Structuring the multi-generational philanthropy plan, tapping charitable giving to motivate clients, and three eye-catching news stories

Greetings from the community foundation! 

It’s August, and many of you have reported that you are already getting questions from clients about how to get organized this fall–really organized. It seems that many clients and their families are finally back in full swing after the pandemic restrictions. People are getting together in person more frequently, which includes attending events and gatherings hosted by their favorite charities.

We’re offering a few suggestions for how you might support your clients as they dust off those charitable giving plans:

–Structuring a philanthropy plan is especially important for families who want to involve their children and grandchildren in a meaningful way. Many wealth and tax advisors notice that while the matriarchs and patriarchs might have a vision and a plan for the family’s multi-generational approach to philanthropy, that vision and plan are probably not very clear to the younger family members. A family donor-advised fund at the community foundation can provide that much-needed structure and organization to help a family advance its philanthropic purposes for many years to come. 

–It is always surprising to hear again and again that so many people do not have a will or any type of estate plan! Attorneys, financial advisors, and accountants do their best to recommend that their clients set up wills, trusts, beneficiary designations, and other estate planning vehicles, but some clients are too uncomfortable to directly deal with their own mortality. Approaching an estate plan through the more gentle lens of charitable giving can help break the ice and motivate clients to act.  

–We’re always on the lookout for the latest news that affects advisors and their work with charitable clients. The news is not always boring! Recently, stories about emojis, Aretha Franklin’s will, and the rise of donor-advised funds within professional niches have caught our attention–and we can’t resist sharing. 

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

–Your community foundation

Help your clients get organized: Structure is a critical step in multi-generational philanthropy

Instilling the idea of charitable giving in children and grandchildren at first blush may appear to be easy, but where to begin, and how to make it ongoing? More and more, wealth advisors are being asked by their clients to weigh in on strategies for fostering a family’s financial values, which frequently include charitable giving traditions. 

An important first step in creating any multi-generational philanthropy plan is to advise clients to consider organizing their charitable giving, such as through a family donor-advised fund at the community foundation. 

The process of organizing charitable giving itself creates much-needed clarity around the family’s philanthropic purpose. This is because without an organized approach to family giving, it is easy for children and grandchildren to get confused about their parents’ and grandparents’ processes for making decisions about which nonprofits to support. 

Consider this scenario:

"Before we got everything organized through the community foundation, our family seemed to take a shotgun approach to charitable giving," commented the daughter of an entrepreneur who formed a family donor-advised fund upon the sale of a business. 

Her mother, the entrepreneur, had underestimated the confusion: "Nearly every check I’d ever written to a charity was aligned with my commitment to supporting a healthy workforce in our community. Without a healthy workforce, my business would never have been successful. Now, though, I see that because I was not involving the rest of my family in my giving and explaining why I was supporting certain causes, it might have looked chaotic to them."

Establishing a fund at the community foundation can be a very effective solution for many of your clients who are launching a multi-generational giving strategy. Here’s why:

–Community foundation vehicles are extremely flexible and can be used to engage an extended family in the process of charitable giving. Donor-advised funds, for example, are popular because they allow your client to name children and grandchildren as successor advisors. 

–When your client organizes charitable giving through a community foundation fund, the client can make a large transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Your client then can recommend gifts to favorite charities from the fund when the time is right. This is especially useful in the case of clients who sell a business or for another reason experience a large influx of taxable income in a single tax year. 

–Establishing a donor-advised fund at the community foundation can be a much better choice for your family-oriented clients than a donor-advised fund offered through a brokerage firm (such as Fidelity or Schwab). That’s because, at a community foundation, your clients, as well as their children and grandchildren, are part of a community of giving and have opportunities to collaborate with other donors who share similar interests. 

–The community foundation can work with a client and the client’s family on a charitable giving plan that extends for multiple future generations. That is because the experienced team at the community foundation supports strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference.

–Finally, the community foundation’s tools and resources make it much easier for families to communicate across generations about the family’s charitable giving purpose and goals for long-term impact.  

We welcome the opportunity to work with you and any of your philanthropic clients to establish an enduring and rewarding family philanthropy program that is customized to meet each client’s unique purpose. 

