Trust in nonprofits, donor-advised funds versus private foundations, and a quick refresher on charitable gift annuities

Hello from the community foundation! 

The community foundation team is honored to work with attorneys, CPAs, and financial advisors as you help your clients achieve their charitable giving goals. Put us on speed dial–we want to be your first call when the agenda turns to philanthropy! 

As part of our service to you and other advisors, the community foundation is committed to letting you know about trends and developments that may impact your clients’ charitable giving strategies. To that end, here are three topics that are popping up frequently in our conversations with both donors and advisors:

–Trust is at the foundation of your client relationships, and the team at the community foundation feels the same way about our relationship with you, your clients, our region’s nonprofits, and the community we serve. Learn more about why the community foundation is such a trusted source for all things charitable giving. 

–Deciding whether a private foundation or a donor-advised fund is the best vehicle for your client can be challenging, especially if the client walks in the door with preconceived notions. A donor-advised fund at the community foundation may be more flexible and effective than you assume and often is the ideal tool to achieve clients’ tax and charitable giving goals. 

–You may not run across charitable gift annuities (CGAs) very often, but when you do, it’s good to know the basics. We’ve put together a few quick pointers as a refresher course on how a CGA works and when it might be a good fit. 

Please reach out anytime you’re dealing with a client matter related to charitable giving. We can almost always provide a solution, and if we can’t, we will recommend the best next steps for you and your client.

Happy spring! 

–Your community foundation

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Trust matters: Your clients’ go-to resource for community impact

by Staff Name, Director of Charitable Giving

As attorneys, CPAs, and financial advisors, you know very well that trust is at the foundation of your relationships with clients. Your clients are seeking a similar level of trust with the people and organizations that are helping carry out their philanthropic wishes.

Fortunately, following a dip in public trust in the nonprofit sector, trust in charities has shown a recent increase. According to the 2024 Edelman Trust Barometer and the Independent Sector's "Trust in Nonprofits and Philanthropy" report, trust in nonprofits rebounded by 5 points to 57% in 2024, following a four-year decline. This increase positions nonprofits as the most trusted sector compared to government, business, and media. Still, nonprofits face challenges and concerns about maintaining this trust, including general skepticism about institutions, as well as increasing expectations that charities demonstrate transparency and accountability.

As you work with your charitable clients, keep in mind that the community foundation can help bolster clients’ trust in their favorite charities. Here’s how: 

Trustworthy information about particular charities

The community foundation is a valuable source for objective, timely information about specific charities and the impact of particular programs. By working with the community foundation, your clients can leverage a transparent and trustworthy avenue for learning about how best to make a difference for their favorite causes.  

Wide-ranging expertise about community needs

At its core, the community foundation is committed to achieving impact. This means that our team keeps a finger on the pulse of local needs, whether related to social services, health care, education, the environment, the arts, community development, or any other community priority. With a deep understanding about community needs, the community foundation team can be an excellent sounding board for your clients who want to learn which charities are addressing each need and how those charities are measuring results. 

Broad set of tools for structuring charitable gifts

The community foundation can help establish a tax-efficient structure to achieve each client’s goals for community impact. Available vehicles include not only donor-advised funds, but also other types of funds such as designated funds to support specific charities and field-of-interest funds to address particular causes, as well as multi-generational funds to involve clients’ children and grandchildren. The community foundation offers your clients a flexible and effective way to manage charitable giving by simplifying their giving processes and maximizing potential tax benefits.

As always, we want to be your first call! Please reach out to the community foundation team anytime the topic of charitable giving comes up during a client conversation. 

Weighing the options: Private foundation or donor-advised fund?

by Staff Name, Director of Charitable Giving

When you’re working on the charitable components of a client’s estate or financial plan, one of the first areas you’ll likely explore is the structure. Certainly you are familiar with both private foundations and donor-advised funds as useful charitable giving tools. Before you jump into one or the other for a particular client, though, it’s important to review the similarities and differences between the two so that you can best achieve your client’s goals. 

Here are three common myths about the differences between private foundations and donor-advised funds to help you evaluate a client’s options.

Myth #1: Donor-advised funds are all the same and only private foundations can be customized

Private foundations will always differ from donor-advised funds in important ways, not only because of their status as separate legal entities and the deductibility rules for gifts to these entities, but also because of the opportunities to customize governance. But it is a mistake to assume that a donor-advised fund is a cookie-cutter vehicle. Indeed, “donor-advised fund” is simply a term used to describe the structure of a fund and its relationship with a sponsoring organization such as a community foundation. The donor-advised fund vehicle itself is extremely flexible. Here’s why:

–Donor-advised funds are popular because they allow your client to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, your client can recommend gifts to favorite charities from the fund when the time is right. 

–A donor-advised fund at the community foundation is frequently a more effective choice than a donor-advised fund offered through a financial institution. That’s because at a community foundation, your client is part of a community of giving and has opportunities to collaborate with other donors who share similar interests. Plus, the community foundation is itself local and is deeply knowledgeable about the needs of our region and the nonprofits meeting those needs. 

–The community foundation can work with you and your client to build a charitable giving plan that extends for multiple future generations. That is because the team at the community foundation supports your clients in strategic grant making, family philanthropy, and opportunities to learn about local issues and nonprofits making a difference. 

Myth #2: Deciding whether to establish a donor-advised fund or a private foundation mostly depends on size

The size of a donor-advised fund, like the size of a private foundation, is unlimited. The United States’ largest private foundations are valued well into the billions of dollars. Information about private foundations, ironically, is not so private. The Internal Revenue Service provides public access to private foundations’ Form 990 tax returns. That is not the case for individual donor-advised funds.

Similarly, donor-advised funds are not subject to an upper limit. Although information on the asset size of individual donor-advised funds is not publicly available, anecdotal information indicates that some donor-advised funds' assets may total in the billions of dollars.

Indeed, a donor-advised fund of any size can be an effective alternative to a private foundation, thanks to fewer expenses to establish and maintain, maximum tax benefits (higher deductibility limitations and fair market valuation for contributing hard-to-value assets), no excise taxes, and confidentiality (including the ability to grant anonymously to charities).

The net-net here is that the decision of whether to establish a donor-advised fund or a private foundation–or both–is much less a function of size than it is other factors that are tied more closely to the objectives a client is trying to achieve. 

Myth #3: Donor-advised funds and private foundations are mutually exclusive

Make sure you’re aware of the benefits of using both a donor-advised fund and a private foundation to accomplish clients’ charitable goals. For example:

–Donor-advised funds can help meet the need for anonymity in certain grants, which is typically difficult using a private foundation on its own.

–A donor-advised fund can receive a client’s gifts of highly-appreciated, nonmarketable assets such as closely-held stock and real estate, and benefit from favorable tax deduction rules not available for gifts to a private foundation.

–An integrated donor-advised fund and private foundation approach can help a client balance and diversify investment and distribution strategies to ensure that giving to important causes remains steady even in market downturns.

Some private foundations are even considering transferring their assets to a donor-advised fund at the community foundation to carry on the foundation’s mission. Terminating a private foundation and consolidating giving through a donor-advised fund is sometimes the best alternative for a client when the day-to-day management and administration of the private foundation has become more time-consuming than expected and is taking time and focus away from nonprofits, the community, and making grants. 

Along these lines, some families find that the tax rules related to investments, distributions, and “self-dealing” have become harder to navigate and are perhaps even preventing the family from maximizing tax benefits of charitable giving. Finally, the administrative load of managing a private foundation sometimes becomes overwhelming, especially if the family members who handled these functions initially have retired, passed away, or simply become busy with other projects.

The bottom line here is that we encourage you to reach out to the team at the community foundation anytime you are evaluating how to structure a charitable giving plan to achieve both your client’s charitable goals and financial goals. Our team is here to help. In many cases, the community foundation’s tools and services are a great fit for your client’s needs. If not, we will point you in the right direction. 

Refresher course: Charitable gift annuities

by Staff Name, Director of Charitable Giving

Several advisors have shared with us recently that they’re fielding more questions about charitable gift annuities (CGAs). It’s quite possible that CGAs are landing on clients’ radars these days for a couple of reasons:

A $54,000 opportunity

Word is finally getting out about the availability of a one-time Qualified Charitable Distribution transfer via a “split-interest gift” such as a CGA or a charitable remainder trust (CRT) under the “Legacy IRA” provisions enacted a couple of years ago. Adjusted for inflation, the ceiling for 2025 is $54,000. Because the law effectively mandates that the CGA or CRT be created solely for the purpose of receiving a QCD, your clients may gravitate toward the CGA, which is less complicated than going through the process of creating a relatively small CRT.

Payout rates are still high

Current charitable gift annuity payout rates, as suggested by the American Council on Gift Annuities (ACGA), are generally higher than in previous years. Rates were increased in January 2024 and remain in effect for 2025. With the status of interest rates unpredictable as 2026 approaches, some clients may want to take advantage of a CGA this year.

So what do you need to know about how and why a charitable gift annuity can be an effective planning tool for some clients? Here are the basics:

–Through a charitable gift annuity, your client makes a transfer of assets to a charitable organization and in return receives a lifetime income stream and a partial tax deduction.

–When the client dies, the remaining funds are retained by the charity. 

–The charitable donation portion of the transaction is calculated based on Internal Revenue Service rules for determining the amount of the contribution that is in excess of the present value of the annuity (these are the rates that are relatively high right now).

–Your client can fund a charitable gift annuity with a variety of assets, including marketable securities and cash. 

–Actuarial calculations are used to establish the payout amounts, paid in equal installment payments that are considered a partial tax-free return of the client’s original gift.

–Generally a large residual flows to the charity after the client’s death. 

–The charity’s own assets, not just the donated assets themselves, back the annuity payouts. Because of this dynamic, charitable gift annuities are regulated by most states to ensure that the charity has enough reserves to meet obligations.

Please reach out to the community foundation team when a client asks about charitable gift annuities or any other type of charitable gift. Keeping up with the rules and regulations for charitable gifts of all kinds is one of the many ways our team is here to help you serve your charitable clients. We’re honored to be your first call on all things philanthropy! 

The team at the community foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.

Tax time blues, generational shifts, and tax reform

Hello from the community foundation! 

Here we are, right in the middle of another tax season. The years go by so quickly! Of course, preparing clients’ tax returns and planning for the year ahead are top of mind for attorneys, CPAs, and financial advisors. 

The team at the community foundation is happy to share three updates that might help you navigate your work with charitable clients over the next few weeks.

Here’s what’s been trending with advisors recently.

–Tax time really is hard! Financial realities, procrastination, and, especially this year, potential tax law changes loom large for your clients. Learn how philanthropy can be a bright spot during an otherwise challenging season.   

–The transfer of wealth is real, and it is upon us! Discover how the community foundation can help you engage your clients in meaningful conversations about their charitable wishes. Now is the time to set philanthropy plans in motion. 

–If you have a hard time keeping up with pending legislative changes that could impact your clients’ charitable giving plans, you are not alone! The community foundation is here to keep you and other attorneys, CPAs, and financial advisors up-to-date on how ever-evolving tax laws may shape philanthropy.   

Thank you for the opportunity to work together. The community foundation is honored to be your first call for all matters related to charitable giving. In most cases, we can help! If not, we will point you and your clients in the right direction.  

–Your community foundation

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Tax time blues: Why is this so hard?

by Staff Name, Director of Charitable Giving

After the holiday glow has finally worn off, your clients may be hit with a sinking realization that it’s time to pull together tax information and start working with their CPAs, financial advisors, and tax attorneys on the filings for last year and start checking in on current-year strategies. 

Tax time can be stressful for your clients for a number of reasons, and this year is no exception:

–A shifting legislative environment is making it difficult for you and your clients to update financial plans and tax strategies with certainty. It’s hard to instill confidence in your clients when you, the professional, know that so much is up in the air. 

–The psychological hit that comes with facing financial realities such as income, debts, and losses–never mind the taxes themselves–can trigger emotional drain. This is sometimes aggravated by a client’s tendency to procrastinate. 

–An abundance of readily-available information about tax preparation can complicate your ability to advise clients. Clients may have seen articles and posts that suggest a “wait-and-see” approach, or simply read information that does not apply to them. So, as you set out to counsel your clients, you may first have to overcome the hurdles of misplaced assumptions and misinformation. 

But, there’s a bright spot! Many advisors find that the topic of charitable giving can lift clients’ spirits, even during a stressful tax season. Philanthropy can draw positive emotions to the surface. As you work with your clients over the next few weeks, be sure to talk about charitable giving. Many of your clients, for example, have already established donor-advised or other types of funds at the community foundation. Other clients could benefit from getting started with the community foundation right away. 

Please reach out to our team. We are honored to be your first call when you’re immersed in tax and financial planning matters and the topic of conversation shifts to philanthropy. We are here for you and your charitable clients during tax season and throughout the year.    

Generational shifts: Fulfilling clients’ charitable wishes

by Staff Name, Director of Charitable Giving

Chances are, you’ve already begun to notice that a major transfer of wealth is happening as your Baby Boomer clients establish financial and estate plans to pass their wealth to their Gen X and Millennial children.

The dollars involved are eye-popping. Most attorneys, financial advisors, and CPAs have seen the Cerulli study’s estimate that $124 trillion in wealth in the U.S. will transfer through 2048. The research estimates that most of this wealth–$105 trillion–will pass directly to children, grandchildren, and other heirs. And, notably, the study estimates that $18 trillion will flow to philanthropy. 

As the transfer of wealth gains momentum, advisors have a major opportunity to position themselves as trusted experts who can help clients not only structure efficient lifetime and estate gifts to heirs, but also help ensure that clients’ charitable wishes are achieved. It’s crucial for advisors to know that the community foundation is here to help incorporate philanthropy into clients’ financial and estate plans.  

Here’s why this is so important:

–There’s a knowledge gap. Clients may not be aware of the options and benefits of charitable planning. Even many of your affluent clients may still be writing checks to their favorite charities, not realizing that gifts of appreciated stock, for example, can be more tax-efficient, and that tools at the community foundation, such as donor-advised funds, can be incredibly useful.

–Next-level strategies are key. Your ultra-wealthy clients will likely need to implement sophisticated strategies for transferring assets smoothly and tax-efficiently. Clients want to maximize the results of their charitable gifts while also protecting their families' interests. Leaning on the community foundation to help structure gifts of complex assets, such as closely-held business interests, can make a huge difference in reducing a client’s tax bill and achieving meaningful community impact.

–Legacy planning starts now. It’s tempting to put off addressing a client’s wishes to support favorite charities in an estate plan. “We’ll look at that in a few years,” is a common but less-than-ideal approach. That’s because charitable bequests are best addressed as part of a comprehensive estate and financial plan. Naming a fund at the community foundation as the beneficiary of a client’s IRA, for example, is an extremely tax-efficient way to accomplish charitable wishes. 

Our team is here to augment your expertise in charitable giving strategies. Not only will you be better able to meet clients’ needs, but you’ll also strengthen relationships and improve client retention. Please reach out to learn more about how the community foundation can help your clients make a lasting impact with their wealth while achieving their financial goals.

Caught by surprise? In case you missed it, here’s what’s going on

by Staff Name, Director of Charitable Giving

Keeping up with an ever-evolving landscape of tax legislation can be a full-time job! Many attorneys, CPAs, and financial advisors regularly ask the community foundation to provide a refresher course on the potential tax changes on the horizon in 2025, especially those that might impact charitable planning techniques. 

Here’s a quick rundown of three things you need to know:

–Sunsetting provisions of the Tax Cuts and Jobs Act of 2017. The TCJA’s scheduled expiration at the end of 2025 will revert key tax policies to pre-2017 levels, potentially affecting charitable giving incentives. For example, the top individual tax rate is scheduled for a bump from 37% to 39.6%, potentially increasing the benefits of charitable tax deductions for your high-income clients. At the same time, the limit for cash donations to public charities is slated to drop from 60% of AGI to 50%, reducing the deduction for some of your clients. Finally, the estate tax exemption is scheduled to drop to approximately $7 million per individual. Because the exemption would nearly be cut in half, and therefore more estates would be subject to tax, a larger subset of your clients could benefit from charitable bequests to avoid estate tax. All of this assumes, of course, that intervening legislation won’t prevent the sunset. 

–Potential expansion of charitable deduction. Proposals like the Charitable Act aim to introduce a universal deduction for non-itemizers, broadening tax incentives for your clients across income levels. The bill is still popular among industry leaders and appears to have maintained momentum since it was introduced. 

–Consequences remain to be seen. Above all, the 2025 “cliff” may trigger the first major tax code rewrite in decades, which in turn surely would have a ripple effect in many areas of your clients’ lives, including within the charities your clients support. Post-TCJA, for example, charitable giving dropped by as much as $20 billion, according to one study, in the wake of reduced tax benefits. 

The bottom line here is that we’ve got you! The team at the community foundation stays on top of legal developments at the intersection of tax policy and charitable giving. We keep our fingers on the pulse of potential implications for you, your clients, and the charities they support, and we are here to help you navigate the changes.

The team at the community foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.

Three mini case studies, supporting local needs, and wildfire relief

Hello from the community foundation! 

We hope all is well as 2025 gets fully underway. Our team is really happy that so many attorneys, CPAs, and financial advisors have already reached out to ask questions about charitable planning techniques that could be a good fit for your clients. It is our honor to be your first call when the topic of philanthropy arises.

Here’s what’s been trending with advisors recently.

–As tax time approaches, you may encounter one or more of three scenarios related to the timing of IRA distributions, business succession planning, and opportunities to give appreciated stock. Check out the community foundation’s tips captured in our popular “if this, then that” mini-case study format. 

–Local issues are top of mind for many of your clients. The community foundation is uniquely positioned to help your clients make the biggest difference in the areas of our community’s greatest needs while also helping your clients support the full range of their charitable interests. 

–The aftermath of wildfires in Southern California is heartbreaking, to say the least. The community foundation is here to help you and your clients navigate the options for effective and trusted ways to provide financial support. 

It is our honor and pleasure to work with you and your clients. Thank you for partnering with the community foundation. We wish you all the best in the coming weeks! 

–Your community foundation

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“If this, then that”: Scenarios to consider as tax time approaches

by Staff Name, Director of Charitable Giving

As attorneys, CPAs, and financial advisors, you are well aware that you have clients’ attention when tax season rolls around. This makes it a great time to cover tax planning strategies for the current year and beyond. To help incorporate charitable giving topics into your tax season client conversations, we’ve put together tips to address three scenarios where the community foundation can assist your efforts. 

Evaluate QCDs sooner rather than later. 

If: Your client missed the 2024 deadline for a Qualified Charitable Distribution. 

Then: Make sure the client took an RMD for 2024 (if required to do so). Start planning now for 2025 QCDs, paying very close attention to the required process. QCDs are an excellent tool for your clients who’ve reached the age of 70 ½ to give to a designated, field-of-interest, or unrestricted fund (donor-advised funds are not eligible), but if the client waits until the last minute at year-end, there might not be time for the transaction to be completed by December 31 as required. Plus, QCDs executed early in the year can help avoid negative effects of the "first-dollars-out rule” so that the QCD can count towards your client’s 2025 RMD.

Watch for charitable giving opportunities in business succession planning.

If: Your client is beginning to consider exit strategies for a closely-held business.

Then: Reach out to the community foundation right away. Gifts of closely-held stock to a charitable fund can be a very useful component of a business succession plan. That’s because a client can gift shares of the business, which in turn means that no capital gains tax will apply to the gifted portion when the business eventually sells. The proceeds of the gifted shares flow into the fund to be used for your client’s charitable priorities. Keep in mind that timing is crucial; if a deal is in the works at the time the shares are transferred to the charitable fund, the charitable deduction is in jeopardy. 

Consider gifts of appreciated stock early in the year.

If: Your client’s stock portfolio made big gains last year.

Then: Evaluate whether it might be wise to make gifts of appreciated stock to a fund at the community foundation early in the year, rather than waiting toward the end of the year. If certain stock positions are high right now, it’s worth considering whether a gift in the very near future could be a good move. As a reminder, gifts of stock to a public charity are eligible for a charitable deduction in the amount of the stock’s fair market value at the time of transfer. And, when the stock is sold so that its proceeds can be deployed to further your client’s charitable goals, no capital gains tax will apply.

Our goal is to be your go-to sounding board for any client situation where charitable giving is an option. Please reach out anytime you and a client are discussing philanthropy. In most cases, the community foundation can help. Even if our tools are not a fit, we will point you in the right direction! 

For clients who love local causes, the community foundation is the place

by Staff Name, Director of Charitable Giving

Most of your philanthropic clients likely support a wide variety of charities year after year. The causes they support represent a range of motivations, including personal experience, a role as a volunteer or board member, family tradition, or alignment with values and community priorities. 

Many of the charitable organizations your clients support are local. That’s important to note because it means that your clients are especially well-positioned to lean into the community foundation’s unique position as the hub for charitable giving and local knowledge. Here are three reasons that matters:

–Clients can tap into the team’s knowledge about specific organizations, including financial information, data about the impact of a charity’s programs, and observations of an organization’s areas of greatest need.

