grants to support community development and environment, health and human services, education (including scholarships) and arts and culture.

Watters says many people want to see the impact of their charitable giving in their lifetime. 

“I sit down with them to try to find out what their charitable intent is … whether they want to travel and not worry about anything or whether they want to have a (hands-on) approach,” she says. 

Watters says some donors want to determine whom the funds go to on an annual basis while others make requests on different time frames, including every month. “We have people that have a need for funds because of something that comes up quickly, and we can normally turn those around and within seven to 10 working days, get the grant out the door,” she adds.