Warren Buffett made headlines recently when he released a letter to Berkshire Hathaway shareholders. The 94-year-old “Oracle of Omaha” didn’t highlight his multi-decade investing results, rather he used this communication to detail ongoing philanthropic plans for his vast fortune, now valued at almost $150 billion.
Buffett donated an additional $1.1 billion in Berkshire Hathaway stock to his family’s four foundations, in an effort to do good — and to resist building a generational legacy. “I’ve never wished to create a dynasty or pursue any plan that extended beyond the children. I know the three well and trust them completely. Future generations are another matter.”
As someone who often hears from families about their desire to financially advance their children, grandchildren and great grandchildren, this was an eye-popping statement.
Buffett has long recommended that “hugely wealthy parents should leave their children enough so they can do anything but not enough that they can do nothing.” That’s solid advice for the not-so-wealthy too. We may not have to think about giving away massive wealth (a good problem to have!), but more should be concerned with taking care of their own financial foundation, rather than building for successive generations.
There was also a great nugget about estate planning for all parents, “whether they are of modest or staggering wealth. When your children are mature, have them read your will before you sign it. Be sure each child understands both the logic for your decisions and the responsibilities they will encounter upon your death. If any have questions or suggestions, listen carefully and adopt those found sensible.”
Buffett usually makes gifts around Thanksgiving, which is also the time of year when you might be thinking about charitable giving. Whether or not you have Buffett billions, here are best practices to keep in mind as the solicitations roll in, according to the IRS.
Be alert to fraud
Scammers use names that sound like well-known charities to confuse people. Ask for the charity’s name, website and mailing address so you can independently confirm the information by using the IRS Tax Exempt Organization Search tool to verify its legitimacy. Avoid charities that ask for donations by gift card or by wiring money.
Don’t overshare
Sophisticated fraudsters know that your personal information is valuable. Never disclose Social Security numbers, credit card numbers, personal identification numbers or passwords unless you are sure that the organization is legit.
Resist pressure
Scammers often demand immediate payment, while legitimate charities are happy to get a donation at any time. If you get the hard sell, walk away.
Know your tax benefit
Only the 12 percent or so of those who itemize their deductions are entitled to a tax benefit for charitable giving. You can try to “bunch” deductions to push you above the standard deduction threshold and accelerate charitable giving for that particular year. If you are going to claim a charitable deduction, keep good records.
Consider Donor Advised Funds (DAFs)
Impressive stock market gains can help you be charitable for years to come. You can open a DAF at most of the big investment firms, then contribute appreciated assets into the fund, and then grant to any charity over the next several years.
DAFs have an extra cool feature: You can write off the current market value (not just what you paid) to escape taxes on the accumulated gains. So, if you invested $5,000 in Nvidia and it is now worth $25,000, you could move the entire position into a DAF, get a charitable deduction for the full $25,000 and never pay capital gains tax on the $20,000 of gains.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected]. Check her website at www.jillonmoney.com.