–Clients can choose from a variety of fund types depending on what they’d like to achieve. A designated fund, for example, allows your client to set aside tax-deductible dollars that are dedicated to supporting a specific organization. Through the community foundation’s services, funds are distributed over time to the charity while the assets remaining in the fund are protected from the charity’s creditors. Another example is an unrestricted fund, which leverages the community foundation’s extensive research about the needs of the community and the nonprofit programs that are addressing those needs.

–Clients can work with the community foundation to leave a bequest to an endowment fund to support community needs for generations to come. As a perpetual organization, the community foundation ensures that charitable giving stays strong in our region to address important needs as they evolve over time.

Of course, if your client establishes a donor-advised fund at the community foundation, the fund can support local causes as well as causes across the country. As the hub for your clients’ charitable giving, our tools and our team are dedicated to helping your clients achieve their charitable goals both near and far. Working with the local community foundation, no matter what a particular client’s charitable priorities may be, is itself a strong show of support for philanthropy right here in our community.  

Wise giving: Advising clients on supporting fire relief efforts

by Staff Name, Director of Charitable Giving

In the wake of the devastating California wildfires that have ravaged communities around Los Angeles, many of your clients are understandably eager to provide assistance to those affected. This may be particularly true for your clients who are corporate executives and want their companies to participate in a meaningful way. Before your clients rush to donate, encourage them to consult the community foundation. Here’s why:

Local expertise, networked nationally 

Community foundations have unparalleled local knowledge and also frequently collaborate with other community foundations across the country, especially on disaster relief initiatives. This means that our team addresses local disasters when they occur here, and we also coordinate with community foundations in affected areas when disasters occur elsewhere. Our team can guide your clients toward the most effective and impactful ways to contribute to address gaps and avoid duplication of effort. 

Fraud avoidance

Our team can help your clients navigate the complex landscape of disaster relief organizations and initiatives. With numerous GoFundMe campaigns and charitable organizations emerging in response to the wildfires, it can be challenging for your clients to discern which efforts are legitimate and most effective. We can provide vetted information about reputable organizations and initiatives, helping your clients make informed decisions about where to direct their support.

Best practices for tax planning

As always, our team is here to offer suggestions for tax-efficient giving strategies. For instance, we can help you and your clients learn more about qualified disaster relief payments under Internal Revenue Code Section 139, which offers significant tax advantages for both donors and recipients. These payments are not considered gross income for the recipient and are tax-deductible for the donor, making them an attractive option for clients looking to maximize the impact of their contributions.

Long-term strategies

We’ll help your clients think strategically about long-term recovery efforts. While immediate relief is crucial, the recovery process from such devastating wildfires will take years. Our team can advise your clients on how to structure donations to support both immediate needs and long-term rebuilding efforts, ensuring that support continues even after the initial media attention has faded.

As always, our team helps your clients ensure that their contributions are not only generous but also strategic and impactful. We’ll collaborate with our community foundation colleagues in affected communities to support a journey of recovery and resilience.

The team at the community foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.

2025's legislative menu, playing the long game, and happy clients

Hello from the community foundation! 

We hope your 2025 is off to a good start!

What a wonderful year-end to 2024, full of many opportunities to work with attorneys, CPAs, and financial advisors to help ensure that clients’ charitable giving goals and tax-planning goals were achieved. We are honored to be your first call when the topic of charitable giving pops up in a client meeting.

Here’s what’s trending to kick off the new year and your work with clients who’ve made philanthropy an integral part of their lives:

–What a year it will be where tax policy is concerned! As advisors gear up for potential changes ushered in by a new administration, the community foundation has your back. We’ll keep you updated on legal developments that could impact the charitable strategies you recommend to clients. In the meantime, the community foundation is happy to share a quick refresher on what may be on the horizon in 2025. 

–Budgeting is always a hot topic early in the year when it comes to all things money-related, and charitable giving is no exception. The community foundation offers tips to help your clients think about adopting a year-long plan for charitable giving that can alleviate stress on both of you.

–Every attorney, CPA, and financial advisor wants clients to be happy! Did you know that talking about charitable giving can help make that happen? Consider the team at the community foundation to be an extension of your team to help structure charitable giving plans that meet your clients’ philanthropic goals, giving everyone a lot to smile about.  

As always, it is our honor and pleasure to work with you and your clients. Thank you for partnering with the community foundation. Happy New Year! 

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TRENDING TOPICS

Sifting through it: What’s on the legislative menu that could impact charitable giving?

by Staff Name, Director of Charitable Giving

We all know that the new year and a new administration brings lots of potential change. So what is going on that you need to know about to serve your charitable clients? 

At the top of the list of issues we’re watching is what might happen with the Tax Cuts and Jobs Act (TCJA) of 2017. As a quick refresher, the TCJA introduced several changes that significantly impacted charitable giving in the United States. These changes are set to expire at the end of 2025, and their potential extension factors into charitable planning techniques.

You’ll no doubt recall that the TCJA lowered individual income tax rates across the board, which in turn decreased the tax savings for each dollar donated, making charitable contributions slightly less attractive from a tax perspective. What’s more, TCJA provisions nearly doubled the standard deduction. (In 2025, the standard deduction is $15,000 for single filers and $30,000 for a married couple filing jointly.) This increase led to a dramatic reduction in the number of taxpayers who itemized their deductions. As a result, fewer taxpayers could claim charitable deductions, potentially discouraging giving among those who previously itemized. Indeed, research estimated that U.S. charitable giving fell by about $20 billion in 2018, the first year the TCJA was in effect. 

In addition, the TCJA roughly doubled the estate tax exemption, which has reached $13.99 million per person for 2025. The higher exemption has diluted purely tax-driven motivations for charitable giving among your wealthy clients. With fewer estates subject to tax, many advisors are working with a smaller pool of clients for whom charitable bequests are a useful technique for reducing taxable estates. 

Naturally, tax policy plays a role in your clients’ charitable giving behaviors, and certainly the giving behaviors following TCJA reflected tax policy’s influence. Nevertheless, studies have shown that most donors are motivated by factors other than saving taxes. Reasons for giving include a sense of duty to give back to society, a desire to tackle inequality, personal passion for specific charitable causes, religious beliefs, and dedication to supporting those less fortunate. Your clients who give to charity benefit emotionally from their gifts, and of course they like knowing that they are helping others and strengthening community ties. While tax benefits certainly are part of a client’s decision-making process, they’re likely a secondary consideration rather than the primary reason for giving. Indeed, even with tax benefits, your client will always end up with less money after making a charitable contribution, signaling that financial gain is not the main driver of philanthropy. Keep this in mind as tax developments unfold. 

Despite the many unknowns, what we do know is that something will happen in 2025 that influences charitable planning. Although TJCA provisions are set to expire at the end of 2025, it’s too soon to determine exactly how you should advise your clients about their charitable planning strategies. Note three potential outcomes of tax policy developments this year:

–If lawmakers extend the current TJCA provisions, existing patterns of charitable giving are likely to continue, with a potentially continued reduction in overall donations due to the higher standard deduction and estate tax incentives that motivate only ultra-affluent clients.

–If the TCJA’s provisions expire without replacement, and the tax code reverts back to pre-TJCA rules, it could lead to an increase in charitable giving as more taxpayers return to itemizing deductions and face higher marginal tax rates. Plus, a lower estate tax exemption would create a strong incentive for more of your clients to pursue lifetime and legacy gifts to charity to reduce taxable estates. 

–New tax legislation could introduce different incentives for charitable giving. For example, the proposed Charitable Act aims to create a universal charitable deduction, which could encourage giving across all income levels. For an uplifting read that includes compelling points about the role of the nonprofit sector and the history of charitable giving, check out this letter that was issued late last year to congressional leaders urging them to enact a charitable deduction for taxpayers who do not itemize. 

Of course, we’ll keep you posted! In the meantime, please reach out to strategize about individual client situations. The team at the community foundation is here to help you structure charitable plans to empower clients to achieve their philanthropic goals, with or without a tax deduction. 

Playing the long game: Encouraging your clients to plan ahead in 2025

by Staff Name, Director of Charitable Giving

Your clients (and you!) may still be recovering from a hectic end to 2024, but don’t let that stop you from helping families get a jump on their charitable planning for 2025. 

As compelling as year-end giving may be, perhaps even more compelling are the reasons for planning and launching a charitable giving strategy early in the year–even in January. Benefits of a year-long giving strategy include:

–Helping nonprofit organizations meet their budgets all year long, which can save them from worrying as much about whether constituents’ ongoing needs can be addressed.

–Leveraging employer matching gifts programs early in the year when dollars are available and there is plenty of time to process the paperwork.

–Increasing predictability of cash flow and therefore being proactive, not reactive, in supporting the causes your clients love. Your clients might even consider setting up automatic contributions to their donor-advised or other types of funds at the community foundation to formalize this component as part of an ongoing plan.

–Taking advantage of plenty of time to learn more about the charities a client plans to support so that a client can be an even more informed and impactful donor, including fully utilizing the community foundation’s expertise and resources.

–Giving the client (and you) time to include children and grandchildren in the charitable giving conversation and tax-planning structures as a learning experience for the whole family.

–If your client is over 70 ½, being able to avoid the year-end scramble to process a Qualified Charitable Distribution (QCD) from an IRA directly to an eligible charity, such as an unrestricted or field-of-interest fund at the community foundation, by executing a QCD in the first quarter.

–Leaving enough time to explore options for more complex giving techniques, such as gifts of closely-held business interests or charitable remainder trusts, that might provide tax benefits as well as meet a client’s charitable goals, rather than waiting until the last minute when it may be hard for everyone to coordinate calendars.

As always, the community foundation is here to help. Please reach out to our team to learn more about how your clients can make the biggest difference with their charitable dollars, and how the community foundation team can help you ensure that your clients are able to fully carry out their charitable wishes for 2025. You and your clients will both be glad you planned ahead to help favorite organizations fulfill their missions throughout the entire year, as well as maximizing tax benefits and avoiding December’s crunch time.

Want happy clients? Talk about charitable giving.

by Staff Name, Director of Charitable Giving

Over the years, more than a handful of attorneys, CPAs, and financial advisors have shared with the community foundation team that their happiest clients seem to be those who’ve incorporated charitable giving into their estate and financial plans. Whether or not you believe this phenomenon is a “chicken or the egg” dilemma, it’s hard to dispute that philanthropy offers both emotional and rational upsides to your clients. Advisors who lean into these benefits stand a strong chance of being viewed by their clients as effective, impactful, and delivering well-rounded services to improve clients’ lives and give them peace of mind. 

Despite these advantages, many advisors lack confidence in discussing philanthropy with clients. A survey found that only 5% of advisors felt "very confident" in this area, with 72% not including philanthropy in their initial fact-finding conversation with clients. This gap represents a significant opportunity for advisors to enhance their services and strengthen client relationships through philanthropic discussions.

Keeping clients loyal and engaged with your services is just one of many reasons to talk with clients about charitable giving. A recent Wall Street Journal article sheds light on the ways charitable giving can have positive effects on both mental and physical health. 

Notably, the article makes these points:

–Donating to charity can lead to improved mood, lower blood pressure, and potentially a longer life.

–The act of giving may trigger a release of serotonin and dopamine, hormones associated with happiness, while reducing cortisol levels.

–Brain scientists and economists have conducted studies supporting these health benefits of charitable acts.

–Research suggests that the positive feelings associated with giving may contribute to these health improvements.

The article implies that engaging in charitable activities could be a way to enhance overall well-being, suggesting that generosity might have tangible benefits beyond just helping others.

Of course, not every client will have exactly the same experience with charitable giving, and of course, charitable giving is above all primarily motivated by a client’s desire to help others rather than solely for personal benefit. Still, it’s critical for advisors to be aware of the unique role charitable giving can play in a client’s life.

The community foundation is here for you! Please reach out anytime you are working with a client who is charitably-inclined. Our highly-trained, professional staff can help navigate both the tax planning complexities as well as the emotional side of giving to ensure that your clients achieve their financial goals as well as their goals for making a difference. 

The team at the community foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.

Your next tax planning move, FAQs for QCDs, and a cheat sheet

Hello from the community foundation, and happy holidays! 

We appreciate the opportunity to work with so many of you as you build meaningful and tax-savvy charitable giving plans for your clients. The team at the community foundation is here to be your first call anytime the topic of philanthropy pops up in your conversations. 

As always, we’re committed to keeping you up-to-date on tax and legal developments related to charitable giving so that you can be even more confident in your recommendations to clients. Here are three topics that are rising to the top of the list as 2024 slips away into 2025:

–All eyes are on what might happen with Federal tax laws under the incoming administration. Many advisors and their clients have found themselves in an uncomfortable state of limbo. Diving deeper into your clients’ charitable planning strategies is a good use of your time right now, especially revisiting the advantages of naming a fund at the community foundation as the beneficiary of an IRA.

–Qualified Charitable Distributions, or “QCDs,” continue to be popular among those who are 70 ½ and older. But do you still scratch your head just a little when you hear about QCDs? We get it–there are a lot of moving parts. To make it easier, the community foundation has put together a punch list of FAQs.

–Do you ever wish you could skim a “charitable giving cheat sheet” to quickly determine which charitable planning tools at the community foundation might be a good fit for a particular client? We’ve got you! Check out three examples of “if this, then that” recommendations for charitable giving. 

Thank you for the opportunity to work together! We wish you all the best for the season and look forward to your emails, phone calls, and questions about charitable giving techniques during this busy time of year. 

–Your community foundation

Estate tax planning: What’s your next move?

As attorneys, CPAs, and financial advisors, you’re very aware of potentially significant upcoming changes to the tax laws that could impact your high net-worth clients. Whether or not a post-election Congress takes action to prevent the estate tax exemption sunset at the end of 2025 will potentially affect the way you design your clients’ wealth transfer strategies. 

During this phase of uncertainty, it may be useful to reflect on historical estate tax changes to see how similar situations have been resolved in the past, while at the same time taking a practical approach and advising clients that, while commentators may speculate, it is still impossible to accurately predict what might happen. Estate taxes certainly will continue to be on the minds of leaders in the charitable sector for many months to come. 

As you and other tax planning professionals watch and wait, it is important to keep charitable planning high on your list of strategies that could help blunt the impact of a lower estate tax exemption if the sunset were to occur. That’s because gifts to charities are deductible from a client’s taxable estate. Even during this era of uncertainty, be sure to keep in mind an important planning technique for your charitably-inclined clients that delivers multiple tax benefits and offers some degree of flexibility: Naming a charity, such as a fund at the community foundation, as the beneficiary of an IRA or other qualified retirement plan. 

Here’s why this is such a powerful technique, especially now:

Income tax savings. When your client designates a fund at the community foundation as the beneficiary of an IRA, the fund receives the assets without having to pay income taxes. This is because charities are tax-exempt entities, allowing them to receive funds from qualified retirement accounts tax-free after your client’s death. This is not the case with qualified retirement plans flowing to heirs; the income tax hit can be significant.

Estate tax deduction: Naming a charity as a beneficiary of a retirement plan results in an estate tax charitable deduction, which reduces any applicable federal estate taxes. This means that the full value of the IRA can flow into your client’s fund at the community foundation free from the estate tax burden.

Flexibility. Clients can revise IRA beneficiary designations anytime during their lifetimes. So, as the end of 2025 draws closer, a client can update an IRA beneficiary designation to name a fund at the community foundation, which would protect against a drop in the estate tax exemption. If the sunset does not occur, the client could of course revise the beneficiary designation to leave a greater portion of retirement plan assets to heirs. Remember, though, that the income tax hit will still apply to proceeds flowing to heirs. That’s why many of your charitable clients will choose to leave IRAs to their funds at the community foundation even if the estate tax exemption does not sunset. And, of course, many clients truly want to leave a legacy and would love to incorporate charitable giving into their estate plans regardless of what happens with the tax laws. As tax and estate planning advisor, it is your responsibility–and opportunity–to help clients achieve their philanthropic wishes.   

Please reach out to the team at the community foundation to dive deeper into the ways you can help your clients fulfill their charitable goals, especially during this time when future tax laws are up in the air. We are here to help! 

QCDs: $105,000, $108,000, and more things to smile about

As you and other attorneys, CPAs, and financial advisors put the finishing touches on implementing clients’ year-end charitable giving plans, you may have a moment when it hits you: “Wait, how exactly does a Qualified Charitable Distribution work?” 

That’s a great question, and you are not alone if you’re asking. Even though QCDs are well-covered in financial media, they’re complex enough that it’s hard to remember the nuances when you’re hit with a situation where a client might benefit.

The team at the community foundation is here for you! Please reach out with any of your charitable giving questions, including the most common questions about QCDs:

“Is an IRA the only eligible source for Qualified Charitable Distributions?”

Short answer: Almost.

Long answer: An individual can make a Qualified Charitable Distribution directly to an eligible charity from a traditional IRA or an inherited IRA. If the individual’s employer is no longer contributing to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, the individual may use those accounts as well. In theory, a Roth IRA could be used to make a QCD, but it is rarely advantageous to do that because Roth IRA distributions are already tax-free.

“What is the difference between a QCD and an RMD?”

Short answer: Quite a bit! But a QCD can count toward an RMD. 

Long answer: Everyone must start taking Required Minimum Distributions (“RMDs”) from their qualified retirement plans, including IRAs, when they reach the age of 73. RMDs are taxable income. The Qualified Charitable Distribution, by contrast, is a distribution directly from certain types of retirement plans (such as IRAs) to certain types of charities. A QCD can count toward the taxpayer’s RMD for that year. And because the QCD goes directly to charity, the taxpayer is not taxed on that distribution.

“Can a taxpayer make a Qualified Charitable Distribution even if the taxpayer is not yet required to take Required Minimum Distributions?” 

Short answer: Yes–within a very narrow age window. 

Long answer: RMDs and QCDs are both distributions that impact retirement-age taxpayers, and it would seem logical that the age thresholds would be the same. Under the SECURE Act, though, the required date for starting RMDs shifted from 70 ½ to 72 and is now up to 73 (which is better for taxpayers who want to delay taxable income). A corresponding shift was not made to the eligible age for executing QCDs; that age is still 70 ½ (which benefits taxpayers who wish to access IRA funds to make charitable gifts even before they are required to take RMDs).

“Can my client direct a QCD to a fund at the community foundation?”

Short answer: Yes, if it’s a qualifying fund.

Long answer: While donor-advised funds are not eligible recipients of Qualified Charitable Distributions, other types of funds at the community foundation can receive QCDs. These funds include unrestricted funds, field-of-interest funds, designated funds, and endowment funds established by nonprofit organizations. 

“How much can my client give through a QCD?” 

Short answer: $105,000 per year in 2024, increasing to $108,000 in 2025.

Long answer: A Qualified Charitable Distribution permits a client (and a spouse from a spouse’s own IRA or IRAs) to transfer up to $105,000 in 2024 (and $108,000 in 2025) from an IRA (or multiple IRAs) to a qualified charity. So, a married couple may be eligible to direct up to a total of $210,000 in 2024 to charity from IRAs and avoid significant income tax liability. 

The community foundation is here to help you and your clients tap the potential of QCDs. Please reach out! We’d love to talk about a QCD strategy for your clients’ immediate gifting needs and beyond.

If this, then that: Your charitable planning cheat sheet

At the community foundation, we’ve recently been asked by attorneys, CPAs, and financial advisors for “cheat sheet” resources to make it easy to determine which type of charitable planning tool is best for a particular client. We love that idea! We’re always happy to be a sounding board for any client situation where charitable giving is an option. Please reach out anytime you and a client are discussing philanthropy. To get your wheels turning, here are three scenarios that have popped up frequently over the last few weeks.

Streamline and tax-optimize charitable giving

If: Your client supports many different charities every year…

Then: A donor-advised fund at the community foundation can be an excellent tool to help a client organize their giving to favorite charities, such as local organizations, places of worship, and an out-of-state alma mater. Clients appreciate how easy it is to support multiple charities while the community foundation’s systems keep track of everything. Plus, clients can give stock and other appreciated assets to their donor-advised funds, often avoiding capital gains tax and simplifying tax receipts to provide their accountants when tax time rolls around. 

Support a specific charity while minimizing risk

If: Your client has supported a particular charity for many years, intends for that support to continue, and also wants to be sure that the funds are used effectively …

Then: Through a designated fund at the community foundation, a client can make tax-deductible gifts–during life and through estate gifts–that are set aside to be used exclusively for a particular organization. The community foundation makes distributions from the fund according to the client’s wishes. An advantage of a designated fund is that the assets are out of creditors’ reach if the charity were to run into financial trouble. Plus, a client who is 70 ½ or older can make Qualified Charitable Distributions up to $105,000 per year (increasing to $108,000 in 2025) from IRAs to a designated fund. 

Leave a charitable bequest and reap significant tax benefits

If: Your client intends to provide for charities in an estate plan and owns an IRA or other qualified retirement plan … 

Then: By naming a fund at the community foundation as the beneficiary of a qualified retirement plan, your client achieves extremely tax-efficient results. Not only is estate tax avoided on the retirement plan assets flowing to the charitable fund, but income tax is also avoided. Indeed, the income tax hit on retirement proceeds left to heirs can be steep. 

The bottom line here is this:

If you encounter any situation with a client where charitable giving could be involved …

Then please reach out! Most of the time, the community foundation can offer a solution that meets both the client’s tax and estate planning goals and the client’s objectives for supporting their favorite charities. At the very least, we can point you in the right direction.

