September is recognized as Hunger Action Month, originally established by Feeding America in 2008. Hunger Action Month is an annual nationwide campaign that occurs each September to raise awareness about hunger in America and inspire action. According to the USDA, more than 34 million people, including 9 million children, are food insecure. Food insecurity is defined by the USDA as “a lack of consistent access to enough food for every person in a household to live an active, healthy life.” Sadly, the pandemic increased this issue among families with children and communities of color. Consequently, food insecurity has a wide impact, contributing to serious health issues and lack of nutrition for young children and forcing families to choose between food, rent, medicine, healthcare, and transportation.
Numerous methods exist to contribute to the mission of eradicating hunger in the United States. As a financial advisor, one effective approach is to educate your clients about supporting charitable causes by incorporating charitable planning structures into their estate plans. Your clients who wish to make charitable contributions might not be fully aware of the diverse opportunities and tax advantages possible through this type of planning. Among various other strategies, two commonly used trusts are the charitable remainder trust and the charitable lead trust, each offering multiple tax benefits for clients.
A charitable remainder trust is an irrevocable trust that is tax-exempt at the trust level and designed to allow for a partial charitable tax deduction. This trust structure works well when funding assets that have grown in value over the years (i.e., low-basis assets). Once the account or property is funded into the trust, the account is liquidated or the property is sold, and the money is invested to ultimately produce a stream of income. The sale avoids capital gains tax at the trust level because the trust is liquidating the account or selling the property. However, the noncharitable recipient of the income stream will be responsible for any income tax on the distributions. This structure allows your client to maintain the benefit by receiving distributions annually for a term of years, and at the end of the term, the charity your client has designated will receive the remainder. Also, the client is able to remove further appreciation from their estate.
A charitable lead trust is similar in that this irrevocable trust is funded with property or accounts that have grown in value, but it differs in that the charity receives the income stream for a term of years, and at the end of the term, the beneficiaries the client has chosen will receive the remainder. With a charitable lead trust, the client or trust (depending on the type of charitable lead trust created) will pay the income tax, but the client will receive a tax deduction at either the beginning or end of the trust depending on the type of charitable lead trust used. While not all clients can benefit from these planning techniques, charitably inclined clients still have the ability to contribute by leaving a portion of their estate to local food banks, soup kitchens, or other qualified tax-exempt organizations fighting to end hunger.
Some clients may be eager to support the crucial goal of ending hunger but may not have the ability or inclination to engage in complex charitable planning within their estate. However, there are still incredibly meaningful ways for these clients to contribute to this vital cause. One approach is by making financial donations to their local food banks, Feeding America, or other charitable organizations actively working to fight hunger. These gifts could be made during your clients’ lifetimes, or the organization can be left a sum of money at your clients’ death through their wills or trusts.
Moreover, actively participating in volunteer activities at local food banks or soup kitchens can be a rewarding and enlightening way to directly support the mission of ending hunger. Clients can play an essential role in tackling this issue by engaging on the front lines and dedicating their time and effort to these local organizations. In addition, involving their children in volunteer activities can foster a sense of responsibility and compassion for this important cause, creating a charitable legacy of giving that could span generations.
Empowering your clients to support charitable causes through their estate planning, donations, and volunteering can all be meaningful ways to contribute to ending hunger in the United States. By educating your clients about the opportunities and associated benefits, you can help them make a positive impact on society while also providing them with valuable tax benefits.
If you are interested in learning more about how your clients can increase their impact on charities that are close to their hearts, call us to schedule an appointment.
