Establish a gifting strategy while you pull your taxes together

5 steps to help you decide what to give and to whom

By Debbie Cox, Guest Contributor

Feb 10, 2015 @ 10:11 pm EST

This is the time of the year when many clients are pulling together their tax documents. It's also a great opportunity to establish your gifting strategy. As you work through income and tax numbers for 2014, consider how much you can afford to give. These five steps will help you think through how much you can give and to whom -- and how your decisions will affect your family members.

1. Meet with your professional team

With the help of your professional team, determine what your charitable and personal gifting budgets might be, taking into consideration gift tax limits and limits on the income tax charitable deduction. Setting a gifting goal will help you and your team focus its efforts to minimize your tax burden and maximize your gifting. Gather with your tax accountant, investment professionals, attorney and others who contribute to your financial success, and start putting together the plan for the coming year. Take a look at your projected income for the year, your business plans and your projected taxes. It is also important that you determine early on which assets you plan to use for your charitable and family giving, and which you will be keeping in your personal portfolio. Will gifts be coming from currently funded cash accounts? Or perhaps you have other assets that have appreciated (or depreciated) that you plan to use.

2. Convene with your family

Once the numbers and possibilities are pulled together, now pull the family together to make sure that everyone is on the same page with items such as educational or internship expenses, and events such as weddings, graduations, or other significant occasions. Additionally, consider how your children and grandchildren may assist in your philanthropic plans and donations. Much like a holiday shopping list, this is a time to figure out what everyone is looking for in the coming year.

3. Determine your charitable giving strategy and budget?

Is there a particular charity you plan to support? A particular area of the world you want to focus on? The next step after figuring out where you'll be focused philanthropically is to determine how much you want and/or need to give away. Some families have a particular number in mind for their yearly charitable giving, and foundations have a specific federal requirement to give away 5% of its net worth. Having the expected budget set up early will make things much easier come year-end. Taking into account the advice of your professional advisors about how much you could give, make a plan and stick to it.

4. Create or fund your philanthropic vehicle

Has your family set up a donor advised fund or private foundation? Are you planning to? Often, families rush to set up charitable vehicles in December, when this could easily be accomplished early in the year. Even if you are not creating a new charitable fund, consider 2015 funding of your existing vehicles to ensure maximum impact throughout the year. Don't forget that appreciated assets can be tax efficient property to satisfy those planned donations.

5. Align family member gifts

The maximum lifetime gift exemption has been increased from $5,340,000 to the 2015 exemption of $5,430,000, which means an extra $90,000 that can be used this year. The annual gift exclusion remains $14,000 per person from each donor, meaning that together parents can gift $28,000 to each child and grandchild. Determine the gifts you're planning for this year and get them off your balance sheet early. By making the gifts early you can remove the assets' future income and appreciation from your balance sheet too. Also talk to your tax professionals about whether you should consider making taxable gifts. Taxes on such gifts are due in April of the following year.

The more you can take care of now, the less stress you'll face later. Start with your meetings to set the stage, and get your family on the same page. Look for expected events such as liquidity events, new trusts to create and new grandchildren to enjoy. Then get moving to implement your plans.

No doubt as you face this year's tax bill, you'll be thinking about how to reduce next year's. Seize the opportunity to put that notion into practice.

Debbie Cox is a wealth advisor at J.P. Morgan Private Bank. Ms. Cox provides advice on wealth structuring solutions related to wealth transfer, family governance, business succession, philanthropy, and tax planning.

JP Morgan Chase & Co., its affiliates, subsidiaries and employees do not provide individual tax advice. Please consult your individual tax advisors prior to initiating any strategy.

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