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Three skimmable insights, what’s next for tax laws, and multiple strategies for ultra high net worth clients

Hello from the community foundation! 

Thank you for the opportunity to work together as you serve your philanthropic clients. We are grateful for the many ways our team collaborates with attorneys, CPAs, and financial advisors. 

As always, we’re committed to staying on top of legal developments and curating that content to save you time. We’re covering three topics in this issue that have risen to the top of our research:

–If you only have 60 seconds to get up to speed, check out our insights and tips for hurricane relief, how your clients define “wealthy” and why it matters for their philanthropy, and important year-end giving reminders about ways the community foundation can help.

--You and other financial and tax advisors are on pins and needles about what might happen with the tax laws and especially the estate tax exemption. The community foundation offers factors to consider as you advise your clients … and as you continue to watch and wait. 

--Your client base is more and more likely to include ultra high net worth families. It’s important to understand how multiple charitable giving vehicles, including a donor-advised fund at the community foundation as well as possibly a private foundation, play a role in a client’s overall philanthropy strategy.

Whether we are working together to structure a family’s donor-advised fund, a gift of real estate, endowed support for a favorite nonprofit, or a Qualified Charitable Distribution to a field-of-interest fund at the community foundation, our team enjoys and appreciates every minute. We love serving as your first stop for all things philanthropy.

Wishing you and your family all the best for the Thanksgiving holiday,

Your community foundation

Three insights worth a quick peek

You’re busy as 2024 draws to a close! The team at the community foundation is committed to researching, curating, and keeping you up-to-date on the latest trends and developments that could impact your clients’ charitable giving strategies. If you only have 60 seconds, we recommend scanning these three quick updates. 

Best practices for donating to hurricane relief efforts 

As your clients continue to support hurricane relief efforts, keep in mind that even in disaster response situations, tax rules still come into play. Make sure you’re aware of how the IRS addresses “qualified disaster relief” related to both donors and recipient charitable organizations. Please reach out to the team at the community foundation anytime to learn more about how your clients can ensure that their hurricane relief dollars are making the biggest difference possible. When disaster strikes our region, we help facilitate charitable giving to legitimate efforts that make a real impact. And when disaster strikes elsewhere, we help support our community foundation partners across the country.  

Charitable giving can help bridge generations’ definitions of “wealthy”

The recently-released Bank of America Private Bank Study of Wealthy Americans is a must-read (or at least a must-skim) report because it offers insights into shifting views on wealth, and it also highlights a disconnect in inheritance expectations. Notably, younger individuals tend to rally around a definition of “wealthy” in terms of having the means to live a life of purpose and make a difference. Older generations are more likely to define “wealth” in financial terms. Important for charitable planning is the finding that older generations may not be planning to leave the inheritance that their children and grandchildren expect. Working with the community foundation to help clients establish a multi-generational charitable giving plan makes it easier to get expectations out in the open and keep the entire family meaningfully involved in the family’s wealth over the long term. 

Must-know tips for clients’ year-end giving 

We know you’ve got a lot on your plate as the end of the year approaches. Even if charitable giving does not appear on the surface to be a burning issue in client meetings, it’s still crucial that you keep in mind a few essential charitable giving techniques because your clients do care. Please scan these three important techniques, and please reach out to the community foundation on any matter related to charitable giving. 

–Encourage clients to consider giving highly-appreciated stock, not cash, to their funds at the community foundation, thereby maximizing tax benefits.

–Help clients evaluate a “bundling” or “bunching” technique to make gifts to donor-advised funds at the community foundation, exceeding the currently high standard deduction to be able to itemize. Then, donor-advised fund assets can be used over the next few years to support clients’ favorite charities.

–Help clients who are 70 ½ and older make Qualified Charitable Distributions (“QCDs”) directly from IRAs to designated or field-of-interest funds (donor-advised funds are ineligible recipients) at the community foundation–up to $105,000 per spouse. Plus, QCDs satisfy RMDs! 

Reach out to the community foundation team today! November is the time to set things in motion so you don’t get caught up in the year-end rush. We are here for you. 

What now? Why the elections won’t immediately change tax laws

Many eyes are on the election aftermath seeking clues about what might happen to the tax laws. Of particular interest is the much-analyzed sunset of the higher estate tax exemption, scheduled for the end of 2025 absent intervening legislation. “Absent intervening legislation” is the key, of course. The November 2024 elections will not immediately change estate tax laws, and it’s a long road from here to there.

For starters, the new Congress will not be sworn in until January 2025, and only after the session begins will Congress initiate the budget reconciliation process which is ultimately required to make tax law changes. The budget reconciliation process typically starts with the President submitting a budget to Congress. Then, both chambers of Congress pass budget resolutions with reconciliation instructions. Then, committees draft legislation to meet the budget targets, and the budget committees consolidate the bills into a single omnibus bill. Then, each chamber votes on its respective omnibus bill.

What all of this means is that the status of the estate tax exemption is still very much up in the air. And this means that financial, tax, and estate planning is going to be difficult for many more months. With the estate tax exemption set to drop from $13.61 million per person in 2024 to approximately $7 million per individual on January 1, 2026, a lot is at stake. Should a high-net worth taxpayer start making aggressive gifts now to family members and a donor-advised or other type of fund at the community foundation, anticipating that the sunset will indeed occur? Or take a “wait and see” approach? 

Planning is further complicated by the dangers of waiting until the last minute. Not only is it tough to pull off a complex estate plan or business succession plan quickly, but it’s also dicey because the IRS likely will be on the lookout for situations to invoke the step transaction and reciprocal trust doctrines. 

So what can you do? First and foremost, if you are working with charitably-inclined families who would be impacted by the estate tax exemption sunset, please reach out to the community foundation right away to start looking at options. And if you aren’t sure whether a client is charitably inclined, you absolutely must ask them. It’s always important to talk about charitable giving, and especially right now when the stakes are so high. 

We look forward to many conversations with you and your clients as estate tax developments unfold! 

Navigating multiple charitable strategies for ultra high net worth families

Charitable giving is always an important strategy to discuss with your clients. Many high net worth individuals are philanthropic, of course, and charitable gifts reduce taxable income and avoid estate taxes. Charitable giving strategies are particularly relevant as you and your clients address the possibility of increases in income and capital gains taxes for high earners as well as increased estate taxes due to the looming exemption sunset.

What’s also notable is research indicating that the number of “ultra high net worth" families (over $30 million) has increased dramatically over the last two decades. Globally, 157,000 individuals represented $14.2 trillion in 2004 and by 2024, 426,000 individuals represented $49.2 trillion of wealth. Fast forward to 2027, and this group is expected to grow to over 500,000. America alone is home to 756 billionaires and many of the world’s millionaires–nearly 22 million people. 

So why does this matter to you? It matters because wealthy families will rely increasingly on their attorneys, CPAs, and financial advisors to help them navigate savvy tax planning strategies, including charitable giving. And many of these families are very generous, so don’t underestimate your clients’ desire to get involved in charitable giving. 

Indeed, you may already be working with families who use private foundations to fulfill their charitable giving goals. In many instances, these private foundations were established by previous generations before donor-advised funds became widely available. As donor-advised funds become more popular, for lots of good reasons, please reach out to the team at the community foundation to explore a parallel strategy where your clients can carry out their charitable intentions using both a donor-advised fund and a private foundation.   

In some cases, your clients may want to consider closing a private foundation and transferring the assets to a donor-advised fund because of the many administrative and tax benefits, as well as the value of being able to lean on the knowledgeable team at the community foundation. Our team can help walk through the steps for shutting down the private foundation, which include securing board approval, making sure final expenses will be covered, transferring the assets to a donor-advised fund, filing the appropriate dissolution documents with the state, and submitting the private foundation’s final tax return reporting its dissolution and transfer of assets. 

Whether your client pursues philanthropic goals through a private foundation, donor-advised fund, or combination of both, we are here to help! Please reach out to our team to discuss the ways your clients can support causes that align with their values and passions, create a lasting legacy that extends beyond their lifetime, involve multiple generations in philanthropic efforts, and foster an overall sense of family unity and shared purpose.

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Tax laws and the great unknown, event tickets, and tips for client conversations

As the end of the year draws closer, we’re looking forward to working with so many of you to structure and fulfill your clients’ charitable giving goals for 2024. The community foundation is honored to be your very first call whenever the topic of charitable giving pops up during client conversations. What’s really exciting is to hear from attorneys, CPAs, and financial advisors that you’re no longer waiting for the topic to pop up because you’re bringing it up yourself!

Here’s what’s trending this month:

–Our hearts go out to the millions of people affected by Hurricane Helene. Community foundations in the affected areas and across the country are making it as easy as possible to donate to relief efforts. Please contact the team at the community foundation to learn more about how you and your clients can help swiftly and most effectively. 

–We’re excited about the first ever DAF Day, a national campaign to encourage giving from donor-advised funds. The community foundation is honored to work with so many individuals, families, and businesses to establish donor-advised funds to organize their giving. A donor-advised fund can be a key component of a client’s overall philanthropy plan. Other components often include field-of-interest funds, designated funds, and unrestricted funds, as well as bequests in your clients’ estate plans through a will, trust, or IRA beneficiary designation.

–Make a note on your calendar of other key dates that may be relevant to your clients, including National Estate Planning Awareness Week during October 21 - 27, National Philanthropy Day on November 15, and GivingTuesday on December 3. These well-publicized events make it even easier to bring up charitable planning during client conversations.  

In our latest articles, we’re diving deeper into three key topics:

–Election year dynamics make it even harder to predict potential changes to tax laws that could impact your clients’ charitable giving plans. The community foundation offers high-level observations about the major areas of tax policy that could be impacted by election results. As always, we’re committed to keeping you up to date, even in the absence of a crystal ball. 

–Event season is ramping up, and that means your clients may have questions about the tax deductibility of buying tickets or purchasing a table. Indeed, supporting a charity event is not as straightforward as you might think. The community foundation is happy to help your clients support their favorite causes without running afoul of IRS rules.

–Clients expect you to ask them about charitable giving. “Oh I do that,” you might say to yourself. But don’t be so sure! Clients may have a different impression. The community foundation offers simple tips and techniques to help you meet clients’ expectations for including philanthropy in the conversation.

Thank you so much for the opportunity to work with you and your charitable clients. It is our honor and pleasure! We look forward to your emails and phone calls as 2024 winds down, and we’re excited about continuing our conversations in 2025 and beyond. 

–Your community foundation

Into the great unknown

Humans crave certainty, and that is certainly not what we have right now during election season, especially where taxes are concerned.

Your clients who support charitable causes may be wondering how the election outcomes might impact their philanthropic plans. You’re probably wondering that, too!

Of course, no one has a crystal ball. It is impossible to predict tax law changes, and that will still be the case to some extent even after the elections. So much can change between a tax proposal and what is ultimately enacted into law. Still, you’d at least like to have a general idea. In that spirit, let’s break down at a very high level where the proposals are trending and what might happen with charitable giving depending on the outcome of the November elections.

Capital gains tax 

–Donald Trump has not yet formally proposed a new tax policy on capital gains.

–Kamala Harris has called for an increase on the top long-term capital gains tax rate to 28% for taxable income above $1 million. This change could translate into more incentive to give appreciated assets to funds at the community foundation and other charities. 

Income tax

–Trump could make income tax cuts permanent. These cuts are currently subject to next year’s scheduled sunsetting of provisions in the 2017 Tax Cuts and Jobs Act. Note that in this scenario, the higher standard deduction under the Act would presumably continue, reinforcing what many have observed as a chilling effect on charitable donations. 

–Harris has proposed expanding several tax credits, but sources opine that it is still unclear whether the higher standard deduction would be allowed to sunset.

Estate tax

–Trump has indicated that he will prevent the estate tax cuts (ie., higher estate tax exemption) from expiring. 

–Harris appears to signal that she would increase estate taxes, perhaps leaning toward the policies laid out in President Biden’s Fiscal Year 2025 Budget Proposal, which modeled tightening the estate tax. If the estate tax exemption were to drop according to the sunset provisions under current law, or if other changes were to increase the estate tax, high net-worth taxpayers would have a greater tax incentive to make large charitable gifts and bequests.

Remember that it’s not only the presidential election that will impact tax changes. Passing actual laws depends on the make up of Congress, too.  

As always, the team at the community foundation stays on top of legal developments impacting techniques that are a good fit for your clients’ charitable planning. We’ll keep you posted during election season and throughout the year. 

Event tickets: Beware of the split

Many of your philanthropy-minded clients certainly enjoy attending fundraising events for their favorite charities. Especially as community events start ramping up this fall, you’ll want to be aware of a little wrinkle in the IRS rules that may surprise your clients so much that they ask you about it. 

Here’s how this might go.

Client: “We wanted to buy a table at the fall gala through our donor-advised fund, but the team at the community foundation said that’s not possible and they suggested alternate ways of meeting our goals. What’s up with that?”

You: “Ummmm ….” 

And no one could blame you for that response! The rules behind this are obscure and confusing, even by IRS standards.

Here’s what’s going on: The IRS frowns on donor-advised funds paying for any part of an event ticket to a charitable fundraiser–even if a portion of the ticket is tax-deductible. 

Big picture, the IRS is likely striving for administrative simplicity to enforce the longstanding tax principle that a taxpayer cannot deduct value given to a charity that is effectively transferred back to the taxpayer. At a typical event, of course, your client receives food, drinks, entertainment, and even t-shirts and other fun swag. The IRS knows this!  

The IRS’s commentary on this topic is not new; IRS Notice 2017-73 addresses a concept known as “bifurcated gifts,” meaning a portion of a gift is tax deductible and the other is not. The background here is that the IRS has taken the position that Internal Revenue Code Section 4967 prohibits donor-advised grants from conferring “more than incidental” benefits to donor-advised fund holders. In its 2017 Notice, the IRS expresses its opinion that donor-advised fund grants that enable attendance or participation in a charity-sponsored event (such as buying tickets or a table) do indeed provide more than just an incidental benefit, even if the taxpayer pays out-of-pocket for the non-deductible portion of the ticket. 

Ever since the notice was released, it’seen on the radar of tax professionals, and many predict that the IRS will eventually formalize its opinion by issuing new regulations. It’s wise to keep an eye on this because the penalties certainly are not negligible and include excise taxes imposed on the donor advisor and potential penalties for donor-advised fund programs that knowingly authorize such payments.

There is good news, though! 

The team at the community foundation is on it! We understand the rules inside and out, and we are here to help your clients stay compliant and achieve their charitable goals. In situations like this, we help your clients structure gifts from their donor-advised funds to support general event sponsorships if the client declines all benefits, or even recommend that the client pay the ticket portion from their personal funds and use donor-advised funds to give separate and additional amounts for general support unrelated to the event specifically. We can also talk with your client about how to participate in rallies for outright donations during a fundraising event and ensure that the client is not receiving any benefit in return.

Please reach out anytime! We’re happy to help! 

At a loss for words? Tips for starting a charitable giving conversation

Attorneys, CPAs, and financial advisors certainly are not strangers to tough questions. Indeed, the mix of money, family, and mortality is a potent combination that almost always creates an emotionally-charged planning environment, whether the matter at hand is tax planning, updating wills and trusts, or structuring retirement portfolios.

Why, then, are so many advisors reluctant to bring up charitable giving during client meetings when the topic itself is so uplifting? In some cases, you may feel like you don’t know enough about the technical tax planning aspects of charitable giving to be able to offer sound advice. In other cases, you may be concerned about taking the planning process off course into areas where the client doesn’t want you involved. Or maybe you don’t feel you have a good enough grasp of the client’s big picture to truly recognize opportunities for charitable planning that are a win-win for the client’s favorite causes and the client’s tax and financial plan. 

Guess what? There is no need to worry! The community foundation has you covered. Consider the following:

Clients are expecting you to bring up charitable giving; studies reveal a disconnect between what clients and advisors assume and perceive. So if you think to yourself, “Oh, I asked about that,” think again because the client may disagree. Did you approach the question with sincere interest, or were you just checking a box? 

What’s important here is that the community foundation team is your technical back up! You absolutely do not need to know the ins and outs of the charitable deduction rules, the details of Qualified Charitable Distributions, or how a donor-advised fund or charitable remainder trust operates. If you’ve built an expertise around charitable giving in your practice, that’s terrific, but it is not necessary. Our team is just an email or a phone call away. Please reach out the moment a client expresses interest in charitable planning. We’re happy to support you and be part of the team to meet the client’s objectives. 

And this does not need to be hard. 

While plenty of resources offer excellent suggestions for how to bring up charitable giving in conversations, many advisors tell us that they have to keep it even more simple. We understand that you don’t have time to ask a briefcase full of questions. That does not mean, however, that you can’t have a meaningful conversation. Even just two minutes is plenty if you show genuine interest in the client’s intentions and connect the client to the community foundation. 

For example, the charitable planning part of a client meeting could be as simple as this:

“Okay! Now that we’ve taken a look at your retirement projections, beneficiary designations, and portfolio allocation, let’s check in on charitable giving. Bring me up to speed on your involvement with community organizations.” 

Then, let them talk. If they’re not involved in any community organizations, they’ll tell you. And if they are, they’ll tell you that, too. 

If the client is indeed involved in community organizations, let them know that you are happy to connect them to the team at the community foundation, or, better yet, tell the client that you’d be happy to invite a professional from the community foundation to your next meeting. Your priority as their advisor is to bring professionals to the table to help achieve their charitable giving goals. 

Of course, this sample dialogue is over-simplified for illustration purposes. But truly, it does not need to be much more complicated than that. Next time you meet with a client, give this simple approach a try. You might be surprised at how easy it is, and how much the client appreciates your interest in areas of their lives that go beyond dollars-and-cents transactions and legal documents. It is the community foundation’s honor to work with you and your charitable clients.

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Breaking through procrastination, closely-held stock gifts, and tips to stay current

The days are getting shorter! We’re already hearing from attorneys, CPAs, and financial advisors that you’re ready to get a jump on year-end charitable planning for your clients. Many thanks to those of you who have reached out! 

In the spirit of staying ahead of the curve, we’re covering three topics this month that can help you as you begin to talk with clients about the remaining “must do” items for 2024, including charitable giving.

–Procrastination is a very common human reaction to tasks that seem daunting. Estate planning, tax planning, and financial planning can sometimes fall into this category. Unfortunately, clients who put things off for too long often find themselves missing out on opportunities to further their goals. The community foundation offers tips for using charitable giving as a “gateway” topic for bigger conversations about essential year-end planning.

–Your clients who are business owners and who are also philanthropic will appreciate your suggestions about incorporating charitable giving into their succession plans. This is a good time to have that conversation in light of legal developments and upcoming tax law changes. The community foundation can help! 

–As always, the community foundation stays on top of trends that impact your work with your charitable clients. We’re sharing updates so you can stay current on popular planning techniques, how the election year may influence charitable giving, and what’s ahead on the calendar to help motivate your clients to complete their planning to do list. 

Thank you for the opportunity to work together! We are grateful.

–Your community foundation

Charitable planning can help ease client procrastination

“Nothing is so fatiguing as the eternal hanging on of an uncompleted task.”

–William James

Procrastination is a drain in ways that go far deeper than the incomplete task itself. We know this intellectually, but it can be so hard to break the procrastination habit. It seems that the more daunting the task, the harder it is to tackle. This surely is a major reason some of your clients routinely put off important planning discussions. And of course, many of those discussions are tax-sensitive, which means year-end can get very hectic and stressful for clients who wait until the last minute.

As the year begins to wind down, consider tapping into your clients’ philanthropic interests as a catalyst to motivate them to start addressing year-end planning items right now rather than waiting until November or December. You may discover that the uplifting topic of philanthropy makes it easier to at least start a conversation. Then, the conversation can evolve to include not only charitable giving topics, but also other tax planning topics that need attention. 

Here’s how this could work with a client:

–Review the charitable components of the client’s estate and financial plans, including provisions in wills and trusts, beneficiary designations, donor-advised funds, prior years’ tax deductions, and historical gifts to favorite charities.

–Reach out to the client to suggest that you meet–or at least jump on a call–to check in on 2024 charitable giving plans and other items.

–Open the conversation by briefly recapping the charitable planning components already in place and the client’s history of giving. Then ask the client about their plans for 2024.

–As you talk with the client about charitable intentions, bring up various charitable giving tools and opportunities that match those intentions. In each case, use the charitable discussion as a springboard for general tax planning items that need to be addressed before year-end. 

–For example, if a client who is over 70 ½ mentions wanting to support a particular need or organization in the community, you can suggest that you loop in the community foundation team to potentially establish a field-of-interest or designated fund, which can then receive distributions from the client’s IRA up to $105,000 annually per spouse. This, in turn, opens the door to discuss Required Minimum Distributions and other elements of retirement planning in general.

–If the client mentions that they are already dreading gathering tax receipts for 2024 charitable donations, suggest that the client consider setting up a donor-advised fund at the community foundation to serve as a convenient and rewarding “hub” for charitable giving. Going forward, the client can conduct the bulk of their giving using the donor-advised fund and avoid the mad scramble for receipts. If the client already has a donor-advised fund, make sure they know how to use it most effectively, and reach out to the community foundation team for help. What’s more, discussing charitable donation receipts presents a nice opening to remind a client about other paperwork that may need to be gathered or completed to meet overall estate and financial planning goals. 

