Introduction to Planned Giving

Bold, Innovative and Generous

What if you found out that you’ve been paying more than you actually owed in taxes?
The Internal Revenue Service says it’s likely that you and most taxpayers are. For most people, taxes are the single biggest headwind to wealth accumulation and maintenance. If you are like most people, you believe taxes are going up.

At the core of the human soul is a passionate desire to give back to the world to make it a better place. Never in the course of human history have so many people been driven to devote their resources to their passionate cause. In my recent book, “Generation BIG, Bold, Innovative and Generous, The Rising Tide of Dreams to Action,” I document this massive grassroots movement. BIG people are aligning their time and money in every way possible to have the most meaningful impact. This includes being intentional in their portfolios, expenditures, giving and estate plans. Further, there is a changing notion of “retirement” itself. Our conclusion: The world is headed toward a very bright future. Your involvement with NIAF and other charities evidences these notions.

For a good deal of my career, I have helped individuals who are passionate about causes find money they didn’t know existed. In upcoming articles, I’m going share actual stories of how those clients were able to quite legitimately divert funds from the worst charity in the world, the IRS, and apply them to the causes dear to them. Hopefully, some of these stories will be meaningful to you. My first series is about a couple we’ll refer to as Mr. and Mrs. Ferraro.

Mr. and Mrs. Ferraro

“I don’t have a tax problem,” Mr. Ferraro said brashly. “You see, I’m on board with Warren Buffett’s philosophy: I’m giving each of my four kids $1 million when we die and the rest goes to charity.” He then slid his financial statement over to me. A $50 million estate to start the week.

“Great, another guy who’s here to get affirmation on his plan and waste my time,” thought I on a Monday morning six years ago. I asked if he brought his tax return, which he promptly produced. I glanced at the first two pages.

“Let me see if I’ve got this straight: Iif you and Mrs. Ferraro got hit by a flaming gas truck as you leave my office, your estate plan would leave $4 million to your heirs and $46 million in cash to charity?”

“That’s right.”

“Well, unless you plan on being reincarnated AND file tax returns afterwards, then it looks to me like you’re leaving $20 million on the table.”

I don’t care who you are, $20 million is real money. Let me just say that I had Mr. Ferraro’s attention.

What was it on his tax return that lead to my conclusion? It was the Adjusted Gross Income (AGI) of $4 million, which he affirmed as a normal range of AGI. You see, you can only deduct in any given year half your AGI for cash gifts. So had they died with their existing plan, only half of the $4 million AGI, or $2 million, could be deducted. They couldn’t carry the balance forward because, well, they’d be dead. By not deducting the remaining $44 million, about $20 million in tax savings is lost.

Bottom Line: Testamentary Gifts (leaving a portion of your estate to a charity via your will or trust) can be a costly mistake. In fact, it’s the single most common estate planning mistake I’ve found when it comes to charitable planning. If you are committing a portion of your estate to NIAF or any other charity, it would behoove you to have your advisor determine if your estate will get the full tax benefit of that gift. If not, reconfiguring the gift can bring you immediate tax savings without losing control of the asset.

In next month’s article, find out how the resulting work we accomplished diverted millions of found dollars from the IRS and helped educate hundreds of underprivileged kids.

–Jeffrey Smith, CPA, author and consultant.
If you or your advisors would like to discuss this matter, drop me a note at