Winter is coming: Tax tips and donor-advised funds in the news

Philanthropy in the News: Donor-advised Funds

Donor-advised funds continue to be a hot topic among commentators, including several recent opinion pieces published in the Chronicle of Philanthropy. Now is an ideal time to remind your clients of the benefits of establishing a donor-advised fund through the community foundation. Donor-advised funds are popular because they allow an individual or family to make a tax-deductible transfer that qualifies as a charitable contribution, and then later recommend gifts to favorite charities from the fund when the time is right. A donor-advised fund operates a lot like a checking account just for charity, except it’s established according to the IRS guidelines that create the tax advantages. Most importantly, however, establishing a donor-advised fund through the community foundation offers the additional benefit of allowing your clients to access the expertise of our team who is dedicated to staying up-to-date with the community's greatest needs and priorities and the causes your clients care about. This means your clients can make a meaningful and lasting difference in your community--an advantage not available through commercial donor-advised fund providers.

Creative Solutions: Answering Clients' Questions About Charities

During the giving season, it is not unusual for a client to ask an advisor about a specific charity in the community. Clients might want to know whether that charity is reputable and effective. That's a tough question to answer! Most attorneys, accountants, and wealth advisors are not in a position to know the ins and outs of how charities in the community are being managed. That’s okay, as long as you have a few  strategies for client conversations when they do arise.

Your responsibility to your clients in today’s social impact culture is to be equipped with at least a minimum level of working knowledge. For example:

Tell your client to consider the source. Your talk track can go something like this: "If it’s a friend, colleague, or a neighbor asking you to support a cause she knows and loves, you can be more confident in your contribution. Ask about the organization to find out whether it’s a fit for you. Don’t worry—you won’t offend your friend by asking questions. Instead, your interest in the cause your friend is marketing will give her a chance to tell the story about how that organization is making a social impact."

If the charity is brand new and not one you’ve heard of, suggest that your client start with something other than money. You can say something like the following: "Giving money to a charity is not the only way to do good. Supporting causes includes a wide range of other activities, such as recycling, volunteering, serving on boards, donating canned goods or clothing, attending community events, marketing a favorite nonprofit, sharing with friends and families in need, purchasing brands that support causes, and caring for your own health and wellness. So, if you are uncomfortable with a monetary contribution, do something else for the charity you’re being asked to support. Volunteer for an hour or two, donate household items, or attend one of the charity’s events by buying a ticket instead of making an outright donation. These activities give you a chance to check things out."

Encourage your client to go online. Here's what you can say: "You should check out the charity online. Giving is big business, and charities today know they need to report compelling information on their websites about the difference they’re making with your dollars. Be sure to look at the charity’s Form 990, too, available through GuideStar.org. The Form 990 is the charity’s tax return, and it will contain important disclosures to provide a glimpse into the financial stability of the organization."

Above all, make it a point to familiarize yourself with the experts in your region. Remember that the community foundation is here for you. Our mission is to increase charitable giving in the community, connect donors to causes, and lead on critical community issues to improve the quality of life in our region, now and in the future. We are integrally involved with nonprofits in the community, and our team knows how to help you help your clients improve the quality of life for everyone.

Tax-Savvy Giving: A Quick Reminder

Year-end is is good time to remind your clients about the benefits of giving shares of highly appreciated stock. Donating long-term appreciated securities, including stock, bonds, and mutual funds, to a fund at the community foundation delivers much greater benefits compared with donating cash, or selling the securities and contributing the after-tax proceeds. The team at the community foundation is here to help you and your clients establish the most tax-savvy giving vehicles, especially at year-end. We encourage you to contact us with all of your clients' year-end charitable giving needs. 

Fall focus: Advisors' roles are a big piece of the charitable planning pie

Focus on Advisors: The Critical Importance of Your Role

Today’s social impact culture mindset has infiltrated every business, nonprofit, and financial institution in America. The boundaries of our personal and professional lives are blurred across a wide range of social impact behaviors.

