Stress in the sector: Tips for relief

Keep clients informed about stress on the social sector

Peter Drucker once wrote “Only the social sector, that is, the nongovernmental, nonprofit organization, can create what we now need, communities for citizens.” Charitable giving is an important component of American society. In 2019, for example, total giving by individuals (including bequests), foundations and corporations reached nearly $450 billion, according to Giving USA 2020: The Annual Report on Philanthropy for the Year 2019, released this summer.

Unfortunately, COVID-19 is taking its toll on nonprofit organizations and philanthropic institutions. In a report recently released by Deloitte's Monitor Institute, the writers offer their predictions for how charities will fare, depending on how the pandemic--and our response to it--play out. Early evidence shows that total 2020 giving will decline significantly. According to the Chronicle of Philanthropy, giving declined six percent during the first quarter of 2020, which translates to $5 billion in lost revenue to nonprofit organizations.

One of the most important ways you can help your clients support the charities they care about is to do everything you can to keep clients informed about the increasing challenges faced by the social sector. We encourage you to reach out to the team at the community foundation to answer questions and provide resources to share with your clients to help them help the causes they love.

Advocacy efforts accelerate and expand to help communities

A silver lining of the pandemic and struggling economy is an unprecedented effort by philanthropic leaders to ensure that communities stay supported through fiscal and tax incentives for nonprofits and charitable giving. We encourage you to seek out and share examples of what’s going on in the philanthropic sector to help ease the burden of COVID-19. For instance:

• A letter from the Council on Foundations to Congressional Leaders in advance of future relief packages, encouraging the inclusion of provisions to enhance charitable giving, increase support for nonprofits, and help state and local governments.

• A tremendous response from community foundations across the country, encouraging donors to activate donor-advised funds to support causes in the community that can provide immediate and direct assistance to those most affected by the pandemic.

• Increasing interest in mutual aid organizations, which is fueling grassroots response to people in need across the country. 

In short, the spirit of philanthropy is alive and well. Sharing this with your clients will help build the momentum and expand the impact of charitable giving during this time of crisis. 

IRS ruling helps employers and employees help pandemic victims

In Notice 2020-46, the IRS said compensation treatment will not be triggered when an employer makes cash payments to a charitable organization based on employees’ forgoing vacation, personal, or sick days. So-called “leave donation programs” are becoming popular ways for employees to make meaningful contributions to organizations in need. To qualify, an employer’s payments must benefit victims in that geographic area, and payments must be made in 2020. The foregone leave won’t be treated as gross income to employees. Furthermore, the employer may deduct the payments as a charitable contribution or business expense, if otherwise eligible.

Signs of the times: Disaster giving and charitable lead trusts

Charitable lead trusts: A timely revival

Among the many factors swirling together in the pandemic marketplace are (1) historically low interest rates and (2) historically high needs for increasing charitable giving to support organizations dealing with the health crisis. This makes the charitable lead trust an attractive vehicle for your clients who want to help charities in the near term and still preserve assets for their families.

Here’s how a charitable lead trust works. Your client transfers cash or other property to an irrevocable trust. For a term of years, a charity designated by your client (which could be a donor-advised fund) receives an income stream. The trust can be structured to maximize income tax benefits, or estate and gift tax benefits, in varying degrees. At the conclusion of the term of years, the remaining assets in the trust are distributed to the client’s designated non-charitable beneficiaries.

The reason a charitable lead trust is so advantageous right now is because if, over the term of the income period, the trust assets outperform the current IRS 7520 rate (which should be easy to do because rates are so low right now), the non-charitable remainder beneficiaries will receive assets with a value much higher than the taxable gift reported when the trust was created. This results in a tax-free transfer of wealth. 

What’s more, if a client designates a donor-advised fund to receive the income during the term of years, the client can stay involved by recommending grants to the most appropriate charities as the health crisis moves through different stages of need during the months and years ahead. 

