According to USA Today, 2017 saw the first-time wave of charitable giving that resulted in more than $400 billion to various organizations. The biggest difference was donations to foundations, which was the largest increase that reached 15.5%. High-income individuals are currently keeping the donation levels elevated and stable.
The Urban Institute in Washington D.C. looked at charitable giving from 2002–2006 and conducted a recent study to understand why high-income individuals are more likely to donate to charity during their lifetime and not leave a legacy at their death. However, those that do donate at their death give a much larger amount compared to their donations during their life.
Reason #1 – Tax Efficiency
From 2002 to 2006, the itemization of deductions permitted individuals to gain a deduction for each of up to 50% of their adjusted gross income if they made donations. When compared to donations at death, charitable giving during a person’s lifetime is always more “tax efficient” because it can benefit from other deductions, including estate tax and income.
Reason #2 – Health Concerns
The Urban Institute’s findings show that wealthy people with a high net worth and more than $3 million of wealth—excluding real estate property—worry about healthcare. Expenses towards caring for an aging parent were among the health concerns.
The study didn’t record this, but it is possible that while healthcare concerns are insurable through charitable remainder trusts and long-term care insurance, fear of needing more money for healthcare may be a factor. Fear is generated from feeling threatened and can overcome logic.
Reason #3 – A Lack of Planning
Whether it’s because of superstition or mere procrastination, about 40% of people die without having a will prepared, according to the Urban Institute’s study. Many people don’t bother with estate planning because:
- they find it’s too much of a hassle.
- they believe themselves to be too young to need that kind of preparation.
- they think they can’t afford it.
- they don’t care what happens because they’ll be dead.
When people don’t do estate planning, they don’t leave legacies, but they are more likely to donate during their life because they have control over their wealth.
Reason #4 – The Giving Pledge
The Giving Pledge was started in 2010—after the period the Urban Institute looks at—by Bill and Melinda Gates, as well as Warren Buffet in the effort to get wealthy individuals to discuss philanthropic issues and pledge over half of their fortune to said issues. In 2013, the Giving Pledge expanded to include other countries around the world.
Participants who join the Giving Pledge do not have to pay federal estate taxes on the money they donate. Additionally, their appreciated stock that makes up the majority of their wealth will also not have the federal income tax on it.
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