What does this mean for your work with your clients? It means your clients are walking into your office with "doing good" on their minds. You can build an immediate connection with your clients when you start a conversation about the ways they--and you--are getting involved in the community. Here are three tips for starting that conversation.

1. Demonstrate that you are in touch with the wide range of "doing good" activities.

With the rapid rise of social consciousness, philanthropy is expanding to cover far more territory than just one or two ways to do good. Consider the full footprint of social impact lifestyle factors that make up the contemporary marketplace mindset: Giving to charities, volunteering in the community, serving on boards, donating necessities to people in need, recycling, purchasing products that support a cause, marketing a favorite organization, celebrating at fundraising events, sharing with friends and family, and caring about your own well-being. Ask your clients about a few of these social impact behaviors. This lets them know that you care about them as human beings.

2. Be aware of the regulatory environment.

Many of your clients who run or own businesses are paying attention to social responsibility in the corporate sector. For example, the Global Reporting Initiative (GRI) is an international standards organization that helps businesses, governments, and other groups understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption, and many others. GRI represents the commitment of hundreds of companies to strive toward a common set of benchmarks to protect the earth and humanity. More than 90 percent of the world’s largest 250 companies are among the thousands of “GRI reporters,” meaning they subscribe to the organization’s standards for sustainability performance. Ask your clients about their corporate commitment to civic engagement.

3. Show your clients that you are doing something, too.

Your clients want to know that you share their commitment to community. Give them peace of mind by talking about your own volunteering efforts, the boards you serve on, or the charities you support. Best of all, let your clients know that you are connected to the Community Foundation, an organization committed to helping people fulfill community dreams through the power of philanthropy.




Worth a Reminder: Donor-Advised Fund Basics

Donor-advised funds are popular because they allow an individual or family to make a tax-deductible transfer that qualifies as a charitable contribution, and then later recommend gifts to favorite charities from the fund when the time is right. A donor-advised fund operates a lot like a checking or savings account just for charity, and it’s established according to the IRS guidelines that create the tax advantages.

How can you connect this trend to your work with your clients? Here are three pointers.

1. Talk the talk.

Your clients are hearing about donor-advised funds. Make sure they are hearing about them from you! Whether your clients support a few charities or many charities each year, a donor-advised fund is a useful tool. Furthermore, the tax advantages set the donor-advised fund apart from other vehicles. Your clients will expect you to be knowledgeable.

2. Know the options.

Donor-advised funds are available through a variety of providers. Community foundations are uniquely positioned to offer donor-advised funds with the inherent tax and transactional benefits you and your clients expect, plus the added advantage of deep community knowledge and a well-connected team of experts to enrich your clients' experience with philanthropy. Only a community foundation has the in-depth knowledge of what it really takes to make a difference in the community. With a wide range of relationships at their fingertips, community foundations are in touch with the techniques and tools to help your clients’ favorite nonprofits make the difference they want to see in the causes they care about. In addition, a donor-advised fund at a community foundation gives you a wide range of options for successor advisors and for the charities you want to support.

3. Walk the walk.

Consider establishing your own donor-advised fund with the community foundation. In today's social impact culture, clients want to work with well-rounded professionals who are connected to well-respected community institutions. The team at the community foundation would be honored to work with you and your family to meet your own charitable giving objectives. We're always looking for donor stories to share with others, too, so keep that in mind as an option to celebrate our work together.

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. 

Recipe for success: A bit of caution and all the right tools

Avoiding landmines in charitable planning

A cautionary tale

Donor-advised funds are popular because they allow an individual, family, or business to make a tax-deductible transfer that qualifies as a charitable contribution, and then later recommend gifts to favorite charities from the fund when the time is right. A donor-advised fund operates a lot like a checking account just for charity, except it’s established according to the IRS guidelines that create the tax advantages.

Through a donor-advised fund at the community foundation, your clients not only receive the tax benefits and ease of administration common across all donor-advised fund programs, but they also have access to the deep resources, philanthropy expertise, and community-specific knowledge that only community foundations can deliver. 