Charitable lead trusts are complex instruments. As with any charitable planning vehicle, it is important to consult professionals as you evaluate whether a particular strategy is right for you. 

Covid-19: A new tipping point for disaster philanthropy?

The community foundation provides context and education for your philanthropic clients at all levels of giving and across the full range of charitable interests. The global Covid-19 pandemic in many ways has likely united your clients and other donors in a collective effort to support people in the communities they love. You’re no doubt seeing increased interest in this trend as you talk with clients and their families.

By many accounts, this new era of collective charitable giving in response to humanitarian crises was ushered in 10 years ago. On Tuesday, January 12, 2010, a major earthquake occurred sixteen miles west of Port-au-Prince, the capital of Haiti. Registering at a magnitude of 7.0, the quake and its many aftershocks caused catastrophic damage. The estimated death toll surpassed 100,000, and more than 3 million people were affected, according to authorities.

Only time will tell how the response to the current pandemic crisis will compare with the response to the 2010 Haiti earthquake. But it is worth reflecting on the experience of a decade ago for the important lessons that can help guide giving strategies to benefit people impacted by Covid-19.

The 2010 Haiti earthquake was the first time social networks played a major role in philanthropy. Accelerated by Internet connections and social media, millions of people got the message that relief organizations needed help. Individual donors contributed an estimated $43 million to the assistance and reconstruction efforts using the text messaging feature on their cell phones, according to a study conducted at the Pew Research Center. Fueled by the speed of communication, within days of the earthquake, more than $200 million had been given to the relief effort. Within a year, total gifts and pledges surpassed $5 billion.

Analysts at the Pew Research Center, who studied the phenomenon, describe the “Text to Haiti” effect as “a new mode of engagement” that “offers opportunities to philanthropies and charitable groups for reaching new donors under new circumstances as messages spread virally through friend networks.”

The 2010 Haiti earthquake caused “impulse” giving in response to a disaster to go mainstream. According to the Pew research project:

• 89 percent of the people in the study heard about the “Text to Haiti” effort on television.

• 50 percent made their contribution immediately upon learning about the campaign.

• An additional 23 percent donated on the same day they heard about it.

• 75 percent of the Haiti text donors in the research said that their text message contributions resulted from spur-of-the-moment decisions.

That’s not all. The message traveled! Forty-three percent of the Haiti text donors encouraged their friends or family members to make a similar contribution using their mobile phones, and nearly 75 percent of those they asked actually did make the gift.

Since then, philanthropy has learned lessons that are helping maximize effective support during the Covid-19 pandemic.

Here are two helpful resources:

Grantbook offers valuable insights, such as the observation that Haiti’s earthquakes taught us that charities, funders, and governments need to work together. Plus, immediate needs for medical supplies and food were part of just a first wave of issues. As time went on after the disasters, deeper economic and health problems emerged that were also critically important for philanthropy and its partners to address. Grantbook also observes that money and volunteer efforts are important in the midst of a disaster and its immediate aftermath, but deploying the aid can be a huge challenge that donors need to keep in mind.

For perspective on levels of charitable giving relative to the size of the disaster, we recommend this article in the Houston Chronicle, noting:

• Overall giving in response to Hurricane Harvey was three times more than Hurricane Irma and six times more than for Hurricane Maria.

• Not only was Harvey a bigger disaster, but also there was likely less donor fatigue than in the case of other disasters that occurred in short succession--Hurricane Maria, Hurricane Irma, the California fires, and the Mexico earthquake.

For additional information on the Covid-19 pandemic and philanthropy's response, visit the Center for Disaster Philanthropy. 

The net-net?

Our communities need both immediate philanthropic support for people affected by the pandemic and long-term support for ongoing ramifications of Covid-19, preparedness to blunt the effects of the next pandemic, and resources to address future humanitarian disasters. Encourage your clients to consider endowments, field-of-interest funds, designated funds, and other perpetual structures available through the community foundation to ensure that the community we love is protected for generations to come. 