–When your client talks about charities they plan to support before year-end, remind your client not to automatically reach for the checkbook. Most of the time, highly-appreciated marketable securities (or other highly-appreciated, long-term assets) are ideal gifts to a client’s fund at the community foundation or other public charity because the client is eligible for a tax deduction at the assets’ fair market value, and the proceeds from the sale of the assets will flow into the client’s fund at the community foundation free from capital gains tax. That means more funds are available to support the client’s favorite causes. Conveniently, the conversation about highly-appreciated stock can segue naturally into a conversation about overall stock positions.   

–Philanthropy topics can naturally lead into even more topics that are sensitive to year-end timing, such as annual exclusion gifts, estimated tax planning, and updating wills and trusts before the extended family gathers for the holiday or travels together overseas.

The community foundation team is here to help you serve your charitable clients every step of the way, every month of the year. We understand that late-December transactions are often unavoidable. The net-net is that we’re happy to work with you according to your clients’ schedules, whether that means getting a jump on a new year and processing stock gifts in February, helping you plan in September for year-end, or preparing fund agreements in December. It’s our pleasure to assist! 

Closely-held stock is having a moment

Giving stock is an important strategy for any private business owner to explore. Not only can these gifts help implement a business succession plan that calls for transferring the business to the next generation if that is your client’s goal, but gifts of stock can also help your business owner client achieve charitable goals and avoid estate tax. 

In light of recent legal developments and pending tax law changes, more and more financial and estate planning advisors are encouraging their clients to consider implementing gifts of closely-held stock to a fund at the community foundation or other public charity. Notably, two developments could have a big impact on your work with these clients: 

–The estate tax exemption sunset set to occur at the end of next year continues to loom large. Without intervening legislation, a lot more of your clients will need to wrestle with the reality that their estates likely will be subject to a hefty tax, causing many clients to rethink both the timing and methods to transfer business interests. Making gifts of closely-held business interests to a fund at the community foundation is likely to become more attractive to a broader cross-section of your client base.

–Valuation has always been a critical factor in any type of tax or estate planning. This is certainly still the case with substantiating the value of closely-held business interests that your clients transfer to a charity, such as a fund at the community foundation. And now, the additional wrinkle presented by the Supreme Court’s decision in Connelly v. United States makes things even more interesting. The Connelly decision impacts the way business interests are valued for estate tax purposes. In Connelly, the Supreme Court held that life insurance proceeds indeed ought to be included in the valuation of a company without offsetting the redemption obligation. This could translate to higher taxable estates for your business owner clients, creating further incentive to leave a portion of closely-held stock to charity. The decision is also a reminder that careful planning can potentially avoid pitfalls.

Please reach out to the community foundation to learn more about how our team can help as you work with your business-owner clients to navigate legal and tax developments that could significantly impact future plans for their privately-held companies. 

Looking ahead: Charitable planning techniques on the horizon

The community foundation team keeps a finger on the pulse of current events and legal developments that could impact the way you work with your charitable clients. Below are three notable items that you’ll likely want to keep in mind this fall.

Election year implications

Naturally, as a financial, legal, or tax advisor, you’re very interested in how the results of the November elections could impact tax laws. What you might not know, though, is how significantly an election cycle can impact nonprofits’ fundraising efforts. Keep this dynamic in mind as you meet with clients who serve on nonprofit boards. These clients will appreciate the fact that you’re aware of the challenges. They’ll also be glad to know that you’re happy to loop in the community foundation team as a resource to structure and accept complex gifts as charities double down on fundraising efforts this year. 

Snapshot of giving trends

If it feels like more clients are asking about giving techniques such as crowdfunding, using appreciated stock to support charities, and setting up donor-advised funds, you are not imagining it. These trends are real! It’s smart to stay up-to-date at a high level so that you’re generally aware of what’s going on with philanthropy. Beyond that, the only information you need is the community foundation’s phone number. Our team is here for you! We are honored to be your first call anytime a client mentions that they’d like to launch or update a charitable giving plan. In most cases, the community foundation can provide tools and services that will help your client achieve their goals. In any event, we’ll help you figure out a solution, whether or not the community foundation ultimately plays a role.

For your calendar 

If you’re in search of tools to help motivate clients to move forward with financial and estate planning, be sure to note that National Estate Planning Awareness Week is coming up. October 21 - 27, 2024 is this year’s designated timeframe to help the public understand the basics of estate planning and the reasons it’s so important. The original House of Representatives resolution includes key points that may spark messaging ideas for your client outreach. And of course, on all things related to charitable planning, please reach out to the community foundation. We’re happy to share best practices for encouraging clients to get serious about planning all aspects of their estates, including the legacies they’d like to leave to their favorite causes and the community they love. 

Advising frugal clients, passing wealth to children, and steps to give real estate

Greetings from the community foundation! 

It’s hard to believe August is upon us. And that means the hectic fall season is just around the corner. The team at the community foundation is here to support you as you help your clients update their charitable giving plans. We’re already hearing from many of you that you expect the next few months to be very busy as clients reach out with questions about possible tax law changes and how charitable giving can fit into estate and financial planning strategies. 

Here are three examples of the many ways the community foundation can help you serve your philanthropic clients. 

–We’re constantly on the lookout for ways to help your clients who want to leave a bequest to their favorite causes. That’s the case all year round, and especially during national Make-A-Will Month. Now is a great time to evaluate how best to help clients who may lean toward the frugal end of spending practices but who still want to support local charities.   

–Structuring estate and financial plans to leave just the “right” amount to children can be tough. The community foundation can help you incorporate charitable giving into the plans you are developing for parents who want to provide for their kids but don’t want to demotivate children’s own quest for financial independence. 

–Gifts of real estate to a fund at the community foundation can work wonders for both the charitable causes your client supports as well as the client’s tax situation. Please reach out to the community foundation to learn more about each critically important step in the process and how to comply with tax laws. 

As always, thank you for the opportunity to work with you! We are honored to help you serve your charitable clients and we appreciate the opportunity to do so.

–Your community foundation

Counting pennies: How to counsel frugal yet charitable clients

Over the years, you’ve no doubt experienced a wide range of what clients perceive as “wealthy.” You’ve likely also observed that clients have different assumptions about what it takes to be a “philanthropist.” The interplay between a client’s perception of personal wealth and charitable giving capacity presents interesting opportunities for client engagement. You may find yourself helping a client get comfortable with pursuing their charitable objectives while remaining secure in the knowledge that their financial plan is on track.

Whether clients choose to give to charity or not depends on a lot of factors. Here are a few themes to keep in mind as you work with clients who skew toward the more frugal end of spending practices, especially during national Make-A-Will month when estate planning may be top of mind.

Stay within budget. A client’s fear of running out of money may be preventing them from investing more meaningfully in the causes they care about. When savings-minded clients express charitable intentions, you can certainly guide the conversation toward showing them that their assets, income sources, expenses, and long-term projections are in good shape and leave them plenty of room to make charitable donations. When you lay out the big picture, even your historically cautious clients may see that they truly have more flexibility than they realize.

Every gift counts. Some clients who watch every penny are concerned that giving modestly doesn’t really rise to the level of “philanthropist” and might not make a difference. These clients may not realize that everyone can make a difference through small gifts, large gifts, and everything in between. The community foundation team is happy to help your clients get started with charitable giving at a level that makes the most sense for them, whether that’s setting up a donor-advised or other type of fund at the community foundation, arranging for a bequest to a fund, or, for your clients who are 70 ½ and older, structuring a gift from an IRA to a designated fund to support a favorite nonprofit. 

Bang for the buck. The team at the community foundation can help show your clients how gifts of highly-appreciated stock to a fund at the community foundation can avoid capital gains taxes, thereby freeing up more resources to support favorite charities than if the client had sold stock, paid the tax, and then given the proceeds to charity. Our team can also help identify meaningful giving opportunities based on each client’s budget and areas of interest. 

See results. By activating philanthropy plans during their lifetimes, your clients can experience the joy of giving and witness tangible returns on their investments. The community foundation team can arrange for a client to meet with nonprofit leaders and hear first hand the impact their money is making to improve peoples’ lives. This real-time feedback also allows your client and the community foundation team to adjust giving strategies to more closely align with your client’s evolving intentions. 

We look forward to working with you and your clients. Philanthropy is meant to be fun and rewarding for everyone involved. Our team is here to help make that happen! 

Less can be more: Charitable giving helps parents pass wealth to children

How much is too much? That’s a question many parents ask as they structure lifetime gifts and bequests to children in their financial and estate plans. Wealthy clients are sometimes concerned that leaving millions of dollars, or even hundreds of thousands, to their children could backfire and hinder their kids’ ability and motivation to achieve financial independence. 

In addition to concerns about fostering entitlement and dependency, many parents are concerned that their children will miss out on the satisfaction of knowing they built wealth on their own. These parents believe that the challenges and struggles along the way will ultimately enrich their children’s lives with intangible benefits that are far greater than the obvious benefits that come with gifts or an inheritance of significant financial resources.

As you work with clients who feel this way, please reach out to the community foundation. Every day, our team works with families who are in this exact situation. We’ll help you evaluate strategies such as:

–Establishing philanthropic components of an estate plan so that children receive only the amount that can pass to them free of estate tax, with the rest passing to a charity, such as a donor-advised fund at the community foundation.

–Setting up a donor-advised fund at the community foundation to allow your clients to support favorite charities during their lifetimes, with the terms of the donor-advised fund providing that the children step in as successor advisors following the clients’ deaths.

–As successor advisors to the donor-advised fund, the children can work with the community foundation to recommend grants to favorite charities, support interest areas pre-selected by their parents, or both. 

Many clients are attracted to this type of structure because not only could it avoid estate tax, but it also allows their children to stay involved with all of the family’s wealth, work together and keep sibling bonds strong, and get involved in the community. 

Please reach out to the community foundation team anytime. We look forward to exploring strategies to help your clients meet their financial and tax goals, as well as honor their wishes for children to live happy and productive lives. 

Gifts of real estate: Watch every step

We’re hearing from more and more attorneys, accountants, and financial advisors that your clients are expressing interest in giving real estate to charity. This is wonderful news! 

You’re certainly aware that gifts of real estate to a fund at the community foundation, just like gifts of other long-term capital assets, can be extremely tax-efficient. That’s because your client is typically eligible for a charitable deduction based on the fair market value of the property. Because the community foundation is a public charity, when it sells the donated property, the proceeds will flow into the fund free from capital gains tax. 

To achieve the best tax outcome and overall charitable result, though, it’s critical to undertake a careful process along the general lines of the following (depending of course on the specific situation):

–First, you’ll need to determine that the real estate is a long-term capital asset (held for more than one year). That may sound obvious, but we’ve talked with advisors and their clients in the past about a potential gift of real estate and it turned out that the property was only recently purchased. The fair market value deduction (versus cost basis deduction) is available only for a long-term capital asset. 

–Next, you’ll want to work with the team at the community foundation to structure a donor-advised or other type of fund to receive the asset, if your client does not already have a fund in place. The deductibility rules are different for real estate gifts to a public charity (such as a community foundation fund) versus a private foundation. Again, clients may not be aware of the pitfalls here. Sometimes we meet with advisors whose clients are very close to transferring real estate to a private foundation, which could be devastating in terms of missed tax savings. 

–You’ll need to verify that the property is not subject to a mortgage or other debt. Transferring encumbered property triggers important considerations with potentially significant tax consequences. The lender might not even allow a transfer in the first place. If you’re dealing with commercial property, you’ll also need to check to be sure that the property is not subject to “recapture” if your client has previously taken depreciation deductions. 

–You will need to determine whether the property produces income and discuss this with the community foundation. Income-producing real estate can potentially trigger “UBIT” (unrelated business income tax) for the community foundation. Although there are exceptions and strategies to minimize UBIT’s impact, it’s important that this issue be dealt with up front. 

–You may need to work with the community foundation to determine whether an environmental audit is required for the property. 

–Verify that the client has not entered into any discussions about an imminent sale of the property. Even if the community foundation will sell the property shortly after receipt (so that the proceeds can flow into the donor-advised or other fund to support the client’s favorite causes), your client cannot have pre-arranged this sale. Doing so could trigger the IRS’s step transaction doctrine and wipe out the tax deduction.

–Importantly, ensure that the client obtains a qualified appraisal to determine the fair market value of the property. This is critical to obtain a tax deduction, and the appraised value must be reported to the IRS on a Form 8283 in strict compliance with the IRS’s rules.

–Finally, transfer the property with the appropriate legal documents, including a deed. 

Whew! That’s a lot! The bottom line here is that gifts of real estate can be a wonderful tool for both your client and the charities they want to support through their fund at the community foundation. Our team can help you through the process, every step of the way. We have professionals in house, as well as on-call experts with whom we work regularly, to ensure that your client’s real estate gift is handled without a hitch, opening the door to bring their charitable goals to life.  

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Picking favorites, mixing business with charity, and locking in the exemption

Every year, the Giving USA study released in June reports the status of charitable giving in America. Adjusted for inflation, 2023 numbers were down, which means it’s been more difficult for our region’s charities to meet the needs of the people they serve. This is relevant to your clients because for many of them, philanthropy is an important part of financial plans and family traditions. 

In this issue, we’re sharing insights to help with your client conversations about charitable giving.

–As an advisor, you’ve certainly experienced clients’ emotions running wild! Confronting mortality, addressing complex family relationships, and discussing money all come with financial planning’s often rocky terrain. The community foundation can help when you encounter a charitably-minded client who is devoted to a particular stock and may be reluctant to take the tax-savvy step of giving it to charity.

–”Doing well by doing good” is a popular notion in corporate giving programs. Many of your clients may be in positions to influence corporate giving strategies. The community foundation can support you as you advise clients about avoiding tax pitfalls and conflicts of interest as clients and their work colleagues create charitable giving strategies that align with business purposes. 

–If it feels like the topic of the estate tax exemption sunset is heating up, you are right! More and more of your clients are becoming aware of the change in the law that is slated to occur at the end of 2025 unless legislation intervenes. Be sure you know the basics about how this change could impact your clients, including the ways charitable giving and the community foundation can fit into smart planning. 

Of course, please reach out anytime! It’s our pleasure to work with you as you help your clients achieve their charitable giving goals for this year and many years to come.

Gifts of appreciated stock: Picking favorites

You’re well aware that donating highly-appreciated stock to a fund at the community foundation offers significant advantages for your clients over making cash gifts. Communicating this benefit, however, can be challenging when clients have emotional attachments to their shares. 

How can you overcome this hurdle and help optimize your clients' charitable giving strategies?

Start by understanding the reasons a client might be reluctant to part with certain stocks in the first place:

–Legacy: "These shares have been in my family for generations."

–Professional: "I worked at this company for decades; it's the source of my wealth."

–Simple preference: “I just love this stock.” 

Emotional ties like these can create psychological barriers to effective charitable planning. There is, however, a potential solution that can satisfy both your clients' emotional needs and their philanthropic goals: The client donates shares of the highly-appreciated, emotionally significant stock to their fund at the community foundation, and then the client purchases shares of the same stock in their personal investment portfolio. 

Here’s why this can be such an effective strategy:

–Maximize tax deductions: Publicly-traded securities are typically deductible at fair market value (and the tax savings could potentially help fund the repurchase).

–Reset cost basis: This transaction effectively resets the cost basis of the stock in the client’s personal portfolio to its current market price, potentially reducing future capital gains taxes.

–Emotional satisfaction: Clients can support charities while maintaining their shareholder status in the company they like.

–Community impact: The community foundation can sell the donated shares tax-free, thereby maximizing the proceeds flowing into the client’s fund, and the fund in turn can be used to support the client’s favorite causes.

As you share this strategy with a client, be sure to acknowledge the emotional value of the stock and emphasize the client’s opportunity to maintain ownership in the company. Building on this, you can show the client how the tax benefits of giving stock allow the client to make an even bigger difference than if they’d given cash instead. 

As always, the community foundation can help you assist your clients with selecting the best assets to give to charity, evaluate tax implications of various giving strategies, and structure gifts to achieve strong community benefit. We look forward to a conversation! 

Mixing business and charity: Keep it ethical, legal, and transparent

Your clients who are corporate executives have likely wondered at some point about the benefits of aligning their companies with philanthropy, whether specific causes or particular organizations. 

In general, a community engagement strategy can be good for business, if well-executed. For example, almost half of consumers view a brand favorably when the brand supports a charitable cause. Community engagement programs can help with employee retention, too. 

But what are the risks involved in mixing business with charity?

In the spirit of aligning doing good with doing well, some companies would love to set up their own nonprofit organizations as “charitable arms” of their enterprises. Corporate leadership may like the idea of efficiency, control, and tight alignment between the company’s offerings and the charity’s mission. For example, a company that makes swimming pools might think it’s a great idea to set up a charity to build swimming pools at community centers to give more kids access to water sports. The company would like to donate tax-deductible dollars to the charity and ask its suppliers and customers to do the same. The company’s executives would serve on the board of the charity, and the charity would purchase swimming pools from the company to carry out its mission. 

Is this a good idea? 

No. This strategy plays fast and loose with the rules. Beyond setting up an obvious conflict of interest, this practice would mean that a company effectively would be using charitable funds to benefit itself. This is not a “charitable purpose” in the eyes of the IRS and could result in the loss of the charity’s tax exemption. Plus, if the news got out about this structure, the company could suffer reputational damage.

The company, its executives, and the community are all better off if the company pursues more transparent and ethical charitable strategies such as establishing a corporate fund at the community foundation, setting up a volunteer program for employees, establishing a matching gifts program, or aligning with wholly-independent charities on cause-related marketing partnerships.

Reach out to the community foundation to learn more about effective corporate philanthropy strategies. We are here to help as you work with your clients to achieve their charitable goals both at home and in the workplace.  

Planning for a sunset: Lock in higher exemption, unlock a legacy

Without legislation to prevent it, the sunsetting of current estate tax laws at the end of 2025 will dramatically reduce the federal estate tax exemption from $13.61 million per person in 2024 to approximately $7 million in 2026 (this includes adjustments for inflation). This change would affect many high net-worth individuals and families, likely exposing many more estates to federal estate taxes.

It is impossible to predict whether or not legislation will prevent the sunset. Even so, it is important for advisors to prepare for client discussions and start considering estate planning strategies now, especially techniques that incorporate multi-generational gifts and charitable planning.

Indeed, for a client who is charitably-inclined, making larger lifetime gifts to charity and arranging for charitable bequests will help reduce the client’s taxable estate because of the charitable estate and gift tax deduction. Donor-advised, field-of-interest, designated, unrestricted, and endowment funds at the community foundation are flexible and effective charitable recipients of both lifetime and estate gifts. 

For some clients, you may wish to begin exploring a comprehensive, multi-generational wealth transfer plan, potentially using key tax-planning vehicles:

Charitable lead trust

Charitable lead trusts (CLTs) may be particularly effective in the current environment. These trusts can provide income to your client’s fund at the community foundation for a set period of time, with the remaining assets passing to family members. Right now, the higher exemption allows for potentially significant initial funding of such trusts. This is because the value of the remainder interest counts toward the client’s estate and gift tax exemption.

Generation-skipping trust
A generation-skipping trust is an irrevocable trust that can benefit a client’s grandchildren and later generations. This trust utilizes a client’s generation-skipping transfer (GST) tax exemption (which parallels the estate and gift tax exemption). This type of trust could allow a client to take advantage of the higher exemption before it potentially decreases in 2026. It is possible under some states’ laws for these trusts to go on for many generations in a “dynasty” format, such that each generation benefits from the trust’s income (and potentially principal for health and education) without the trust’s assets being included in the beneficiaries’ estates for estate tax purposes. 

Multi-generational fund at the community foundation

Alongside a charitable lead trust or generation-skipping trust, or as a standalone, a client can establish a donor-advised fund at the community foundation that can function much like a family foundation, with successive generations serving as advisors, or the community foundation stepping in after the first or second generation, to recommend grants from the fund to carry on a tradition of supporting the causes that have been most important to the client during the client’s lifetime. 

The team at the community foundation looks forward to working with you to achieve your clients’ long-term charitable goals, even in the midst of uncertainty concerning the estate tax laws. 

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

401(k) millionaires, charitable giving for corporate executives, and IRS updates

Greetings from the community foundation! 

As always, our team welcomes the opportunity to be your first call the minute you begin discussing philanthropy with a client. It is our honor–and our mission–to help you develop charitable giving plans to meet your clients’ philanthropy goals while also supporting the important tax and estate planning objectives you’re establishing for those clients.

And a lot of you are taking us up on this invitation! We’ve enjoyed the opportunity to talk with attorneys, accountants, and financial advisors to help set philanthropy in motion for your clients. Recent conversations are very much reflected in the three articles we’re sharing in this issue,

–As clients’ retirement accounts continue to grow, so does the opportunity for clients (and the community) to benefit from careful and intentional charitable planning. The community foundation can help you serve clients who may be among the newly-minted “401(k) millionaires” as well as clients who crossed that threshold years ago. 

