Income Tax Planning for Complex & Noncash Assets

Each of your clients has certain causes they cherish, driven by their faith and values. However, many clients aren’t aware of charitable giving options beyond the cash in their bank accounts. Gifts of noncash assets are a great way to positively impact your client’s favorite causes. Plus, through a strategic giving approach, you can potentially help them bypass or minimize capital gains taxes on noncash gifts.

Noncash assets are a combination of wealth held outside of cash on hand and money in your bank account. Noncash assets include publicly traded stock and mutual funds, real estate, life insurance, cryptocurrency, privately held stock, and farm or business equipment.

Keep in mind, selling assets can trigger tax-planning challenges:

• Large taxable events in a single year can make it hard to manage adjusted gross income (AGI), an important lever in tax planning.
• Capital or ordinary gains.
• Limited flexibility once assets are sold.

Gifting long-term appreciated securities like stock, bonds, and mutual funds to charity can help your clients potentially avoid capital gains, as they don’t pay capital gains tax on donations otherwise owed if they sold the stock themselves.

Additionally, a charitable gift annuity (CGA) allows your clients to give securities and receive a lifelong stream of income, with the remainder going to charity after their passing. This option allows clients to spread out their income over time, thus lowering their AGI.

Your clients can also support their favorite causes by gifting property. Sometimes the charity will use the property itself, but in other cases it sells the property and uses the income to fund its mission.

One option is called a gift of life estate reserved, which lets your clients continue to use or rent the property during their lifetime and potentially receive a charitable income tax deduction.

Another example of gifting real estate to charity comes from Thrivent financial advisor Jon Skov’s clients, Donna and Don. They sold Don’s home to their church and are gifting proceeds of the sale to a donor-advised fund (DAF) to benefit the causes they cherish into the future.

Just as life insurance provides for loved ones upon death, it can support a client’s favorite causes in a similar way. There are a variety of ways to give life insurance, including giving a new contract, giving an existing contract, or naming Thrivent Charitable as beneficiary. Each option supports charity, allows for significant future gifts, and may provide a charitable tax deduction.

If you have clients who own business assets or land, gifting or donating the proceeds allow for potential tax efficiencies.

An example of this comes from Thrivent financial advisor Chris Wieting’s clients, Ron and Diane. After crop farming for more than 50 years, they were ready to retire. Because none of their adult children farm, they planned to crop share their land and sell equipment and machinery at auction. Chris recommended they establish a charitable remainder trust for the equipment prior to the sale, eliminating the tax consequences of the sale. For the next 20 years, the children will split a predetermined percentage of the trust’s assets annually, with the remainder going to charity at the end of the trust.

Life events often create natural moments for financial advisors to reach out to clients:

• Retirement: Lower-income years can be ideal for gifting.
• Age 73: Required minimum distributions go into effect and can potentially increase adjusted gross income and tax complexity.
• Death of a loved one: Introduces new tax brackets, AGI impacts, and beneficiary considerations.
• Conclusion of business: The desire to sell a business or equipment related to real estate management, farming, or other provides opportunities for charitable giving.

Using the conversation starters below, you can help guide your clients by assessing long-term goals and assets.

1. Do you have assets you’re reluctant to sell because of the capital gain? What are your plans for these assets?
2. Do you need retirement income?
3. Are you concerned about passing on income tax to heirs?
4. Would you like to learn how your charitable goals can fit into your tax strategy?Are there charities you support regularly?

Charitable giving options go beyond simply gifting cash. Gifting noncash and complex assets can help clients reduce taxes and support the causes they cherish. Your guidance ensures they understand their options and can make decisions aligning with their financial needs and values. Partnering with Thrivent Charitable gives you added tools and expertise to amplify impact and create the change that matters most. Connect with our team of charitable experts to explore unique solutions for your clients.