Bread and butter basics: Types of funds, disaster giving, and tax tips

Be wary of overstating the value of charitable tax deductions

In Estate of Dieringer v. Commissioner, the Tax Court issued an opinion reducing the charitable deduction in a decedent’s estate when the stock was redeemed only shortly after the decedent’s death. Earlier this year, on appeal, the Ninth Circuit affirmed that decision, referencing Ahmanson Foundation v. United States. The court relied in part on the principle that an estate tax deduction is allowed only for what is actually received by the charity. This longstanding “actually received” rule should always be top of mind for practitioners as they advise their clients on charitable giving tools and techniques. Read the full text of the court’s opinion for a refresher course on this important issue.
 

Substantiation requirements: Still relevant

As 2019 draws to a close, now is a good time to refresh your recollection about gift substantiation requirements as your clients plan their year-end charitable giving activities. Since last year, when the Department of Treasury released its final regulations for substantiation and reporting of deductions for charitable contributions, gift substantiation has remained a hot tax topic during giving season. Key areas include:

• Definition of a qualified appraiser (this provision took effect in 2019)

• Requirements for gifts of partial interests

• Appraisal requirements for charitable remainder trusts, even if the trust holds marketable securities

• Requirement to attach an appraisal for gifts of real estate valued over $500,000  

Check out the full text of the regulations.   

Tune in to questions on disaster relief giving

Catastrophic weather events may leave your clients wondering how best to help people who’ve been affected. Americans give a total of more than $10 billion to disaster relief efforts annually, but only 25% feel “very clear” about how that money is spent. This is a surprisingly low number, especially given the popularity of giving for disaster relief. What this should signal to you is that your clients are seeking information on topics such as when to give, how to be sure the gifts have an impact, and which organizations to support.

HOW WE CAN HELP

As you talk with your clients about how to support people in need after disasters, consider calling the community foundation for insights. Whether the people affected live in this region or not, our experts will be able to guide you and your clients through a decision-making and evaluation process about how dollars can best be deployed.  
 

Building emotional connections: Philanthropy and its role in families

Attorneys, financial planners, and accountants frequently observe that their clients who participate in philanthropic endeavors seem happier and more connected to their fellow family members. This phenomenon is more than just an observation. Several studies over the years have shown that engaging in “prosocial behavior” helps build strong relationships. According to a study in Mindfulness, for example, 85% of people help someone else once a week, which fosters overall mental health and positive interpersonal connections. As you work with your clients and their families across generations, keep in mind the power of philanthropy to keep families connected.

HOW WE CAN HELP

The community foundation’s experience working with families across generations can help you build a legacy of giving for your clients. For example, consider working with the community foundation to help grandparents establish donor-advised funds for each child or grandchild. Or, consider working with a client and the community foundation to set up a fund to support a specific cause that the whole family loves.

Worth repeating: Bundling gifts

The timing of charitable gifts is something that can’t fall off the radar, so it’s worth a regular reminder about bunching, or “bundling,” gifts to charities. The ripple effects of tax reform have meant that just 10% of taxpayers now itemize deductions, down from 30%. A smart strategy for your charitable clients who want to maximize deductions under the new tax laws is to make two or more years’ worth of charitable contributions in a single year. This can push taxpayers over the itemizing threshold to reap the benefits of deducting the full value of their donations.

Checklist: Types of funds at community foundations

The community foundation offers a variety of funds to meet your clients’ needs. Keep this checklist handy as you meet with philanthropic families.

Donor-advised Funds

A donor-advised fund enables your client to establish a specific account for charitable giving. Clients make tax-deductible contributions of cash or other assets to the fund, and then they are able to recommend 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 clients 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 support to nonprofits to evolve over time as priorities in the region shift. 

Field of Interest Fund

Clients who want to target giving to specific areas of community need (such as education, health, environment, or the arts) can establish 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 the client.

Scholarship Fund

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