–Clients wear many hats. They are children, parents, siblings, and volunteers for charities. Many of your clients are also corporate executives or small business owners. Addressing your clients’ corporate giving needs alongside their individual and family philanthropy priorities is sometimes an overlooked component of estate and financial planning. The community foundation can help. 

–A common theme during conversations with advisors is the importance of the community foundation’s ability to help clients take a holistic approach to charitable giving. This is especially relevant in light of the steady drumbeat of news about the IRS’s focus areas. Our team is always on top of the issues and happy to share insights. 

We look forward to continuing the conversation! 

Your community foundation

Advising the charitable millionaire next door

At the end of 2024’s first quarter, an estimated 485,000 Americans could count themselves among the so-called “401(k) millionaires,” meaning the balance in their employer-sponsored retirement plans has reached the $1 million level. Thanks in part to stock market rallies during the first part of the year, that’s a larger number than ever before. Many of these 401(k) accounts will be rolled over into IRAs after retirement and the assets will continue to grow. 

With so many of your charitably-inclined clients holding large sums of money in 401(k)s and IRAs, now is an important time for a brief refresher course on the benefits of deploying these accounts toward achieving clients’ philanthropic goals. Indeed, although a charitable bequest of any type of property can help achieve a client’s estate planning and legacy goals, retirement accounts are especially powerful. When your client names a public charity, such as a donor-advised or other fund at the community foundation, as the beneficiary of a traditional IRA or qualified employer retirement plan, your client achieves extremely tax-efficient results. Here’s why:  

–First, the client achieved tax benefits over time as the client contributed money to a traditional IRA or to an employer-sponsored plan. That’s because contributions to certain retirement plans are what the IRS considers “pre-tax”; your client does not pay income tax on the money used to make those contributions (subject to annual limits).

–Second, assets in IRAs and qualified retirement plans grow tax free inside the plan. In other words, the client is not paying taxes on the income generated by those assets before distributions start in retirement years. This allows these accounts to grow rapidly. 

–Third, when a client leaves a traditional IRA or qualified plan to a fund at the community foundation or another charity upon death, the charity does not pay income taxes (or estate taxes) on those assets. By contrast, if the client were to name children as beneficiaries of an IRA, for example, those IRA distributions to the children are subject to income tax (and potentially estate tax), and that tax can be hefty given the tax treatment of inherited IRAs. 

So, if your client is deciding how to dispose of stock and an IRA in an estate plan and intends to leave one to children and the other to charity, leaving the IRA to charity and the stock to children is a no-brainer. Remember, the client’s stock owned outside of an IRA gets the “step-up in basis” when the client dies, which means that the children won’t pay capital gains taxes on the pre-death appreciation of that asset when they sell it. 

Speaking of savvy giving techniques using IRAs, a client who is 70 ½ or older can make tax-efficient gifts directly from an IRA to a qualified charity (including certain types of funds at the community foundation), up to $105,000 per year! This is known as a “Qualified Charitable Distribution.” 

The community foundation is always happy to work with you to ensure that your clients are maximizing their assets to fulfill their charitable giving goals, both during their lives and through legacy gifts. We look forward to the conversation! 

Left behind? Why companies need philanthropy advice, too

It’s relatively straightforward to see how philanthropy figures into the financial and estate plans you build for individuals and families. After all, many of these clients are already supporting their favorite community causes, and it’s your job to make sure they know about all the options for structuring both their near-term and long-term plans to give to charity using techniques that achieve both philanthropic goals and tax goals. The community foundation works with attorneys, accountants, and financial advisors every single day to help meet clients’ needs. 

What you might not always consider, though, is that many of your clients are executives in companies whose leaders want the company itself to lean into charitable giving. That’s why it’s wise to be aware of best practices in corporate philanthropy and know the ways the community foundation can help. 

For example, establishing a corporate donor-advised fund–essentially functioning and named as a corporate foundation–helps corporate executives organize the company’s giving in a convenient, 501(c)(3)-qualified structure, avoiding the time and expense that would be required for the company to establish and maintain a separate foundation entity. The company can fund the corporate donor-advised fund each year (especially in really good years!), thereby organizing charitable donations to a wide range of nonprofits through a single source of funds. This structure can help maintain historical corporate giving levels even when the company experiences a down year. 

What’s more, many companies coordinate with the community foundation to offer donor-advised funds to employees, especially to take advantage of company stock gifts. A program like this is a perk for employees who’ll enjoy organizing their giving and using the community foundation’s many tools and services. The program also helps inspire employees to get more involved in the community, which is good for everyone. 

In many instances, the community foundation takes on a back office role for a company’s matching gifts program, grant administration, and giving strategy. For example, the community foundation can help guide corporate leadership in creating and administering a program that matches employees’ volunteer time with dollars. In addition, the community foundation can help a company create and implement a strategy for responding to and evaluating funding requests to align with the company’s goals for supporting and prioritizing causes.

Finally, the community foundation can help establish and administer employee giving and disaster relief campaigns. The community foundation’s tools to receive and process donations can help a company and its employees respond quickly and meaningfully to disasters and other urgent community needs. 

Note that many companies appreciate the community’s foundation’s infrastructure, reporting practices, and compliance protocols to ensure that all tax laws and other IRS requirements are met. Instead of the company bearing these responsibilities, it’s the community foundation’s job. Corporate executives regularly view the relationship with the community foundation as a very wise outsourcing move, 

The team at the community foundation looks forward to working with you and your clients who are corporate executives, or even local small business owners, who are excited to give back to the community where they’ve built businesses and developed lasting relationships with employees and customers.

Legal developments: We’re watching! 

As your go-to resource for charitable giving techniques, the community foundation team pays close attention to best practices in addressing the broad range of your clients’ charitable intentions to support both near-term and long-term community needs. This includes tracking legal developments that may impact philanthropy broadly, impact specific giving vehicles, and everything in between.

For example, we pay attention to the IRS’s plan to increase audits of wealthy taxpayers so that our team is better positioned to help you and your clients understand the requirements of valuing gifts to charity. And we’re gearing up to help you and your clients incorporate charitable giving vehicles as a way to blunt the potential impact of the anticipated estate tax exemption sunset. And we’re watching the IRS scrutinize aggressive techniques using annuities inside charitable lead trusts. And so much more. 

Another issue we’re watching closely is the latest news on the IRS’s proposed regulations of donor-advised funds. We’ve studied the transcript from the public hearings in early May, and it was inspiring to see so many community foundation leaders share their recommendations urging that any new regulations not disrupt the positive and productive working relationships between community foundations and advisors who are helping their clients achieve philanthropic goals. At this point, no one can predict what will happen with the proposed regulations--whether and how they will be revised or when they might become effective, if ever. As always, our team is staying on top of the issues. We’ll keep you informed. 

Of course, a donor-advised fund is just one of many types of funds your clients can establish at the community foundation. We offer donor-advised funds, endowment funds, field-of-interest funds, scholarship funds, designated funds, and a wide range of planned giving and legacy options for clients who want to invest in the community’s long-term needs.

The donor-advised fund is popular because it allows your client to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, the client can recommend gifts to favorite charities from the fund to meet community needs as they emerge.

What’s especially rewarding for our team is to work with you and your clients to explore a diversified portfolio of giving vehicles. It’s possible that a client's portfolio would include a donor-advised fund, and perhaps also one or more of a variety of other tools, such as a bequest, unrestricted gift, charitable trust, and endowment gift. Above all, we are confident in our ability to continue to work collaboratively with you and other advisors for years to come to help fulfill your clients’ philanthropic wishes. Thank you for the opportunity to work together! 

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Asset varieties that make great charitable gifts, proposed regulations, and election year updates

Greetings from the community foundation! 

Every day, our team appreciates the opportunity to work with attorneys, accountants, financial advisors, and other professionals who are helping clients achieve their charitable goals. We know your relationships with your clients are in many cases very personal, and you take your responsibilities seriously. We respect that, and our team strives to do everything we can to help you structure charitable giving plans to meet your clients’ needs.

To help keep the community foundation’s resources at your fingertips, we’re covering three topics that have been the subject of many advisors’ inquiries over the last few weeks. 

–Last November, the Treasury released proposed regulations related to donor-advised funds. Although these proposed regulations are just that–proposed and not final–nevertheless, in recent weeks the media coverage has gained momentum, especially now that Ways and Means members have weighed in. The community foundation is on top of the issues, and our team is always ready to share the latest insights.

–Following every tax season, many advisors share with our team at the community foundation that they wish they’d been aware of the many asset types that make great gifts to a fund at the community foundation. We’re happy to provide a list of the wide range of property that your clients can deploy to meet both their tax goals and their charitable goals.

–Election-year dynamics are on your clients’ minds, and we’re sharing a few items of recommended reading to provide perspective on political contributions’ impact on charitable giving, as well as articles that you and your clients might find useful related to “check out charity” trends and legal issues that may confront clients who serve on charities’ boards of directors. 

Thank you for the opportunity to work together! We appreciate so many of you reaching out with questions and insights from your practice, as well as referrals of your clients for which we–and the community–are so grateful.

–Your community foundation

What’s bubbling up: Need-to-know updates on the proposed donor-advised fund regulations

The community foundation is committed to providing timely updates on legal and policy developments to help you and other professionals who advise philanthropic clients stay on top of best practices in charitable planning. In that spirit, donor-advised funds and the rules governing these vehicles are topics that are popping up more frequently in financial and even mainstream media. Our team is closely watching these regulatory developments.  

As background, in November 2023, the Internal Revenue Service issued proposed regulations that would change the way donor-advised funds are defined and how they operate. Especially leading up to the May 6, 2024 public hearings, the proposed regulations have created quite a buzz. If you’d not yet heard about the proposed regulations, the April 19, 2024 letter to Treasury Secretary Janet Yellen, signed by 33 members of Ways and Means, might have grabbed your attention. The letter lays out concerns that “these regulations could have the unintended consequence of impeding charitable giving in our communities, particularly at our local community foundations.” You’ll hear from us when (and if) the proposed regulations, or some version thereof, go into effect and what to do about it. 

As you track the issue, however, it’s important to remember that a donor-advised fund is just one of many types of funds your clients can establish at the community foundation. Consider: 

–Certainly the donor-advised fund is popular because it allows your client to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, the client can recommend gifts to favorite charities from the fund to meet community needs as they emerge. 

–Other types of funds at the community foundation can be just as effective as a donor-advised fund depending on the client’s objectives. In some situations, these other fund types are even more effective than a donor-advised fund to achieve a client’s goals. 

–Field-of-interest funds and designated funds, for example, allow your client to support a charitable cause or organization they love. Unrestricted funds help your clients support future needs in the community that can’t be predicted and can only be addressed through the community foundation’s perpetual structure and mission to serve the community as a whole. 

–A major advantage of field-of-interest funds, designated funds, and unrestricted funds is that they are eligible recipients of the popular and tax-savvy planning tool called the Qualified Charitable Distribution, or “QCD,” available to your clients who have reached age 70 ½.  

We look forward to helping you serve your charitable clients regardless of where the proposed regulations ultimately land. And we’ll keep you posted!

Celebrate variety: Many assets make great gifts to charity

When your client is getting ready to make a contribution to a fund at the community foundation or other charity, remind them not to automatically reach for the checkbook! Here are other (and typically more tax-savvy) options to consider. 

Marketable securities

Gifts of long-term appreciated stock to a donor-advised or other type of fund at the community foundation is always one of the most tax-savvy ways to support favorite charitable causes because capital gains tax can be avoided. Gifts of publicly-traded stock, for example, are easy to transfer to a fund. The community foundation team can provide you and your clients with transfer instructions to make the process simple. 

As is the case with a cash gift, the community foundation will provide a receipt for tax purposes, and the gift of stock will be valued at the shares’ fair market value on the date of transfer. When the community foundation sells the shares, the proceeds flow into the client’s fund without any reduction for capital gains taxes. This is because the community foundation is a 501(c)(3) charitable organization and therefore does not pay income tax. That would not have been the case, however, if the client had sold the stock first and then transferred the proceeds to a fund at the community foundation; the client would owe capital gains tax on the sale. Especially in cases where the client has held the stock a long time and it’s gone up significantly in value, the capital gains hit can be big.

Closely-held business interests

The community foundation team is happy to work with you and your client to explore how the client might give shares of a closely-held business to a fund at the community foundation. Not only will transfers be eligible for a charitable deduction during the year of transfer (and at fair market value if the shares are held for more than one year), but also these gifts could potentially reduce income tax burdens triggered upon a future sale of the business. Be sure to talk with our team well before any potential sale is in the works; otherwise, you could lose out on tax benefits. Gifts of closely-held business interests are powerful but can be tricky to administer. 

QCDs from IRAs

As always, keep in mind that the Qualified Charitable Distribution (“QCD”) is a very smart way to support charitable causes. If your client is over the age of 70 ½, the client can direct up to $105,000 (in 2024) from an IRA to certain charities, including a field-of-interest, designated, unrestricted, or scholarship fund at the community foundation. If your client is subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. That means your client avoids income tax on the funds distributed to charity. Our team can work with you and your client to go over the rules for QCDs and evaluate whether the QCD is a good fit. 

Real estate 

Your client’s fund at the community foundation can receive a tax-deductible gift of real estate, such as farmland or commercial property, in a variety of ways. An outright gift is always an option; lifetime gifts of real estate held by the client for more than one year are deductible for income tax purposes at 100% of the fair market value of the property on the date of the gift, which also avoids capital gains tax and reduces the value of your client’s taxable estate. Other ways to give real estate include a bargain sale or a transfer to a charitable remainder trust which produces lifetime income for the client and the client’s family.

Life insurance

Don’t overlook life insurance as an effective charitable giving tool, whether by naming a client’s fund at the community foundation as the beneficiary or, in the case of whole life policies, naming the fund as beneficiary and transferring the policy itself. If your client transfers a policy, the client may be able to make annual, tax-deductible contributions to the community foundation to cover the premiums. 

Other “alternative” assets

The community foundation is happy to work with you and your clients to explore options for giving other non-cash assets to funds at the community foundation, including:

• Oil and gas interests

• Negotiable instruments

• Cryptocurrency

• Artwork

• Collectibles

We look forward to working with you to explore all the options! 

What’s caught our attention

Charitable giving in an election year

While charitable giving historically has been resilient in the midst of elections, it’s worth bearing in mind that some sources predict that political donations will eat into your clients’ budgets for charitable gifts. As you talk with clients about their philanthropy plans for 2024, you might pass along these trends so your clients can factor into their target gift amounts the potentially greater demand for funding community organizations. This is also a good time to remind clients that political donations are not tax deductible. This may seem elementary, but it still trips up some people who don’t track the rules closely. 

Rounding up at the register

Although the majority of your clients’ charitable giving is likely strategic, including giving through a donor-advised or other type of fund at the community foundation, there are definitely exceptions in any household. One of those exceptions for many of your clients may be a form of giving called “checkout charity.” The spare change really does add up–to the tune of $749 million nationwide in 2022 alone! 

Legal pitfalls for nonprofits

As you counsel your clients who are on the boards of nonprofit organizations, or perhaps even lead them, be aware of a handful of legal issues that are surfacing as areas of concern, including the always-relevant topics of employees versus independent contractors and unrelated business activities, as well as emerging issues related to artificial intelligence. 

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Numbers talk, the benefits of flexible funds, and what's trending in philanthropy

Happy spring from the community foundation! 

As the weather warms up and people begin to venture outside, your clients' already busy schedules start to get even busier. Even if your clients are tempted to log off and enjoy the sunshine, we encourage you to help them stay the course. Your clients’ 2024 financial and estate planning goals are important, and now is the time to start tackling those strategies, especially after the tax season dust settles. 

In this issue, we’re covering three topics that can help you counsel your philanthropic clients:

–No matter what words you use to express the advantages of giving appreciated assets, it can be hard for clients to truly hear it. Consider showing clients–using numbers and examples–that it really is better to support favorite charities by giving appreciated assets instead of cash.

–Help your clients get ahead in their estate planning by leaning into the flexibility and benefits of a fund at the community foundation, including your clients’ ability to leave permanent legacies to support the community for generations to come. 

—There’s lots going on in the world of charitable giving! We’ve curated several articles that are worth reading if you’d like to dig deeper into springtime issues that are trending in philanthropy circles.

Gifts of appreciated stock: Let the numbers do the talking

No matter how frequently you remind clients to pause before they automatically reach for the checkbook to make their charitable gifts, many clients still give cash! As an attorney, accountant, or financial advisor, you are well aware that giving long-term appreciated assets is often one of the most tax-savvy ways your clients can support their favorite charities. Nevertheless, it’s sometimes hard to convey that message to clients with words that stick. Next time, consider using illustrations to help clients see the benefits. 

Below are three simple examples* to help you show your clients the benefits of giving appreciated stock. 

Sally and Bob Jones give $100,000

Sally and Bob Jones plan to give $100,000 to their donor-advised fund at the community foundation to organize all of their giving for the calendar year. Let’s assume Sally and Bob have a combined adjusted gross income of $600,000, which lands them in the 35% federal income tax bracket. If they gave $100,000 in cash to their donor-advised fund, they could realize an income tax savings, potentially, of $35,000.

What if instead of giving cash, Sally and Bob gave highly-appreciated, publicly-traded stock, valued currently at $100,000, to their donor-advised fund. Let’s assume they’ve been holding the stock for many years, and the shares have a cost basis of $20,000. Not only are Sally and Bob eligible for a potential income tax deduction that will save them up to $35,000, but they have also potentially avoided $12,000 of capital gains tax that they would have owed if they’d sold the stock (using a long-term capital gains tax rate of 15%). So, it’s easy to see why Sally and Bob should consider giving highly-appreciated stock instead of cash.

Jenny and Joe Smith give $1 million

Jenny and Joe Smith plan to give $1 million to community causes this year. They’ll do that by adding $500,000 to their donor-advised fund at the community foundation, which in turn they will use to support their favorite charities. They’ll also be making a $500,000 gift to an unrestricted fund at the community foundation to help address the region’s greatest needs for generations to come. Let’s assume that Jenny and Joe are in the highest federal income tax bracket because they earn multiple seven figures. If they were to give $1 million in cash, they could save, potentially, up to $370,000 in income tax. If they gave publicly-traded stock instead of cash, assuming a $200,000 cost basis in stock valued currently at $1 million, they would still potentially save up to $370,000 in income tax, and they would also potentially avoid $160,000 in capital gains tax (based on a long-term capital gains tax rate of 20%).

Tiffany and Brett Thomas give $5 million

Tiffany and Brett Thomas plan to give a target amount of $5 million to charity as the cornerstone of their overall philanthropy plan. They would like to use publicly-traded stock that they’ve held for many years, valued currently at $5 million. They would love to receive a lifetime income stream from these assets, so that the remaining assets will flow to their fund at the community foundation after their deaths. In this case, you’ll explore setting up a charitable remainder trust that pays out an income stream to Tiffany and Brett while they are both living and then to the survivor for the survivor’s lifetime. 

Let’s assume that TIffany and Brett are both 55 years old. And let’s assume that the stock has a very low cost basis–just $500,000–because the Thomases have held it for so long. Depending on the IRS’s applicable rates, and assuming a 5% annual payout rate paid at the end of each quarter, here’s an approximate tax result if you worked with the community foundation to help Tiffany and Brett establish a charitable remainder trust:

–$1,042,550 approximate potential income tax deduction based on the present value of the gift of the remainder interest to charity 

–$4,500,000 in capital gains that may not be subject to tax

–$250,000 in total payments during the first year

–Annual payments of 5% of the value of the assets in the trust, which means the income stream will fluctuate depending on the value of the assets

Following the death of the survivor of Tiffany and Brett, the remaining assets will flow to the Thomas Family Fund at the community foundation, which Tiffany and Brett have already established and which, upon their deaths, will split equally into two funds. The first fund will be a donor-advised fund for which their children will serve as advisors, and the second fund is an unrestricted endowment fund to support the community foundation’s priority initiatives in perpetuity. 

Of course, no client’s circumstances will exactly match those of Sally and Bob, Jenny and Joe, or Tiffany and Brett. The net-net here, though, is that the community foundation is happy to discuss the various tax-savvy options for charitable giving in any client situation. Please reach out. We’re here for you! It is our honor to help you serve your charitable clients. 

*These examples are for illustration purposes only. Every client’s situation is different, and therefore the tax strategy and tax impact will be different for each client. For example, these illustrations are based on federal income tax rates only, and you’ll need to evaluate, among many other factors, the impact of state taxes.

“Shell funds” and other handy tools for charitable clients who are planning ahead

Getting a jump on a future “to do” list is always such a good feeling. The team at the community foundation can help you with your clients’ long-term charitable giving plans by putting in place the structures to receive bequests decades from now.

Consider a case where you’re finalizing an estate plan for a client who would like to leave bequests to multiple charitable organizations, but the identity of those specific organizations may be a moving target over the years because of the client’s evolving level of engagement with various charities as a donor, volunteer, or board member. In other words, this client likely will want to make small changes to the estate plan’s provisions for charitable giving but leave everything else as is. For example, a client’s trust could be drafted to provide that 10% of the remaining estate be divided equally among five charities, which of course could be listed in the trust document. But what if, a few years from now, the client wants to add another charity to that list? Even a small change like this would require an amendment, which can be time-consuming for both attorney and client. 

