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What Your Clients Need to Know About Giving in a Bear Market

Hands holding a cell phone with stock charts on the screen

Earlier this year, Bankrate and Psych Central released the Money and Mental Health study and, not surprisingly, a large number of people surveyed in the research reported that money has a negative impact on their mental health. Needless to say, every generation will feel the sting of any bear market, including (and especially) Baby Boomers.

Some people feel better if they can gain a better understanding of the factors that created the unpleasant mix of inflation, rising interest rates, and a bear market in the first place. Others are comforted knowing they are not alone as they ride the emotional rollercoaster. And for those who are charitably inclined, challenging economic times might actually serve as an inspiration to become more intentional about their charitable giving priorities. 

As you are helping your clients weigh their options for structuring charitable giving and philanthropic legacies in the current economic environment, consider sharing these key messages: 

"Rising interest rates can increase the attractiveness of charitable remainder gift vehicles." Clearly, wealth planning priorities are impacted by interest rates. Charitable components of estate and financial plans are no exception. When interest rates are high, your clients may want to look closely at annuity vehicles that leave a remainder gift to charity, such as a charitable remainder annuity trust or a charitable gift annuity. Creating a charitable remainder annuity trust in a high interest rate environment, versus a low interest rate environment, drives down the present value of your client's income stream, which means that the value of the remainder passing to charity is relatively high and therefore so is the client's upfront tax deduction for the charitable portion of the gift. Charitable gift annuities also are becoming more attractive to philanthropic clients, for different reasons. Thanks to the recent increase in rate of return assumptions for charitable gift annuities, this planned giving vehicle is now more attractive to donors who like the idea of a higher payout rate for their lifetime annuity.

"Not all stocks are down." Giving appreciated stock to a donor-advised fund or other type of fund at the community foundation is always a tax-savvy alternative to giving cash, regardless of the economic situation. Your clients may feel disappointed that their portfolios have hit a rough patch, but this does not mean there aren't still plenty of opportunities to avoid capital gains tax on stocks held for more than a year. (Take a look at the historical share price of Apple, for example, and imagine the capital gains tax liability for clients who've held the stock for several years.)

"Consider the needs of others who are even more acutely feeling the pinch of inflation." Community needs are rising, and Akron Community Foundation is dedicated to staying on top of the issues that are critically important to residents' quality of life at any given time. Families with low or moderate household incomes can be especially vulnerable to high inflation. The team at the community foundation can help your clients zero in on nonprofits in our community that are serving the people who need the most help right now.  

"Don't forget about the Qualified Charitable Distribution." We mention this tool often because it is such a financially savvy way for your clients to support the charities they care about. If your client has reached the age of 70 ½ , the client may be eligible to make annual distributions of up to $100,000* per spouse from IRAs directly to a designated or field-of-interest fund at the community foundation or other qualifying public charity. QCD transfers count toward satisfying clients' Required Minimum Distributions and avoid the income tax on those funds. Plus, those assets are no longer part of a client's estate at death, which avoids estate taxes, too. What's more, the QCD may get a boost if the EARN Act becomes law, as proposed bipartisan legislation would expand the QCD rules to allow a one-time, $50,000 QCD to a split-interest trust such as a charitable remainder trust. UPDATE: The Consolidated Appropriations Act of 2023 was signed into law on Dec. 29, 2022. Read the latest update.

Please contact Laura Lederer to learn more about ways the community foundation can work with you and your clients to navigate the ever-changing economic factors that influence their charitable giving plans. We're always available to answer your questions about philanthropy or to schedule a personal consultation with you and your clients – all at no cost.

*Beginning in 2024, the annual limit for QCDs will be indexed for inflation. The 2024 limit is $105,000.

Additional Resources

This content is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

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