Legacy giving: An important component of client conversations that’s full of opportunity

August is National Make-A-Will Month. This means your clients may be reading articles and hearing about estate planning more this month than usual, which makes the next few weeks an especially good time to prompt your clients to review their estate plans–or get their wills and trusts in order if they haven’t done so yet. 

Charitable giving is an important part of any estate planning conversation. Certainly, bold, legacy-making plans are frequently in the news because of the high-profile people who establish them. Your clients may not realize that they, too, and nearly anyone, really, can leave a legacy to support favorite charitable causes. 

By discussing what legacy charitable gifts are, how they work, what the client has in mind, and then formalizing the client’s plan with the proper legal and financial documentation, you can help your clients tie up a few of “life’s loose ends” far in advance of when that legacy gift is actually made—and give your client the peace of mind of knowing it will actually get done. 

Clients’ charitable giving intentions and the possibility of establishing legacy gifts should be a routine and standard topic of any financial or estate planning discussion, right alongside provisions in an estate plan for family and loved ones. 

Here’s a primer to help you simplify key principles as you convey to your clients what they need to know about leaving a legacy:

Q: What is a legacy gift to a charity?

A: Encourage your clients to think of leaving a charitable legacy as a post-life gift that the client structures in advance. Legacy gifts are often referred to as planned giving. 

Q: What assets can be used to make a legacy gift? 

A: Like the gifts to charity that your clients are already making during their lifetimes, cash, stock (especially highly-appreciated stock), real estate, life insurance, an IRA beneficiary designation (which is extremely tax effective), are examples of assets that can be the subject of a legacy gift. A legacy gift can be expressed in a client’s estate planning documents as a dollar amount, percentage of the whole, or a legacy gift of the assets themselves. Your client will want to choose assets carefully, enlisting your expertise to do so.

Q: How is a legacy gift actually made? 

A: Legacy gifts are typically spelled out in detail in a client’s will or trust documents. This is especially important because after the client is gone, too much is otherwise potentially subject to hearsay or conflict. To attorneys, accountants, and financial advisors, this is common sense. But do not overestimate your clients’ understanding about estate plans and how they work. A surprising 2 out of 3 Americans have no estate planning documents!

Q: How can a discussion about legacy gifts help motivate clients?

Estate planning can be an uncomfortable topic because, by definition, it requires a client to contemplate mortality. This is likely part of the reason that 40% of Americans say they won’t even consider putting a will in place unless or until their life is in danger. Most clients think charitable giving, though, is a much more pleasant topic than discussing the end of their own lives. That’s why legacy giving is a topic that can help break the ice and pave the way for the broader, essential conversation about overall estate planning.  

Q: What are some particulars to be aware of?

A: Most legacy gifts can be revoked or altered through beneficiary or will changes while the client is alive. This is an important feature to mention to clients who want to include charitable giving in their estate plans but like the idea of flexibility as the overall family and financial picture changes over the years. 

Q: What tools does the community foundation offer to help?

A: A particularly useful technique is for a client to establish a fund at the community foundation that spells out the client’s wishes for charitable distributions upon death to specific organizations. The client’s estate planning documents can, in turn, simply name the fund as the beneficiary of charitable bequests. The client can adjust the terms of the fund anytime during the client’s lifetime to reflect evolving charitable priorities. 

We look forward to working with you and your charitable clients as they firm up their legacy giving plans, whether in August or anytime of year! 

Stories that caught our attention  

Emojis are fun, but . . . 

Words matter, and apparently, emojis do, too. At least in Canada, where a judge recently ruled that a thumbs-up emoji within a text message qualified as acceptance of a contract despite the sender’s alternate intentions stated later—and at an eventual cost to him of more than $60,000. This differs drastically, for example, from doctrine such as a frequent and strict United States custom where clients’ stock trade instructions to brokers can only occur through one-to-one voice instruction and not even via voicemail. For advisors who focus on fundamental legal documents such as trusts and beneficiary designations, whether charitable planning is involved or not, treatment of emojis may be a trend to keep an eye on.

Yikes!

As a trusted advisor, you may wish to consider sharing with clients the cautionary tale of late singer Aretha Franklin’s estate. A story like this might be the motivation it takes for resistant clients to finally implement estate planning! In a recent court decision, a jury found that the remnants of a 2014 will found in a sofa superseded Franklin’s earlier-stated intentions—and over which family members argued for years. 