Indeed, not all experiences with donor-advised funds are created equal. If you’ve not been keeping up with what’s going on in the legal world of donor-advised funds, you can get up to speed by reading the petition in a case filed in 2018 in the United States District Court for the Northern District of California. 
 

HOW WE CAN HELP
A community foundation’s sole responsibility is to serve as a steward of philanthropic assets and honor donor intent to achieve positive community change. We welcome the opportunity to talk with you and your clients about our policies, procedures, and safeguards that align with your responsibility to serve your clients.   
 

Don’t let this gotcha get you

Making a gift of alternative assets such as real estate and closely-held business interests is a tax-savvy way for your clients to give to charitable organizations. Highly-appreciated assets can be sold by the charity for 100 cents on the dollar—no capital gains tax applies. That means the charity ends up with more money to work with than your client would have received if the client had sold that same asset on their own.

When it comes time to file the client’s income tax return, though, don’t overlook the importance of filing IRS Form 8283, “Noncash Charitable Contributions.” This is the form that documents the tax basis for the donated assets. Even though the value of the donation for income tax deduction purposes is based on fair market value, not basis, the IRS nevertheless wants to see a paper trail documenting just how highly appreciated the asset really is.   

Failure to file Form 8283 can have devastating tax consequences for the donor. This spring, the United States Court of Appeals for the District of Columbia affirmed the Tax Court’s 2017 decision in RERI Holdings I, LLC, denying the entire charitable income tax deduction--a whopping $33,019,000--because of a missing Form 8283. You’ll note in its decision that the Court of Appeals refused to apply the “substantial compliance” doctrine, which historically has excused taxpayers from failure to comply with formal filing requirements. (Like we said, “gotcha!”) 
 

HOW WE CAN HELP

Our team at the community foundation thinks about charitable giving 24/7. This means we are highly tuned in to filing requirements and other rules that can make or break your clients’ tax planning strategies. We are honored to work alongside you as you structure your clients’ plans to support favorite causes, dotting every “i” and crossing every “t.”
 

Tax reform’s ripple effects

We’ll continue to keep you posted on what’s trending in philanthropy and charitable planning as a result of the Tax Cuts and Jobs Act of 2017. 

Last month, Connecticut, New Jersey, and New York filed a lawsuit against Treasury and the Internal Revenue Service to challenge the new final regulations that place limits on the tax benefits of giving to entities (including some community foundations) in cases where the donors are entitled to local or state tax credits for making the contribution. The regulations are the latest step in a saga that includes workaround legislation enacted in many states to avoid the $10,000 SALT deductions cap. The argument is that the new regulation flies in the face of prior tax policy and “undermines state and local programs designed to promote charitable giving through the use of state and local credits.” The case was filed in the Southern District of New York.
 

Tools in your back pocket

The team at the community foundation understands that it sometimes can be hard to know where to start a conversation with a client about charitable planning. As you ask questions about the causes your clients love and how your clients intend to support the community in their estate plans, you’ll need quick access to a few go-to planning tools to inspire the dialogue. To help you do just that, we’ve assembled this list of a few of our favorite planning tools. 

Qualified Charitable Distributions

Under the now permanent IRA charitable rollover laws, your 70 ½+ clients can direct up to $100,000 annually of required minimum distributions to charitable organizations, avoiding inclusion in taxable income. These distributions are called Qualified Charitable Distributions (QCDs). Although donor-advised funds can’t receive QCDs, there are still plenty of ways our team at the community foundation can help your clients take advantage of this tool for lifetime gifts. Also, your clients can name their donor-advised fund as the beneficiary of a qualified plan, which is still a tax-savvy bequest strategy.  

Charitable Remainder Trusts and Charitable Gift Annuities

They’re back! Tax reform’s elimination of the Pease provision, which limited charitable deductions for high income taxpayers, means your clients can better leverage a single, up front gift to a charitable remainder trust or a charitable gift annuity. 