Instead, the client’s trust document could name a fund at the community foundation as the beneficiary of 10% of the remaining estate. Then, the client can work with the community foundation to draft a fund agreement that lists the charities that will share the 10%. When the client wants to add new charities or switch out charities from the list, the client can reach out to the community foundation and execute simple documentation of the client’s updated intent for the fund. This process is fast and simple, and it allows clients to ensure that their bequests are in line with ever-changing needs in the community. 

In some cases, the client may not intend to use the fund during their lifetime. That’s perfectly fine; the community foundation can establish a “shell fund” to sit dormant and receive assets only after the client passes away. Your client can still name the fund whatever they’d like, and the shell fund agreement can be modified anytime before the client’s death. 

Please reach out to the community foundation to learn how shell funds and other planning tools can help your clients achieve their charitable goals both during their lifetimes and beyond. 

Charitable planning for wealthy clients: In the spotlight

As you read up on techniques to structure philanthropy plans for your high-net worth clients, we recommend reviewing the potential impact of the estate tax exemption sunset, as well as making sure you’re one of just half of advisors (!) who are truly helping their clients with charitable giving in the first place. The team at the community foundation is happy to help you start the philanthropy discussion with clients; we understand that it’s not always easy, but it is so important. 

Tax return reviews help clients level up charitable giving plans

Hello from the community foundation! 

Tax time is just around the corner, which means your clients may be taking a closer look at charitable giving options as they pull together information for 2023 filings. In this issue, we’re covering three topics that may capture the attention of philanthropic individuals and families this year while they’re talking with advisors about tax preparation.

–Reviewing tax returns with a client can feel like an administrative task that simply needs to get done. But don’t overlook the value of the review process to point out planning opportunities for this year and beyond, especially related to charitable giving and working with the community foundation.  

–Each philanthropic client’s goals are unique, and charitable planning is not a one-size-fits-all proposition. The community foundation offers charitable giving vehicles to meet a wide range of clients’ needs. Discover the many types of funds available through the community foundation and how each may be a fit for certain client situations.

–We’re always on the lookout for trends and legal updates that may impact charitable planning and the work you do for your clients. To that end, we’re sharing recent developments related to donor-advised funds and offering suggested reading materials to help you stay informed. 

As always, we appreciate the opportunity to work with you and your clients during tax time and every other time of year. We’re your partner in charitable giving, and it is our pleasure to help you serve your philanthropic clients as they support the causes they love.

Wishing you all the best for tax season! 

The Community Foundation

Tax return reviews help clients level up charitable giving plans

Tax time has its silver linings! Going over a tax return with a client helps start a productive conversation about ways to plan gifts to charity more effectively. As you scan 2023’s charitable contributions, talk with the client about whether those charitable gifts were made with cash or with other assets and then steer the conversation toward discussing the most effective assets to give to charity during 2024 and beyond. 

Here is a four-point checklist that can help you advise your clients about the range of charitable giving options. 

–Remind clients that cash is not king when it comes to charitable giving. Cash is typically not a tax-effective form of charitable giving. Instead, encourage clients to consider giving highly-appreciated assets, including publicly-traded stock, to their fund at the community foundation to support their favorite charities.   

–Think even beyond stock. Encourage clients to explore not only highly-appreciated stock as a potential gift to charity, but also the various forms of “noncash” assets that can make great charitable gifts. After all, American households’ most valuable assets are retirement accounts and personal residences, not cash. Examples of assets that could be excellent charitable gifts depending on the client’s circumstances include gifts of real estate, closely-held stock, collectibles, and, for clients who are age 70 ½ and older, direct transfers from an IRA (known as a Qualified Charitable Distribution) to a field-of-interest or unrestricted fund at the community foundation. 

–Make it easy on yourself and your client. Reach out to the team at the community foundation for assistance! We are happy to help you and your client evaluate the best assets to give to a donor-advised or other type of fund at the community foundation to achieve the client’s charitable goals.

–Close the loop on IRS reporting. Remember that the reporting requirements are different for noncash gifts to charity versus cash gifts. Make sure you are familiar with IRS Form 8283, which must be filed with any tax return claiming a deduction for noncash assets valued at $500 or more. The IRS expects strict adherence to the terms of the form, especially the requirement for a qualified appraisal. On our end, the community foundation will file a confirmation of receipt and a commitment to document and notify the IRS if disposition occurs within three years.

Opening up the full range of charitable giving options for a client can help you structure a holistic estate and financial plan that meets the client’s objectives for family wealth, philanthropy, and tax effectiveness. Reach out anytime to the team at the community foundation to discuss techniques and strategies. 

Fund types tailored to your client’s charitable goals

Just as each of your clients has a unique estate plan and financial plan to meet the client’s particular situation and goals, each of your philanthropic clients needs a unique charitable giving plan. For example, for some clients, giving shares of highly-appreciated stock consistently every year to their fund at the community foundation makes the most sense for their charitable goals and their mix of assets. For other clients, leaving a bequest to the community foundation to support specific areas of interest is the best fit for the client’s financial situation and community priorities.  

The community foundation offers charitable giving vehicles to meet a wide range of clients’ needs. In many cases, a single client can benefit from setting up multiple funds of different types. 

Here’s a quick primer on a few of the most popular fund types.

Donor-advised Fund

A donor-advised fund enables your client to establish a specific account for charitable giving. Your client makes tax-deductible contributions of cash (or, ideally, stock or other highly-appreciated assets) to the fund, and then recommends grants to favorite charities. 

Unrestricted Fund

The community foundation has its finger on the pulse of the community’s most pressing issues. An unrestricted fund gives your client the opportunity to support community needs that can’t be identified until the future. One of the biggest benefits of a community foundation is its perpetual structure that allows clients and their families to offer support to nonprofits that evolves over time as priorities in the region shift. 

Field-of-interest Fund

Clients who want to target their giving to specific areas of community need (such as education, health, environment, or the arts) can set up a field-of-interest fund to establish parameters for grant making under the ongoing guidance and expertise of the community foundation’s staff.  

Designated Fund

A designated fund allows a client to direct giving to a specific agency or purpose. Over time, the community foundation's staff manages the distributions from the fund according to the terms established by your client.

Agency Fund

An agency fund is similar to a designated fund, except in the case of an agency fund, the source of the initial contribution is the beneficiary nonprofit organization itself, not a donor or donors as is the case with a designated fund. If your client serves on boards of directors of charities, they’d likely be interested in learning more about agency funds. Indeed, if you represent nonprofit organizations and their board members in your practice, it’s helpful to keep in mind that organizations frequently establish agency funds at the community foundation to set aside endowment reserves or rainy day funds. The team at the community foundation is adept at navigating the specific accounting standards that are unique to this type of arrangement.

Scholarship Fund

Clients can set up funds to support students’ educational pursuits based on the parameters and application requirements they outline with help from the experts at the community foundation. 

Here’s a pro tip: If you represent clients who are age 70 ½ and older, consider recommending a Qualified Charitable Distribution from a client’s IRA to a fund at the community foundation. All of the fund types noted above are eligible recipients, with the exception of only the donor-advised fund.

We look forward to working together to discover the type of fund (or funds!) at the community foundation that could be a good fit for each client’s unique charitable giving needs. 

Donor-advised funds: Recommended reading

As just one of many types of funds your clients can establish at the community foundation, the donor-advised fund is popular because it allows your client to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, the client can recommend gifts to favorite charities from the fund to meet community needs as they emerge.

On an ongoing basis, the team at the community foundation tracks legislation, legal developments, trends, news, and innovative strategies for all types of charitable giving so that we can keep fund holders and their advisors up to date. 

Recently, donor-advised funds have been the subject of conversation within financial and estate planning circles, as well as a trending topic in philanthropy, related to a set of proposed regulations issued by the IRS late last year. The IRS has scheduled public hearings on the proposed regulations, set for May 6, 2024.

Our team has compiled a list of articles we’d recommend if you’d like to dig deeper into the topic of donor-advised funds. Of course, we welcome your questions and comments, so please reach out anytime!  

–The Donor Advised Fund Research Collaborative’s recently-released study of donor-advised funds reported that the majority of donor-advised funds make at least one grant per year, and the average “pay-out rate” for all donor-advised funds is 18%. Donor-advised funds are frequently deployed as a tool to help philanthropists who have a wide range of financial capacity organize their charitable giving; consistent with that function, the study found that nearly half of all donor-advised funds carry balances less than $50,000. 

–Proposed IRS regulations related to donor-advised funds are attracting significant interest in legal circles. To dig into the legal issues, we recommend this article in Financial Advisor and its commentary from experts in the field, as well as this article if you are a Bloomberg subscriber. You can also check out the Council on Foundations’ comments on the proposed regulations for additional insight. 

–For a big-picture look at the state of donor-advised funds, including the relevance of recent research and the status and implications of the proposed regulations, check out this article in Wealth Management and this article in Think Advisor. 

As always, our team is staying on top of the issues. We’ll keep you posted! 

Tax time tips, reminders about CGAs and artwork, and loving local

FAQs: A snapshot of clients’ tax-time charitable giving questions

The year is in full swing. Attorneys, accountants, and financial advisors are asking clients to start gathering tax documents and related paperwork for 2023 tax returns and 2024 planning. Now is a good time for advisors to review a few basic tax principles related to charitable giving. Here are four questions that are top of mind for many advisors, along with answers that can help you serve your clients. 

How important is it to high net-worth clients to get a tax deduction for gifts to charity?

Among clients who own investments of $5 million or more, 91% of those surveyed reported that charitable giving is a component of their estate and financial plans. In another study, most affluent investors cited reasons for giving well beyond the possibility of a tax deduction and would not automatically reduce their giving if the charitable income tax deduction went away. What this means for your practice is that it’s important to be aware of your clients’ non-tax motivations for giving, such as family traditions, personal experiences, compassion for particular causes, and involvement with specific charitable organizations. This also means it’s critical to talk about charitable giving with all of your clients because it’s likely that most consider it to be important. 

Why do clients so often default to giving cash?

Many clients simply are not aware of the tax benefits of giving highly-appreciated assets to their donor-advised or other type of fund at the community foundation or other public charity. Even if they are aware, they forget or are in a hurry and end up writing checks and making donations with their credit cards. It’s really important for advisors to remind clients about the benefits of donating non-cash assets such as highly-appreciated stock, or even complex assets (e.g., closely-held business interests and real estate). When clients give highly-appreciated assets in lieu of cash, they often can reduce–significantly–capital gains tax exposure, and they can calculate the deduction based on the full fair market value of the gifted assets. 

What are the basic deductibility rules for gifts to charities?

It’s important to know that the deductibility rules are different for your clients’ gifts to a public charity (such as a fund at the community foundation) on one hand, and their gifts to a private foundation on the other hand. Clients’ gifts to public charities are deductible up to a maximum of 60% (s0metimes limited to 50%) of AGI, versus 30% for gifts to private foundations. In addition, gifts to public charities of non-marketable assets such as real estate and closely-held stock typically are deductible at fair market value, while the same assets given to a private foundation are deductible at the client’s cost basis. This difference can be enormous in terms of dollars, so make sure you let your clients know about this if they are planning major gifts to charities.

So what’s the first step? Reach out to the team at the community foundation! We really mean it. Make it a habit to mention charitable giving to your clients. From that moment on, whatever the clients’ charitable priorities, consider our team to be your behind-the-scenes back office and support department to handle all of your clients’ charitable giving needs.

Psst: Don’t forget about charitable gift annuities

Certain charitable clients may wish to structure a gift to charity so that the client retains a lifetime income stream. Keep in mind that a charitable gift annuity (“CGA”) could be an attractive option for these clients. Plus, if the client is 70 ½ or older, the client can take advantage of the one-time Legacy IRA opportunity to give $53,000 to a qualified charity such as an unrestricted or field-of-interest fund at the community foundation.

A CGA, like any other annuity, is a contract. Your client agrees to make an irrevocable transfer of cash or assets to a charitable organization. In return, the charitable organization agrees to pay the client (or a designated beneficiary such as a spouse) a fixed payment for life. Your client is eligible for an immediate income tax deduction for the present value of the future amount passing to charity. 

The team at the community foundation can help you stay up-to-date on the latest CGA rate changes (including the rates that took effect at the beginning of this year). We’ll work with you to evaluate whether and when a CGA is a good planning move for your client. 

Use caution when advising clients about donating works of art

Your clients who own highly-appreciated works of art certainly can consider making gifts of this property to a charity. Use caution, though, when helping clients structure gifts of artwork. To be eligible for a charitable deduction at fair market value, the nonprofit recipient’s use of the donated artwork must meet certain qualifications, in that the artwork has to be used for its charitable purpose (think art museums). On top of that, be wary of techniques that recently have come under severe IRS scrutiny and have been determined to circumvent the rules for tax deductions. 

Tips for serving clients who love local

Your charitably-minded clients certainly have no shortage of options for their philanthropic dollars. Many clients use their donor-advised funds, for example, at the community foundation to support favorite charities across the country, including alma maters, organizations in the communities where they’ve lived in the past or have a second home, or charities in communities where their grown children are now living. 

Many clients, though, are also deeply committed to the local community where they’re living now, where they’ve raised their children, and where they’ve built a business. That’s why it’s helpful to remind clients that they can reach out to the team at the community foundation when they want to make sure their dollars are making the biggest difference possible, right here in our community. Indeed, local giving satisfies many clients’ commitment to “take care of our own.” The unfortunate steady flow of crises and even disasters, coupled with decreasing state and federal funding to local nonprofits, means that philanthropy is playing an increasingly important role in our region. The community foundation, through its wide variety of fund types available to your clients (including endowment funds to support the community in perpetuity), can help your clients achieve their goals for local support, whether that takes the form of disaster recovery, supporting families in need, funding critical workforce development, or paving the way for historic preservation initiatives.

The community foundation team is always happy to provide insight into the challenges our community is facing right now and which organizations are delivering services to alleviate those needs so that your clients can provide immediate support through their donor-advised funds. 

In addition, an unrestricted fund may be a good fit for clients who want to improve lives, right here in this community, for generations to come, whatever challenges our region may face at any given point in time. An unrestricted fund may be particularly compelling for your clients who are 70 ½ or older. These clients may be eligible to make annual distributions up to $105,000 per spouse from their IRAs directly to an unrestricted fund at the community foundation. This transfer is called a “Qualified Charitable Distribution,” or “QCD.” Not only do QCD transfers count toward satisfying Required Minimum Distributions, but your client also avoids the income tax on those funds. Furthermore, those assets are no longer part of the client’s estate upon death, so the client can avoid estate taxes, too.  

Please reach out to the team at the community foundation for more information on how your clients can support both current and future local needs, and also meet their own financial, tax, and generational legacy goals. 

Spotting client opportunities, unrestricted giving, and tax trends to watch

Happy New Year from the community foundation!

We appreciated the opportunity to work with so many of you at the end of 2023! Your work with philanthropic clients is inspiring. It is our team’s honor to serve as your behind-the-scenes partner to help execute your clients’ charitable giving plans in the most tax-savvy, community-minded way possible.

In this issue, we’re covering topics that are important to you and your clients as you kick off a new year.

First, we’re offering suggestions for how to spot potential planning opportunities within your client base. Clients who gave large year-end gifts, families whose grown children are spread out geographically, and clients whose portfolios jumped in value are examples of types of clients who may benefit from proactive charitable planning. As always, we are here to help!

Second, we’ve continued to see an uptick in the number of families who are interested in diversifying their charitable giving portfolios by adding unrestricted giving components to their work with the community foundation. From gifts to the community foundation’s operating fund, to gifts to support community foundation grant making initiatives, the options are plenty. We look forward to exploring the possibilities with your philanthropic clients. 

Third, the team at the community foundation is constantly on the lookout for trends and developments in the tax laws that govern charitable giving. We’re sharing five of the hottest topics that could impact the way you work with your philanthropic clients. 

As always, the team at the community foundation is just a phone call or an email away to help you and your clients build charitable plans for 2024 to support the charities that are keeping our community afloat. 

Thank you for the opportunity to work together.

Your community foundation

Big gifts, bullish portfolios, and kids who move away

If you’re not talking about charitable giving with your high net-worth clients, 2024 is the year to start doing it! Recent studies show that 85.1% of affluent households give to charity. Certainly many of your clients are among them. 

Take a few minutes this month to scan your client list for three common scenarios and related opportunities for charitable giving solutions.

Clients who made significant charitable gifts at year-end. 

You’re probably aware of at least a few clients who increased their charitable giving at the end of 2023. Perhaps you worked with a client to establish a donor-advised or other type of charitable fund at the community foundation, or maybe you helped a client structure a Qualified Charitable Distribution to a field-of-interest or designated fund at the community foundation. Now that the dust has settled on year-end planning activities, go back to these clients to find out more about their overall philanthropic plans. You may discover that a client would like to work with you to update their estate plan to include a bequest to their fund at the community foundation, set up a charitable remainder trust with highly-appreciated stock, or proactively plan their charitable gifts for 2024 to get a jump on tax strategies. 

Clients whose stock portfolios have rallied.

2023 brought good news and record highs for the stock market  As always (and perhaps especially now!), giving appreciated, publicly-traded stock to charitable organizations is a highly effective tax strategy. This is because capital gains tax is avoided when your client transfers long-term, marketable securities to a fund at the community foundation or other public charity. The client is typically eligible for an income tax deduction at the fair market value of the securities, and when the charity sells the securities, the charity does not pay capital gains tax. This is a win-win for your client and the charity. Scan your client list for clients who are holding long-term stock positions that have appreciated substantially since they bought them, especially with the market’s latest rally.

Clients whose children have moved away. 

Children of affluent parents tend to move away. This means many of your clients may be seeking ways to stay in close communication with their children. Remember that while the community foundation can help your clients maximize the impact and tax benefits of their local giving, the community foundation’s tools are also very geographically flexible. This means, for example, that your clients can use their donor-advised fund to support 501(c)(3) organizations across the country, including in communities where their grown children are living. When you demonstrate your interest in your clients’ charitable giving priorities, you not only are strengthening your client relationships, but you’re also helping clients strengthen relationships with their children. 

Unrestricted giving, the trust factor, and why it matters to your clients

The gifts Americans give to charity every year provide critical support for more than a million organizations that are helping sustain the quality of life in our communities. Philanthropy equates to 2% of GDP–that’s a little more than the home health care services sector! And, trust is growing as a must-have prerequisite before your clients decide to give to an organization, increasing from 63.9% to 69.9% between December 2021 and December 2022.  

With trust in charitable organizations driving so many giving decisions, it’s important for you and your clients to be aware of the community foundation’s role and commitment to stewardship. Every day, the team at the community foundation works with members of our board of directors, civic leaders, and nonprofit organizations to deeply understand the areas where the people in our community need the most help. Today, the most pressing needs might be for emergency assistance in response to a disaster. Tomorrow, our community might need scholarships for inner city youth, or investments in research to improve access to healthcare for the underserved. Indeed, the needs of our community are ever-changing. The community foundation always has its finger on the pulse of the community’s top priorities and the best way to address them. Through its convening power, community knowledge, and perpetual mission, your community foundation is an unparalleled resource to make our community better for everyone.  

As you talk with your clients about their philanthropic plans, keep in mind that many individuals and families establish multiple funds at the community foundation to meet all of their various charitable giving needs. For example, a family might establish a donor-advised fund to organize their regular annual giving, making it easy to track gifts of appreciated stock and support for a large number of individual charities. A member of this family might also set up a charitable remainder trust with the community foundation to accept a gift of highly-appreciated real estate and retain an income stream for life. And, this family might also establish an unrestricted fund or make gifts to existing funds that are specifically designated by the community foundation and its board of directors to address the most critical needs of our community. For example, your client may decide to:  

–Contribute to an unrestricted fund at the community foundation to support the foundation’s long-term grant making. 

–Donate to the community foundation’s operating fund to support the foundation’s mission for years to come. 

–Support a special initiative fund to help people who need assistance right now to get back on their feet, relying on the community foundation’s network and expertise to invest the dollars where they’re needed most critically. 

Whatever ways your clients choose to get involved, you’ll know that you and your clients can trust the community foundation to make a lasting difference in the community we all love.

Tax law twists and turns: Five developments impacting charitable giving

2023 was a busy year! We understand that charitable giving topics may not always be at the top of your reading list. That’s why we're here! The team at the community foundation is committed to keeping you up-to-date on what you need to know. Here’s a recap of five key developments last year that are most certainly worth keeping an eye on in 2024.

NIL Collectives

The IRS has had a lot to say lately about NIL collectives. In addition to offering insights for athlete recipients of NIL (name, image, and likeness) dollars, the IRS has also issued guidance pertaining to organizations that help develop NIL opportunities for athletes, suggesting that the activities of these entities, known as “collectives,” may not qualify as “charitable.” This development could be problematic for your clients who believe that their contributions to NIL collectives will qualify for a charitable tax deduction.  

