What Would You Do with Lottery Winnings?

Everyone has dreams at some time of winning the lottery and how that windfall can change your life.  My father would get a lottery ticket every now and then, and we kids would always get lottery tickets and scratch-offs as stocking stuffers.  The inevitable “what would you do if you won” conversations would ensue.  The laughter and sheer entertainment from those conversations was worth the price of the ticket.  Inevitably, Dad would always remind everyone that the first thing they should do if they won is give a “chunk” of the winnings to charity.  He was not a financial planner – his motivation for the advice was purely that one should share in their good fortune and that acts of kindness come back to you in a variety of ways.

My motivation for recommending charitable giving to clients is steeped in Dad’s advice because I do believe he was right that we should share in our good fortune.  Additionally, charitable giving does indeed come back to you in a variety of ways, one of which is tax deductibility if gifting to an IRS-qualified charity.  Depending on your financial situation, charitable giving can be a useful financial planning strategy.  If you have the means and charitable intent, what could be better than avoiding capital gains by donating low-cost basis appreciated assets, realizing a tax deduction and helping a charitable cause??  Sign me up!

The icing on the cake is how very easy it is to donate securities nowadays.  I am going to focus on ease of using Donor Advised Funds (DAF) for those of you who may not be familiar.  Here is how DAFs work:

• Custodians, such as Schwab or Fidelity, offer Donor Advised Fund accounts that you open, using a naming convention supplied by the custodian, such as the Kramer Charitable Giving Account.
• Next, working with your advisor, identify securities you may want to dispose of, whether it be for concentration or capital gains reasons.  Once identified, simply transfer the securities to the charitable giving account (which can easily be done online, especially if with the same custodian) which serves as your donation.  No checking to see if your charity can accept the security, just a simple transfer to your newly established account.  You can also donate cash if you choose to do so, and DAFs will generally accept restricted stock, private equity and hedge fund interests, C corp and S corp shares, and cryptocurrency.
• Once the transfer/donation is complete, you are normally eligible to take an immediate tax deduction.
• The contributed security is liquidated in the charitable giving account and reinvested in an investment pool you select for tax-free growth.
• When you are ready to grant money to an IRS-qualified public charity, you simply go to your account online and submit your recommended grants.  The recommendations are reviewed and unless there is a mitigating circumstance (i.e., the charity is not eligible, or the amount is more than what is available in the account), the securities are sold and cash is sent to the recommended charity(s).

So, this holiday season, talk to us about evaluating your tax liability, your portfolio holdings, and see if a DAF may be a potential solution for you.  Oh, and treat yourself and your family to a couple of dollars’ worth of lottery tickets this holiday season for some laughs and interesting conversation!  You might discover that a family member wants to open a rescue farm specifically for pugs!  (I advised against a farm as pugs would rather have 1000 thread count sheets and air conditioning.)

Happy Holidays!

West Financial Services, Inc. (“WFS”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC, nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements, and Form CRS.

This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.