Bundling . . . or Is It Bunching?

Whether you call it “bundling” or “bunching,” clients who want to maximize their charitable deductions under the new tax laws can benefit from making two or more years’ worth of charitable contributions in a single year. This helps push taxpayers over the itemizing threshold, where they can reap the benefit of deducting the full value of their donations. (Quick stat: Because of tax reform, just 10 percent of taxpayers itemized deductions in 2018, compared with 30% in 2017.) 
 

Reflections on the impact of a do good, feel good moment

Remember the Ice Bucket Challenge, when 17 million people dumped icy water over their heads to raise money for the ALS Association? It may seem like yesterday, but it was actually five years ago this summer that the viral sensation helped raise $115 million in eight weeks for research and patient services. The five-year results are captured in an infographic, which the ALS Association has made available for everyone to share.

HOW WE CAN HELP

When nonprofit organizations launch online fundraisers, they capture a lot of attention. Your clients may ask questions about impact, such as “How do I know the dollars are used wisely?” or “What should I watch out for when I am donating online?” or “Is the expense of viral fundraising campaigns worth the ultimate benefit achieved for the people being served?” The team at the community foundation is your partner. We are here to help you provide thoughtful, helpful answers to your clients' questions. Think of our experts as extensions of your team to help you fulfill your client service role. 

End-of-summer insights: Planting seeds in client conversations

Tax-Savvy Giving

As ESG gains momentum, clients are seeking more than just a charitable tax deduction.

Be aware of social consciousness as a rising force in estate planning and wealth management.

Here's why it matters.

Environmental, social and governance (ESG) is the term used to refer to three factors that are increasingly used to measure the sustainability and ethical impact of an investment in a company or business. What's interesting is that this rise in overall awareness of the health of people and the planet has also paralleled an increase in the desire to make wealth matter. U.S. Trust’s 2018 “Insights on Wealth and Worth” survey, for example, found that 47 percent of people in the study had begun to identify a “purpose for their wealth.” What's more, according to Investment News, over the course of a 12-month period, the percentage of Millennials highly interested in ESG investing leaped from 26% to 35%. GenXers' interest jumped from 16% to 35%.

What all of this means to you is that as an advisor, your responsibility to serve your clients now extends beyond an understanding of the tax ramifications of giving to 501(c)(3) organizations. Now, you'll also want to be aware how ESG influences the ways your clients are giving back through their investments, which come with a separate set of tax ramifications.

The net-net is that as the definition of "doing good" expands, your tax savvy radar must expand, too. 
 

HOW WE CAN HELP
Our team is your partner. We understand your responsibilities to your clients from a holistic perspective. It's our job to help you make your clients feel successful as they pursue and achieve a purpose for their wealth, in whatever form that might take. 
 

Creative Solutions

A conversational approach using plain language can ease the barriers to discussing community impact with your clients.

When the time comes to discuss philanthropy with clients, advisors are often left wishing there were an easier way to discuss the results achieved with a charitable gift than simply to rely on aspirational statements such as "Let's be sure your money makes a big difference."
 

Ask good questions.

The key to engaging in a more productive planning conversation with your clients is to ask more questions. Think about the long list of questions you ask clients when you are advising them on investment vehicles, or drafting estate planning documents! A few good questions can give a big boost to charitable planning, too. Here are a few of our favorites: 

• What problem raises your eyebrows the most when you read about it in the news?

• What are the pieces of the puzzle that would need to come together to solve that problem in your community?

• If there were one piece of that puzzle you could put into place with a magic wand, what would it be?

HOW WE CAN HELP
The Community Foundation helps you build a plan based on the answers to these questions and more. For example:

• Our team helps you refine the client’s definition of the “community problem” they want to solve.

• We work with you and your client to identify practical ways that change could happen and how philanthropic investment can support the change.

• We can connect your client with nonprofits that are working in the area of desired change, and identify meaningful and attainable milestones to measure success.

• We can advise on what level of investment is appropriate and help identify other likely collaborators to make change happen.