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.
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.
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.
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.