Donations of Cryptocurrency 

It’s still a thing! At least a few of your clients are likely still invested in cryptocurrency, despite the whirlwind in that industry over the last year or so. You should know that in early 2023, the IRS published guidance confirming that a taxpayer cannot take a charitable deduction for a gift of cryptocurrency over $5,000 without submitting a qualified appraisal. Cryptocurrency, in the eyes of the IRS, is treated as property, not cash. And it is not a security, either. Note that the IRS also said that a price quotation from a cryptocurrency exchange (such as FTX!!) doesn’t count; a qualified appraisal is still required. 

Charitable Act

Senate Bill 566, which is still pending, was introduced in early 2023 to address what is sometimes called the “universal charitable deduction,” meaning that even taxpayers who do not itemize their deductions would be able to claim a charitable deduction, potentially in an amount up to one-third of the taxpayer’s standard deduction. Keep an eye on this; the bill enjoys broad support and, if it becomes law, could be a real perk for both your clients and the charities they care about.  

Exempt Purpose

It seems that at least once a year, the IRS issues guidance on what it means for an organization to be organized for an exempt purpose under Section 501(c)(3). In Private Letter Ruling 202349014, we are once again reminded that personal activities that have no direct public benefit simply will not be viewed by the IRS as exempt. While private letter rulings are of course not binding, they are nevertheless useful tools to provide to a client to show specific examples of what the IRS considers to be non-exempt. Estate planning attorneys and CPAs tell us that every few months, a client comes to them with an idea for starting a nonprofit, and it’s easier to tell a cautionary tale than it is to recite Internal Revenue Code sections!   

Proposed Regulations

Proposed regulations issued by the IRS are not binding, and often they are revised–or even shelved or canceled entirely–before they go into effect. Still, the team at the community foundation is always keeping an eye out for these and other forms of IRS rulemaking that could potentially affect your work with your charitable clients. A recent example of this type of IRS activity is a set of proposed regulations concerning donor-advised funds, issued in November 2023. The public comment period ends in mid-January 2024, and then the IRS will take time to review the comments, so we won’t know anything definitive for quite some time. For those who are interested, we like the detail provided in this podcast series on the topic. You can take a long winter walk and learn everything you want to know about what’s being proposed! And of course, you’ll hear from us when (and if) the proposed regulations ever go into effect and what to do about it. 

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

What's around the corner for 2024?

By the numbers: What’s around the corner in 2024

As 2023 makes way for 2024, you’re no doubt inundated with information about the various IRS thresholds that are subject to adjustment. But have you thought about how each of these thresholds might be connected with your clients’ charitable giving? Here are a few pointers to keep handy as you inform your clients about changes for 2024 and also help them tee up their charitable giving plans for the coming year.

1. Social Security COLA increases

The Social Security Administration announced a cost-of-living adjustment (COLA) increase of 3.2% that will take effect in January. This increase is less than half of 2023’s COLA increase (which was the highest since 1981) and reflects inflation’s decline in recent months. 

Connection to charitable giving: Remember that retirees are a unique group when it comes to tools and techniques related to charitable giving. Remember also that 72% of Baby Boomers (and 88% of the Silent Generation!) give to charity every year, so if your clients include retirees, you’re almost certainly dealing with philanthropic individuals. When you talk about the Social Security increase, it’s a logical time to also bring up charitable giving plans for 2024. 

1. Standard deduction increases

The standard deduction will increase in 2024 by approximately 5.5 percent to $14,600 for single tax filers and $29,200 for married couples filing jointly.

Connection to charitable giving: The standard deduction is an important factor in charitable giving. Your clients whose gifts to charity, plus other deductions, total more than the standard deduction are eligible to itemize deductions. You know this, of course, but it is worth talking with your clients about their 2024 charitable giving plans (and their last-minute plans for 2023!) to evaluate whether a “bunching” strategy, working with the community foundation, could be helpful to maximize a client’s intended support of favorite charities over the next few years. 

1. Tax brackets

Though tax rates in each tax bracket, ranging from 10% to 37%, aren’t changing, the income levels that define each bracket are increasing. Generally speaking, your clients can earn up to about 5% more in 2024 and remain in their 2023 tax bracket. 

Connection to charitable giving: Reviewing tax brackets with your clients is a good time to bring up pending legislation known as the Charitable Act, which would create a “universal deduction” even for taxpayers who do not itemize. A similar, pandemic-era law that has since expired helped boost giving following the drop in giving that occurred after the standard deduction increased in 2018.  

4. Qualified Charitable Distributions

Each taxpayer aged 70½ and older may direct up to $105,000 in distributions from an IRA to a qualified charity in 2024, up from $100,000 in 2023. Note that your client can make a once-in-a-lifetime QCD to a charitable remainder trust or charitable gift annuity in the amount of $53,000 in 2024 (adjusted for inflation from $50,000 in 2023).

Connection to charitable giving: With the ability to give more in 2024 than 2023, your clients can further escape income tax via QCDs and satisfy a greater portion of  their Required Minimum Distributions (RMDs). Field-of-interest and designated funds at the community foundation are very effective recipients of QCDs. 

Four jewels of charitable giving in your clients’ golden years

The rising popularity of the Qualified Charitable Deduction–”QCD”--appears to be inspiring an increasing number of retirees to re-evaluate their charitable giving plans. Before the clock winds down on 2023 giving opportunities, be sure you’re familiar with the various charitable giving techniques that are most appealing to retirees and the various ways the community foundation can help.

Here are four characteristics of retirees and their charitable giving situations that will help you serve your retired clients.

–Greater connection to community. Retirees often feel a greater connection to their community and favorite charities than your clients who are not retired. Whether it’s because a retiree’s income and corresponding giving capacity are more predictable, or because a retiree has more time, getting involved with favorite charities can help retirees stay active and even avoid loneliness. The team at the community foundation stays connected with the many nonprofit organizations in our region, and we are happy to serve as a sounding board for your retired clients who want to get involved. 

–Less likely to itemize deductions. Many retirees apply the standard deduction on their income tax returns because they don’t have many expenses that qualify for itemization, such as business expenses and mortgage interest deductions. Help your retired clients evaluate whether itemizing deductions in certain years could be beneficial. Through a donor-advised fund at the community foundation, your clients may be able to concentrate charitable contributions into particular tax years and benefit from the deductions above and beyond the standard deduction. This is called “bunching,” and a donor-advised fund can help your client take advantage of itemizing tax deductions while still allowing them to provide steady support to nonprofits in years that follow the itemizing year.

–More interested in involving children and grandchildren in their philanthropy. The community foundation is happy to help your retired clients fulfill their desire to stay connected with their children and grandchildren, including formalizing roles for these family members as advisors and successor advisors of the retiree’s donor-advised fund at the community foundation. This is often an excellent and easy way to structure philanthropic priorities for generational wealth as well as create positive, authentic communication channels across an extended family.

–Excellent candidates for Qualified Charitable Distributions. Your clients who are at least age 70½ can direct a tax-free distribution (up to $100,000 per spouse in 2023) from an IRA to a qualified charity such as a field-of-interest or designated fund at the community foundation. For your clients who must take Required Minimum Distributions (RMDs), the Qualified Charitable Distribution (QCD) is especially beneficial. This is because the distribution to charity counts toward the RMDs and therefore never lands in the client’s taxable income. 

Philanthropy keeps your clients sticky

Regardless of your business or industry, retaining your clients or customers is a key to success. And as the saying goes, it’s easier and less costly to retain or get more work from a current client than it is to find a new client. 

As an attorney, accountant, or financial advisor who helps clients with tax and estate planning matters, you’re well aware of the fragile transition phase after a client passes away. Not only are many tax planning techniques activated (and validated!) after a client’s death, but you’re also navigating the understandably stressful and emotional factors that impact your work with the heirs to administer the estate, transfer assets, and file tax returns. 

It’s no wonder that the death of a client presents business retention challenges. You’d love to continue representing the client’s children, but that can be a difficult discussion immediately following their parents’ death. It’s no surprise that the rate of advisor disconnect and abandonment from one generation to the next is remarkably high. The numbers behind this churn are staggering. Historically, studies have found that 75% of parents report that their advisor had never met their children, and 10% or fewer of heirs retain their family’s advisor post-inheritance.

The solution is, of course, for the advisor to establish a connection with the next generation well in advance of a client’s death. Certainly there are many ways to cultivate a next-generation connection—starting young, sending birthday or holiday cards, encouraging clients to include children in meetings where appropriate, offering to counsel children on career choices, and making networking introductions or job referrals. Few touchpoints, however, are as substantive and meaningful as philanthropy. After all, in most clients’ view, inheritances are about more than money. They’re about values, humanity, multi-generational connections, understanding wealth’s origins, and more. 

Children who get to know their parents’ advisors begin to appreciate the advisors’ roles in not only making family wealth last across generations, but also leaving a family legacy to the community. The community foundation can help advisors create opportunities to discuss philanthropy with clients and their children and grandchildren. Here are a few examples:

–Suggest that your clients consider working with the community foundation to establish easy-to-understand charitable giving tools, such as a family donor-advised fund, field-of-interest fund, or designated fund. 

–Encourage your clients to take advantage of the community foundation’s services for families, which include researching family members’ favorite causes, arranging site visits at local charities, and educational sessions about the basics of charitable giving and what’s going on in the community. 

–Share with your clients and their children materials provided by the community foundation describing tax-savvy charitable giving, including the benefits of giving highly-appreciated stock instead of cash to a fund at the community foundation to avoid capital gains taxes.

–Ask the community foundation to help facilitate family discussions so that all family members  see how they can support causes that have been important to their parents and grandparents over the years as well as causes that are contemporary, relatable, or meaningful to them. 

While any conversation with a client’s child or grandchild can increase the likelihood of retaining the family as a client across generations, the topic of philanthropy is an especially effective tool to create a common bond that keeps the family from becoming your former client. 

“I still don’t get it”: TLC for your clients’ QCDs

Despite the Qualified Charitable Distribution’s (QCD) position as a financial media darling, mentioned in hundreds of articles every week, it’s still not an easy concept to get your head around. This is not only true for clients, but also for advisors whose areas of practice don’t typically include philanthropy. 

The confusion is understandable because several legal and tax issues are in play with a QCD:

–Eligibility age (QCDs are available to your clients who’ve reached the age of 70 ½)  

–Rules for Required Minimum Distributions (RMDs) from IRAs (which clients must start taking for the year they reach age 72 [or 73 if the client reached age 72 after December 31, 2022])

–Okay, let’s pause for a moment! The difference in age requirements alone is already confusing!

–The types of charities that can receive Qualified Charitable Distributions (e.g., donor-advised funds at the community foundation are not eligible, but designated funds and field-of-interest funds at the community foundation are eligible)

–The maximum amount your client can give through a QCD is $100,000 for 2023, but that’s increasing to $105,000 for 2024 due to inflation adjustments

–The mechanics of executing a QCD are, well, a hassle! 

All of this adds up to a pretty complex set of requirements for executing a QCD, including:

–A QCD allows a taxpayer aged 70 ½ or older to donate directly to a qualifying organization from their traditional IRA, but unlike a typical distribution, the amount directly distributed does not add to the donor’s taxable income. 

–A bonus is that for clients required to take RMDs, the QCD can count toward the RMD, though conditions apply. 

–Among those RMD-specific conditions is that the QCD amount must be among the first funds to exit the IRA in a given tax year, at least within the RMD amount, to receive tax deductibility. Thus, the QCD must be taken early enough in the tax or calendar year, preferably in January, so as not to occur after a full RMD has been taken out by the donor. 

–QCDs must be appropriately tracked and acknowledged by the charitable recipient (and reflected in a corroborating 1099 tax form) and properly recorded on your client’s tax return as distinct from the RMD (IRA sponsors typically do not make the distinction on their forms).  

Yes, it’s a lot. 

Here’s the thing, though. If you have clients who are 70 ½, own an IRA, and are charitably inclined, you absolutely must consider the QCD as an option. And it does not need to be hard. Just reach out to the community foundation, and we’ll walk you through it, every step of the way.   

While QCDs are a win-win in many ways, and particularly with the decline of itemized filers since 2017 when the standard deduction increased, executing a QCD typically requires a lot of TLC, as they say. The community foundation is here to help! 

Music to your ears: There’s a fund that’s just right for every client

We look forward to working together to discover the type of fund at the community foundation that's a good fit for each of your clients’ unique charitable giving needs. Options include donor-advised funds, scholarship funds, field-of-interest funds, endowments, corporate foundation funds, unrestricted funds, funds established by private foundations, memorials, designated funds, charitable gift annuities, and bequests. Nonprofit organizations can establish accounts to hold reserve funds and endowments. 

Here’s a quick primer on a few of the most popular fund types.

Donor-advised Fund

A donor-advised fund enables your client to establish a specific account for charitable giving. Your client makes tax-deductible contributions of cash (or, ideally, stock or other highly-appreciated assets) to the fund, and then recommends grants to favorite charities. 

Unrestricted Fund

The community foundation has its finger on the pulse of the community’s most pressing issues. An unrestricted fund gives your client the opportunity to support community needs that can’t be identified until the future. One of the biggest benefits of a community foundation is its perpetual structure that allows clients and their families to offer support to nonprofits that evolves over time as priorities in the region shift. 

Field-of-interest Fund

Clients who want to target their giving to specific areas of community need (such as education, health, environment, or the arts) can set up a field-of-interest fund to establish parameters for grant making under the ongoing guidance and expertise of the community foundation’s staff.  

Designated Fund

A designated fund allows a client to direct giving to a specific agency or purpose. Over time, the community foundation's staff manages the distributions from the fund according to the terms established by your client.

Agency Fund

An agency fund is similar to a designated fund, except in the case of an agency fund, the source of the initial contribution is the beneficiary nonprofit organization itself, not a donor or donors as is the case with a designated fund. If you represent nonprofit organizations and their board members, it’s helpful to keep in mind that organizations frequently establish agency funds at the community foundation to set aside endowment reserves or rainy day funds. The team at the community foundation is adept at navigating the specific accounting standards that are unique to this type of arrangement.

Scholarship Fund

Clients can set up funds to support students’ educational pursuits based on the parameters and application requirements they outline with help from the experts at the community foundation. 

Here’s a pro tip: If you represent clients who are age 70 ½ and older, consider recommending a Qualified Charitable Distribution from a client’s IRA to a fund at the community foundation. All of the fund types noted above are eligible recipients, with the exception of only the donor-advised fund.

We look forward to talking with you about the type of fund that’s best for each of your charitable clients!

Gotta love a good checklist

Have you had your fill yet of year-end checklists? This time of year, every accountant, attorney, and financial advisor is inundated with messages and articles to help guide them in serving clients year-end giving needs.

We’ve picked a few of our favorites (and we’ll tell you why!) so you can clean out your inboxes more quickly. 

Local and intentional. We like the format of this list, where advisors themselves are sharing their own favorite tips. We also like the emphasis on making sure your clients understand what they’re giving to and consider giving locally. The community foundation is your go-to resource for this! Reach out anytime. We’re happy to help you help your clients make a meaningful difference this holiday season, right here in our community.

Comprehensive and in context. We like the breadth and depth of this checklist and the way it places charitable giving in the context of other financial decisions your clients are making at year-end. Charitable giving does not happen in a vacuum, and we appreciate this article’s inclusion of charitable giving as part of a well-rounded end-of-year protocol to serve the full range of clients’ needs. (This is also a similar, strong piece, although a subscription is required.)

Focus on community. We like this checklist because it boils the tips down to six, two of which are charitable-giving related. 

Above all, give us a call! The team at the community foundation is here for you. Put our website and phone number at the top of all of your checklists, year-end or otherwise. Whether your question relates to a client’s favorite cause, giving from their IRA via a QCD, setting up a donor-advised or other type of fund, or anything else related to charitable giving and philanthropy, we look forward to the conversation.

Year-end charitable giving punch list, why life insurance shouldn’t be overlooked, and what’s trending in philanthropy

Hello from the community foundation! 

Thank you for the opportunity to work together as you serve your philanthropic clients. We are grateful for the many ways our team collaborates with attorneys, accountants, and financial advisors. Whether we are working together to structure a family’s donor-advised fund, a gift of real estate, endowed support for a favorite nonprofit, or a Qualified Charitable Distribution to a field-of-interest fund at the community foundation, our team enjoys and appreciates every minute.

We’re covering three topics in this issue that are very much in demand right now:

--Keep a punch list handy for your upcoming meetings with your philanthropic clients. Key items to cover include reviewing clients’ charitable goals, exploring the various fund types available through the community foundation, and understanding the advantages of a community foundation donor-advised fund over those offered by national providers. Our team is here to help! 

--Don’t overlook life insurance as an effective charitable giving tool for certain clients under certain circumstances. You might find that for some clients, buying additional coverage is a solid financial move that also expands the beneficiary pool to include a charitable organization such as the client’s fund at the community foundation.

--Keep an eye on developing news in the philanthropic sector, including the Charitable Act which would expand charitable deductions to non-itemizers, recent IRS rulings affecting supporting organizations, and the benefits of establishing a field-of-interest or designated fund at the community foundation to focus charitable support on a particular area of need (and take advantage of QCDs, too).  

As always, we are here for you! We love serving as your first stop for all things philanthropy.

Wishing you and your family all the best for the Thanksgiving holiday,

Your community foundation

Tips for clients’ year-end giving

Year-end giving makes up a significant portion of total revenue for most charitable organizations. Research even shows that a whopping 25% of online giving occurs in December! What this means is that there’s a pretty good chance your clients are already considering end-of-year gifts to support causes they care about, are being asked by at least one nonprofit for an end-of-year gift, or both. That’s why it’s important for you to talk with clients well in advance of the year-end giving rush. 

Here are six tips to help jumpstart your client conversations over the next few weeks. Please give us a call if you’d like to dive deeper! We are here for you. 

Check in on goals. By discussing your clients’ overall charitable goals, you can ascertain which causes your clients are passionate about and why they care, how much they’d like to contribute in the short term and over time, the impact they’d like to see, and whether they intend to provide for their favorite charities in their estate plan. Against this backdrop, year-end giving strategies become easier to develop.

Explore a wide variety of fund types. Donor-advised funds are very popular vehicles, and community foundations are ideal providers of donor-advised funds for clients who want to keep their philanthropy local and benefit from the community foundation’s focus, expertise, and mission-driven 501(c)(3) status. But donor-advised funds are not the only types of funds that the community foundation offers. Your clients can also establish field-of-interest funds, designated funds, unrestricted funds, or scholarship funds. Our team will help you evaluate what type of fund (or funds) is best suited for a particular client. For example, a client considering a Qualified Charitable Distribution from an IRA is a great candidate to establish a field-of-interest or designated fund.  

Understand the community foundation’s donor-advised fund advantages. As you work with clients for whom a donor-advised fund is appropriate, be sure you understand why the community foundation is such a great fit for so many philanthropic individuals and families. Indeed, the community foundation is the truly local option for donor-advised funds. Large, national providers associated with financial institutions also offer donor-advised funds, but those vehicles are typically not a fit for clients who care about our community and want to support the region’s nonprofits in a meaningful way. 

Know how a donor-advised fund works. It’s easy for a client to establish a donor-advised fund at the community foundation. After completing simple paperwork, your client will make a tax-deductible gift (of cash or, ideally, stock or other highly-appreciated asset) to the community foundation to fund the donor-advised fund. The funds can then be granted out to eligible charities at the client’s recommendation over time. Many clients find that a donor-advised fund operates almost identically to a private foundation, but without the sometimes hefty administrative overhead costs and burdensome restrictions. A donor-advised fund can be named after the client (e.g., Smith Family Fund) or named to reflect the purpose of the client’s giving (e.g., Fund for the Future of Anytown), or even structured to enable the client to give anonymously. 

Supercharge both tax benefits and giving. Giving through a donor-advised fund at the community foundation may allow a client to tap a helpful technique called “bunching,” which maximizes the client’s itemized deductions for the tax year, while still ensuring that the client can give strategically over the next few years to achieve charitable goals and support favorite organizations when they need it the most. 

Don’t default to cash. Many clients naturally think of cash as the source for their year-end giving. That’s a missed opportunity! Most of the time, highly-appreciated marketable securities (or other highly-appreciated, long-term assets) are a better gift to a client’s fund at the community foundation or other public charity because the client is eligible for a tax deduction at the assets’ fair market value, and the proceeds from the sale of the assets will flow into the client’s fund at the community foundation free from capital gains tax. That means more funds are available to support the client’s favorite causes.  

Philanthropy is an important topic of conversation with your clients, not just at the end of the year, but always. Our team is here to help you ensure that your clients can meet their financial and charitable goals through year-end giving and beyond.

Life insurance: A key charitable planning tool for certain clients

As an advisor, you often talk with your clients about life insurance–how much is enough and which policies are best suited for a client’s particular situation. As you counsel your clients about risk management and the role of life insurance in their estate plans, don’t forget that life insurance can be an effective charitable giving tool in some situations.

Many advisors overlook the ease of naming a charity as the beneficiary of a life insurance policy. Certainly, qualified plans and IRAs are a more tax-effective vehicle to leave to a charity via a beneficiary designation, but some clients might want to do even more than that. For instance, “second-to-die” life insurance policies are a common hedge or shield against anticipated estate taxes. These policies may become more popular as the estate tax exemption drops back down at the end of 2025. 