The doctor is in

Donor-advised funds have gone mainstream! You may notice that the term “donor-advised fund” or “DAF” pops up more and more in your newsfeed. That’s no accident! Even niche markets (such as physicians, for example) are getting on board. Just remember that a donor-advised fund established through the community foundation delivers all of the benefits to your client that a commercial donor-advised fund through Schwab or Fidelity delivers–plus so much more. Your community foundation is the hub for all things philanthropy and the best place for your clients to organize their giving, support favorite causes, and join with others to make a meaningful difference in the community they love. 

AI and charitable planning, "catch up" contributions to boost IRA philanthropy, and the latest news

This month, we’re trying something new! See if you like the short version, the long version, or a combination of both!

Short Version

Hello from the community foundation! 

It’s summer 2023 and there’s no shortage of news on topics related to philanthropy and charitable giving.

Let’s start with a subject that seems to be everywhere all the time, which is artificial intelligence. Somewhere between worries that runaway AI will upend life as we know it and uneasiness about how AI might change the way attorneys, accountants and financial advisors do their work lies the likelihood that AI will change charitable giving, too. Your clients who are board members of nonprofits may want to brush up on the subject, and certainly if you have clients who are early investors in AI ventures, keep an eye out for opportunities to leverage highly-appreciated stock for charitable gifts down the road.

Next up is the ever-popular subject of using IRAs for charitable giving. We just can’t say enough about the power of the IRA to supercharge your clients’ charitable giving. If your clients are 70 ½, you simply must take a close look at the QCD, which your clients can use to fund a designated, unrestricted, or field-of-interest fund at the community foundation. And never, ever forget the eye-popping effectiveness of a client naming their community foundation fund as the beneficiary of an IRA, especially when the client has pumped up the IRA’s value through catch-up contributions. 

Statistics junkies will love digging into June’s Giving USA report and sharing the facts and figures with charitable clients. Overall giving was actually down 3.4% last year, but it still totaled nearly a whopping $500 billion. Your message to clients might be that their favorite charities likely need their support more than ever, and working with the community foundation can help them do just that. 

Sports fan or not, who hasn’t been watching the NIL developments in college athletics? It’s been a game changer for sure, although if your clients were among the folks who gave to a “NIL collective”, you may need to have a heart-to-heart about what it really means for an organization to be tax-exempt and worthy of a charitable tax deduction. The IRS certainly made its opinion known in a May 23, 2023 memo. Once again, especially when it comes to tax law, you just can’t have your cake and eat it too.  

Finally, if you are not talking about philanthropy with your clients, we really, really, really encourage you to do so! It is good for your clients, good for the community, and good for you, too. Please lean on the team at the community foundation. We are here to help you with any and all charitable giving issues that might cross your desk. 

Happy summer, and stay cool! 

Long Version

July 2023 Professional Advisor Newsletter

AI and charitable planning, "catch up" contributions to boost IRA philanthropy, and the latest news

Hello from the community foundation! 

We hope the summer is treating you well. 

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

This is the time of year when many clients are traveling and spending time with family, which means they may be having conversations about their favorite charities and the year’s plans for giving to favorite charities.

To help you prepare for your clients’ questions when they return after summer holidays and travels, in this issue we’re sharing insights on a few topics that may be top of mind:

–AI is certainly a hot topic, even in discussions about philanthropy. We’re offering three suggestions for client conversations about AI and charitable giving, whether your clients are investors, nonprofit board members, or just curious.

–IRAs are a fabulous source of charitable gifts, not only through beneficiary designations, but also via the popular QCD tool for clients 70 ½ and older. Make sure you’re helping your philanthropic clients maximize their IRAs’ potential through catch up contributions. 

–Every year, the Giving USA report tells us about the state of charitable giving in America. 2022 numbers were down, although the total number is still inspiringly large. We’re also keeping you up-to-date on the latest tax news surrounding NIL money, along with an article to help you brush up on why the philanthropy conversation is so valuable to your practice.

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.

Happy summer! 

Your community foundation 

Advising clients about AI's impact on charitable giving

News about the capabilities of artificial intelligence has skyrocketed over the last few months. As attorneys, accountants, and financial advisors, no doubt you are watching these developments closely, both because of the potential legal issues involved and also because of the ways AI can enhance your work. 