Some clients may not be fully aware of how important beneficiary designations really are. Of course, many policyholders will first want to provide for family members in either specified dollar amounts or percentages. What some clients may not realize is that they can also designate insurance proceeds to support the causes they care about, whether by naming a charity directly or naming a fund at the community foundation to carry out their charitable wishes.  

Increasing the coverage under an existing policy may present an additional charitable giving opportunity for some clients. Because policy premiums generally do not rise proportionately to benefit amounts, expanding the benefits can be cost efficient. For example, if a client would like each of four family-member beneficiaries to receive $250,000 from a million-dollar life insurance policy, adding $250,000 of benefit will typically not increase the premium by 25%. In fact, the benefit-to-premium ratio may improve. In a case like this, the client can name the four family-member beneficiaries and the charity to each receive ⅕ of the policy benefits. Depending on the client’s overall financial and estate planning picture, a technique like this might truly deliver bang for the buck.  

And although deploying life insurance as a charitable planning technique may not be a fit for every client, it’s certainly worth considering in edge cases. Indeed, the global market for term insurance is growing—from $850 billion in 2021 to an expected $1.3 trillion by 2028. Many people buy term insurance with its relatively low fixed-rate premiums for 20 - 30 years as a hedge for potentially lost income during high-expense times in life, such as children’s college years, or to pay off a mortgage. But if those years pass uneventfully (fingers crossed!), and amid an improved personal financial position, it’s an opportune time to reassess and even continue the policy. 

Past term insurance policy premiums can then be viewed as sunk or unrecoverable costs, and future premiums can be seen as a relatively moderate “investment” relative to the benefit. Of course, all of your clients want to outlive their policies. But as long as a policy is in effect, the policy offers many potential opportunities, including for charitable giving. Reach out to the community foundation to explore this further. We’d love to talk! 

Philanthropy tips and trends

Many eyes are on the Charitable Act, which, if passed, would allow for deductible charitable contributions that exceed the standard deduction. The Charitable Act proposes to restore the pandemic-era “universal charitable deduction” and raise the cap from $300 for individuals ($600 for joint filers) to approximately $4,600 for individuals ($9,200 for joint filers). 

Some advisors have been watching the regulations surrounding Type I and Type III supporting organizations. If you are dealing with these vehicles in your practice, be sure to stay up to date on the latest IRS regulations. 

Finally, for your situational awareness as you advise clients who are pet owners, no amount of pet cuteness on Instagram will resolve the nationwide overcrowding at animal shelters. Dog and cat populations are up sharply from the pandemic due to owner-adopters returning to in-office work, inflationary costs for food and veterinary care, and owners seeking new forms of companionship. For a client who is passionate about this issue–or any issue–be sure to encourage your client to learn more about establishing a designated fund or field-of-interest fund at the community foundation to support highly targeted areas of relief, and, for those clients who are over 70½, serve as recipients of Qualified Charitable Distributions from IRAs.  

This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

What’s deductible, donor-advised fund options, and serving women clients

Hello from the community foundation! 

It’s October, and the fourth quarter is upon us.  

The team at the community foundation is especially looking forward to talking with many of you about incorporating charitable giving into your clients’ estate plans in honor of National Estate Planning Awareness Week from October 16 to 22. In that spirit, we’ve put together a collection of articles this month that might help guide your discussions with clients. Here’s what’s on tap:

What’s deductible and what’s not? As you talk with clients about supporting their favorite charities in their estate plans, it’s a great time to brush up on the rules for deductibility. This is the time of year when nonprofit solicitations are landing in clients’ inboxes and mailboxes nearly every day. Clients might not always realize that “nonprofit” does not necessarily mean “charitable” in the eyes of the IRS. Our brief summary of the rules provides a handy primer for you and your clients.

Moving from a commercial fund to the community foundation. Clients are reading about donor-advised funds everywhere these days! Some of your clients might even have established a donor-advised fund at a “commercial gift fund” without you even knowing it. As you work with clients on their estate and financial plans, be sure to ask whether the client has a donor-advised fund. In many, many cases, moving the donor-advised fund to the community foundation from a national financial institution provider is not only easy, but also is a far better fit for your clients. Learn why. 

Charitable planning and women clients. The dynamics are different when you’re working with women on their estate and financial plans. Make sure you approach these conversations with solid awareness of the often unique perspectives women bring to the table when they are deciding how to structure their wills or trusts and which vehicles they will use to support charities. We’re coming off a summer of Barbie and records broken by Taylor Swift and Beyonce; your women clients will appreciate your awareness of what’s going on in the marketplace. We’re offering tips for your conversations.

We hope you enjoy the updates and, as always, we look forward to hearing your comments and suggestions about topics and resources that would be useful to you as you serve your philanthropic clients.

Thank you for all you do to make our community a better place by assisting your clients with charitable planning. It is our honor and pleasure to support your work in any way we can.

All the best,

Your community foundation 

Clients want to know: What’s deductible and what’s not?

Whether you are an estate planning attorney, financial advisor, or accountant, you’ve probably seen an uptick in client questions about tax deductions–and tax rules in general–over the last few years. Tax law changes at the end of 2017 have caused a lot of ongoing taxpayer confusion. 

To be sure, your clients will be asking about charitable tax deductions as year-end rolls around. As an advisor, you’re already working with clients on financial and tax planning all year long, but fall is the time when many clients buckle down. Whether it’s the change in the weather or the imminent end of the calendar or tax year, autumn is a time to reassess things like tax loss harvesting and charitable giving. These are just two of many types of transactions that result in deductions when tax returns are filed in the spring. 

Charitable giving may be especially high on the planning radar right now because of the many national fundraising initiatives that kick into gear this time of year. You (and your clients) have probably noticed that many different types of causes are celebrated each and every month. October, in health-related charities alone, is National ADHD Awareness Month, National Down Syndrome Awareness Month, Pregnancy and Infant Loss Awareness Month, Spina Bifida Awareness Month, National Physical Therapy Month, and likely many more. 

Make sure your clients are aware that there are specific parameters around tax deductibility before they respond to requests from organizations and even their friends and family members who support these organizations. Your clients are relying on you as an advisor to stay on top of the rules, including:

–Section 501(c) of the Internal Revenue Code lays out the requirements for organizations to be considered tax-exempt--a status for which an organization must seek IRS approval. 

–Tax exemptions apply to certain types of nonprofit organizations, but status as a nonprofit (which is a state law construct) does not necessarily mean that the organization will be exempt from Federal income taxes.

–Furthermore, even under Section 501(c), there are different types of nonprofits that are recognized by the IRS as tax-exempt. 

–To qualify under the Internal Revenue Code Section 170 charitable deduction for gifts to Section 501(c)(3) organizations, for example, the recipient must be organized and operated exclusively for “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.” “Charitable,” according to the IRS, has a very narrow definition.   

–No doubt, many of your clients not only support 501(c)(3) charities, but also social welfare groups organized under Section 501(c)(4). Examples of social welfare groups include neighborhood associations, veterans organizations, volunteer fire departments, and other civic groups whose net earnings are used to promote the common good. Donations to social welfare groups are tax deductible in only certain cases (e.g., gifts to volunteer fire departments and veterans organizations). 

–Chambers of commerce and other business leagues fall under Section 501(c)(6); donations to these entities are not tax deductible. 

If you have any questions about the tax deductibility of your clients’ contributions to various organizations, please reach out to the team at the community foundation. We are immersed in the world of Section 501(c) every single day and are happy to help you navigate the rules. 

Spotting opportunity: Moving from a commercial fund to the community foundation

Although a donor-advised fund, which is becoming a more and more popular charitable planning tool, can be established through a national financial institution, the community foundation offers its donor-advised fund holders much broader services, more personal attention, and deeper connections to the nonprofits whose work is essential to effecting positive community change. Unfortunately, many attorneys, accountants, and financial advisors are simply not aware that a donor-advised fund established at the community foundation is in most cases a far better fit for their clients than a donor-advised fund set up at a “commercial gift fund.” 

As you meet with your clients about year-end planning, be sure to ask whether they’ve established a donor-advised fund and if so, where it’s housed. If a client’s donor-advised fund is not at a community foundation, but instead was established through a national provider, please give us a call. We would be happy to talk with you and your client about the ease and benefits of moving the donor-advised fund to the community foundation. 

The community foundation offers donor-advised fund holders the same tax and administrative benefits as a commercial gift fund, including:

–Online access to the donor-advised fund to view balances, contributions, and grants

–Simple process for requesting grants to favorite charities

–Streamlined tax reporting, often represented by just one letter to provide to an accountant at tax time, even when the donor-advised fund is used to support dozens of individual charities throughout the year

–All back-office administration, tax receipts, recordkeeping, and other requirements for the donor-advised fund’s 501(c)(3) status

–Favorable tax-deductibility of contributions to the fund

Unlike standard commercial gift funds, though, the community foundation offers high-level, customized services to its donor-advised fund holders, including:

–Concierge-level service by knowledgeable staff to structure estate gifts to charities and accept gifts of appreciated stock or complex assets such as real estate or closely-held stock

–In-house experts who have a finger on the pulse of community needs, the strengths of specific nonprofits, and how to structure grant making for the highest possible community benefit

–Opportunities to collaborate with other donors who care about similar issues and forums to tap into local and national subject matter experts

–Opportunities to go deep into specific issue areas, both through education and hands-on involvement

–Assistance with structuring and measuring the impact of grants 

–Family philanthropy and corporate giving services to foster a well-rounded, holistic approach to philanthropy 

–Administrative fees that are reinvested into the community foundation, itself a nonprofit, to help support operations, grow its mission, and help even more donors support the causes they care about

–Hands-on assistance from local experts who understand both local and distant needs, and welcome the opportunity to research and identify causes aligned with donors’ goals and priorities 

–Staff members who live in the community they serve and often personally know the leaders and staff of grantee organizations and regularly hear about their needs first-hand

Keep an eye out for clients’ donor-advised funds at commercial gift funds. You’ll be doing a tremendous service for your client, and you’ll be helping the local community. You will also be fulfilling your own professional responsibilities by exploring the opportunity for a client to move a donor-advised fund to the community foundation. At the community foundation, hard-earned assets receive the attention they deserve as your clients strive to make a difference in the causes they care about the most. 

Charitable planning and women clients: Three mini-case studies

Women’s spending power has been in the news over the last several weeks as Taylor Swift’s and Beyonce’s tours continue to break records and the Barbie movie still looms large. As you’ve worked with female clients over the years, you’ve likely noticed a few trends:

–Women frequently take on caregiving roles within a family, including caring for both their parents and their own children, and often while also working full-time or owning businesses.

–Women often take the lead on charitable giving decisions.

–Women often find themselves living alone at some point in their lives, including because of a spouse’s death or because of divorce. 

–Women often have a hard time putting themselves first.

At the community foundation, we are always up-to-date on the trends in philanthropy that affect women as they build charitable components of their estate and financial plans. Our team is happy to provide helpful resources if you’d like to learn more about how philanthropy plays a role in your female clients’ lives.   

Here are three examples of cases where the community foundation team can help:

Family philanthropy vehicle funded with tax-efficient assets

We can work with you and your client to establish a donor-advised fund that includes your client and her children as advisors so that they can all learn together about nonprofit organizations in our community and jointly decide on grant recipients, tapping the knowledge and connections of the community foundation team. We can help you identify the most optimal assets for your client to transfer to the donor-advised fund, including highly-appreciated stock, real estate, or even an interest in a closely-held business. 

Funds dedicated to a specific area of interest funded with IRAs

Our team can provide deep research and expertise on a client’s specific areas of interest, whether that’s the arts, education, emergency assistance, medical research, or another cause that is important to your client. Then, we can work with your client to establish a field-of-interest fund at the community foundation to receive Qualified Charitable Distributions from your client’s IRAs. Your client can also name the field-of-interest fund as the beneficiary of the IRA to receive the remaining assets at her death. Your client will enjoy the confidence of knowing that her charitable priorities will continue to be supported for years to come, even beyond her lifetime.

Organization-specific support formally incorporated in estate plan

For a client who has dedicated many years of her life to supporting a particular charitable organization, including perhaps even serving on the organization’s board of directors, our team can work with you to help the client understand what that organization needs to be successful for many generations. Then, we can work with your client to help fill those gaps. For example, grants from the client’s donor-advised fund could provide the money needed to hire a new staff person or purchase new technology that will improve the charity’s ability to deliver on its mission. Your client could even leave a bequest in her will or trust to establish a designated fund at the community foundation that provides supplemental income each year to the organization’s operating budget. 

We look forward to working together as you help your female clients achieve both their financial and charitable goals.

This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

Supporting charities through the sale of a business, smart disaster giving, AND appreciated stock

Greetings from the community foundation! 

Fall is upon us, and philanthropy is on the minds of many. That’s not only because you and other attorneys, accountants, and financial advisors frequently start year-end planning for your clients in September, but it’s also because charitable individuals and families are looking closely at their charitable giving goals and budgets for the year and setting in motion the gifts they want to make before 2023 winds up. And of course, during this year’s giving season, philanthropy will surely be on the minds of many because of the tremendous community needs in the wake of recent natural disasters.

The community foundation is here to assist you as you guide your clients in executing their philanthropy plans for the remainder of 2023. In that spirit, we’d love to draw your attention to three important topics:

Giving to relief efforts

Your clients might not realize that charitable giving support is not only needed immediately following a disaster such as a hurricane or fire, but also ongoing as communities rebuild over the long term. Lean on the community foundation to help you work with your clients to structure gifts to provide relief and support for the people of Maui affected by the fires and the people impacted by Hurricane Idalia. Indeed, community foundations are an important “first responder” to help ensure that charitable support is facilitated efficiently and effectively and is deployed as fast as possible to the people who need it most–and over time as rebuilding and recovery efforts persist for years. 

The power of appreciated stock

We just can’t say this enough! Attorneys, accountants, and financial advisors like you are well aware of the tremendous benefits your clients get when they give appreciated stock, instead of cash, to their donor-advised funds at the community foundation. Unfortunately, the message often does not get through to clients. A regular reminder from you is so important to ensure that your clients are maximizing their charitable giving dollars to not only support their favorite causes, but also to optimize their own financial plans. Despite the rocky stock market, many stocks are way up in 2023.

Business sale on the horizon? 

Your clients who own businesses might be eyeing some analysts’ predictions that mergers and acquisitions may pick back up in 2024. That’s good news for clients who are looking at possible exit strategies. If these clients are charitable, though, start talking about it now. Gifting shares of closely-held businesses to a fund at the community foundation is a brilliant strategy, but you must think way ahead to avoid running afoul of IRS rules. The community foundation can help. 

As always, we appreciate the opportunity to work with you and your clients! 

–Your community foundation

Smart disaster giving can offer predictability to the unpredictable

Sadly, rarely does a month go by without the news of another disaster or humanitarian tragedy. Most recently, the Maui fires and Hurricane Idalia are making the headlines–and also generating widespread charitable support. Indeed, many of your clients are no doubt supporting relief efforts through monetary donations.  

Disasters are both unpredictable yet, sadly, predictable. Multi-billion-dollar damage events occur annually and, not surprisingly (and thankfully), natural disasters and humanitarian tragedies consistently attract much-needed philanthropic support. 

Understandably, most of the charitable dollars following a disaster flow toward essential and immediate relief efforts. Your clients might be interested to know, however, that dollars for efforts related to rebuilding and future mitigation are also critically important. Affected communities need both immediate philanthropic support for people affected by a disaster and long-term support to address ongoing ramifications. Ongoing support, for example, is needed not only for rebuilding after a fire or hurricane, but also to fund preparedness to blunt the effects of the next fire, hurricane, or pandemic.  

The team at the community foundation is happy to work with you and your charitable clients to explore ways to address future humanitarian disasters. Many people, for instance, use their donor-advised funds at the community foundation to support disaster relief efforts. And with rebuilds and recoveries often occurring long-term, a bunching strategy could help clients support disaster relief efforts through their donor-advised funds for several years. This allows clients to plan in advance to provide support, while also being smart about the tax advantages in the year of the transfer to their donor-advised fund. 

Not limited to disaster responsiveness, the community foundation is an ideal partner for disaster preparedness. Encourage your clients to consider endowments, field-of-interest funds, designated funds, and other perpetual structures established through the community foundation to ensure that the community we love is protected for generations to come. Field-of-interest or unrestricted funds can be especially attractive because, for people who’ve reached the age of 70 ½, these funds are eligible recipients of QCDs (Qualified Charitable Distributions) from IRAs. Creating a field-of-interest or unrestricted fund allows a client to make charitable gifts in advance of disasters so that the community foundation can deploy resources immediately when urgent needs occur. 

As disasters and hardships across the country inevitably occur, the team at the community foundation is honored to serve as your valuable resource as you help your clients deploy the power of philanthropy as a helping hand to those who need it most.

Keep your eye on clients’ appreciated stock–always

Such a difference a year makes–maybe!?

By August 2022, markets were down 12% for the year and inflation was up 8.3% year-over-year. Perhaps consequently, but then unknown, annual charitable giving was on its way to a rare (fourth time in 40 years) year-over year decline of some 4% according to Giving USA. Certainly this decline was due in part to donors not wanting to give stock at depressed values. You likely even discussed this with your clients! 

Nearly 12 months later, as of July 2023, markets were up 7.28% year to date and inflation was roughly half at 4.7% year–over-year. Even though the stock market still shows signs of volatility, hopefully, charitable giving will rebound. 

No matter the times, and even in down markets, some stocks will still out-perform. These holdings are of course excellent candidates for your clients to give to charity and avoid taxes on the capital gains. This year is no different, with stocks like Microsoft, Apple, Nvidia, among others, enjoying banner years. Indeed, Microsoft, Apple, and Nvidia were up 38%, 36% and 228%, respectively through mid-August. For some of your clients, these gains have created concentrated stock positions where you, as an advisor, may believe that portfolio allocations have become imbalanced under the investment strategy you are pursuing. Your clients who support charities through their donor-advised funds at the community foundation can consider potentially alleviating this situation through charitable gifts of highly-appreciated stock.

Your clients who give appreciated stock to a donor-advised fund can: 

–Enjoy the ease of the donor-advised fund as an account for current and future charitable giving

–Conveniently support the causes they and their families care most about 

–Maintain a mix of assets in the donor-advised fund account that are consistent with the client’s investment philosophies

–Benefit from an up-front income tax deduction, avoid capital gains on the assets’ sale within the fund, and grow the proceeds for future grantmaking

–Leave a legacy for children and grandchildren to continue their philanthropic commitments

–Reduce the value of their taxable estate, potentially reducing estate taxes

–Comply with IRS charitable gifting guidelines

–Enjoy supporting charities in the client’s name, the fund’s name, or anonymously

–Receive a single year-end tax document that summarizes all gifts for tax purposes 

By establishing a donor-advised fund at the community foundation, your client is part of a community of giving and will have opportunities to collaborate with other donors who share their interests. In addition, your client is supported in strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference. 

So while it’s nice to see the market’s performance improve, a bonus opportunity lies in your clients’ transferring appreciated stock to donor-advised funds at the community foundation. We are here to help! 

For clients who may sell a business, the time to think charitably is right now

Business owners who’ve enjoyed summertime’s more relaxed energy can deservedly daydream about the “extended vacation” that comes with selling the business! 

While it all sounds good, business brokers will tell you that many business owners fail to optimize—and they sometimes even compromise—the value of their business’s proceeds by rushing the process, hastily determining an asking price, or not fully assessing the value of their business to a potential buyer. In their haste, owners often miss strategies that can deliver an improved post-sale result and a true reward for their years of work. 

The community foundation can be a valuable resource as you guide a business owner client through a pre-sale preparation process. This is especially true for a business that has operated for many years and has accumulated significant unrealized capital gains in its valuation that are likely to be heavily taxed at the time of the sale. 

Many closely-held business owners and their advisors may not be fully aware of the advantages of giving shares to a donor-advised fund at the community foundation well in advance of any external discussion about a potential sale of the business. With prudent planning, the gifted shares will be free of capital gains at sale time, allowing the proceeds to flow into the donor-advised fund, ready to be deployed to meet the business owner’s charitable goals. The business owner also benefits because they’ve reduced the value of their taxable estate. This can have huge repercussions given the anticipated reduction of the estate tax exemption slated for 2025. 

Remember that it will be important to secure a proper valuation of the business at the time the business owner makes a gift of shares in order to comply with IRS requirements for documenting the value of the charitable deduction. 

Critically important to successfully executing this strategy is to ensure that your client avoids even any preliminary discussions about sale, let alone negotiations, before consulting with advisors, including looping in the community foundation early on. Otherwise, your client might get caught in the IRS’s step-transaction trap, a risk with any pre-sale gift to charity of real estate, closely-held stock, or other alternative asset. Definitely, the devil is in the details!  

By the way, if you routinely advise owners of closely-held businesses, and if you like to go deep into tax law, you might enjoy reviewing the issues related to the business itself supporting charitable causes, totally unrelated to its eventual sale.

Please reach out to the community foundation team if a business owner client would like to explore the idea of potentially giving a portion of the business to a donor-advised fund or other type of fund at the community foundation. We can work alongside you and the client to help optimize the exit and maximize the resulting proceeds.