Here are three suggested discussion points when your clients ask how AI might impact their philanthropy plans:

–For clients who serve on boards of directors of nonprofits or work for a nonprofit, AI could mean significant advancements in fundraising capabilities. From research to communications, generative AI could help fundraisers get their work done, which would be a welcome development in a profession that has been under stress due to a shortage of professionals and a challenging fundraising environment. 

–Some of your clients may be investing in AI companies. Pay close attention to this. While certainly not all AI ventures will make it, some AI startups will likely be very successful, creating huge financial gains for their shareholders. Talk with your clients about contributing shares of these companies to their donor-advised or other funds at the community foundation. Upon an eventual exit, the shares held by a donor-advised fund will not be subject to capital gains tax, allowing your client to support their favorite charities much more significantly than if the client waits to sell the shares and transfer the proceeds (minus the tax hit) to a charitable fund.

–While AI can certainly help your clients research their favorite charities, and similarly will also play a role in helping charities fundraise and carry out their missions, it’s important to remember that right now, in AI’s early stages, most AI results are still only as good as the prompts and instructions provided by humans. The key to getting the right answers is to ask the right questions, and sometimes asking the right questions is the hardest part.

As always, please reach out to the community foundation for help as you serve your charitable clients. Our team has deep, personal knowledge and experience in all areas of charitable giving, from tax deductibility rules, to planned giving techniques, to understanding the needs of our community and how your clients can make a difference in the causes they care about. We welcome the opportunity for human interaction as that becomes even more of a rarity! 

How “catch-up” contributions can boost clients’ giving

At the community foundation, we regularly work with legal, financial, and tax advisors like you to help clients reach their charitable goals. 

As a professional who regularly works with charitable clients, you are no doubt well aware of the tremendous benefits to both clients and charities when a client names a charity, such as a fund at the community foundation, as the beneficiary of an IRA or other qualified retirement plan.

So how can you help a client plan ahead to maximize a bequest of retirement fund assets, as well as support increased giving during the client’s lifetime? 

A great way to do this is by encouraging clients to maximize their IRA contributions—for many reasons:

–Taxable income “suppression” in the year of the contribution. 

–Tax-deferred growth until distribution—and now not required until age 73 of the account owner.

–Ease of changing a beneficiary designation to name the client’s fund at the community foundation, which will remove the assets from the client’s taxable estate at death and avoid income tax. 

–With retirement plans flowing to charity, leaning into highly-appreciated stock and other property at stepped-up values to make bequests to family or others, effectively erasing the unrealized capital gains for the recipients. 

Make sure your charitable clients don’t overlook an important tool in retirement savings maximization (and ultimately charitable giving) known as the “catch-up” contribution. This is the “extra” money that retirement savers aged 50 or older can stash away into their retirement accounts—and into more than one account as applicable. 

Advisors and clients might better think of this as a bonus opportunity rather than a “catch-up,” especially if a client has been maximizing their retirement savings all along. Additionally, of course, the catch-up contribution allowance helps a client make up for years when retirement contributions fell short due to earnings or savings interruptions due to layoffs, caregiving, high-expense years or similar circumstances.  

Thanks to the SECURE Act, catch-up contributions have created even more buzz about opportunities for retirement savings, especially as the rules are set to shift in 2024 and 2025. In any event, the effects can be impactful. For example, an extra $1,000 deposited annually from age 50 through 65 earning 6% on average could potentially deliver an extra $27,000 in retirement income at age 65. 

From a charitable giving perspective, the greater the IRA balance, the more opportunity there is for a client to give later to a fund at the community foundation. What’s more, higher IRA balances can motivate your clients to deploy a Qualified Charitable Distribution strategy, with its many benefits:

–Beginning at age 70 ½, your client can make Qualified Charitable Distributions (QCDs) up to $100,000 in 2023 ($200,000 for married couples) and indexed for inflation beginning in 2024.

–QCD assets can be distributed to a designated or field-of-interest fund at the community foundation or to another qualifying public charity.

–QCDs can count toward Required Minimum Distributions for clients who are required to take them.

All in all, IRAs are the most prolific retirement savings vehicle in the United States, accounting for nearly 33% of the $33 trillion of total retirement assets as of December 2022. But regardless of the retirement savings vehicle, contribution maximization—and aided by so-called catch-up contributions—is a winning strategy for wealth building, family gifting, and charitable giving. 

Our reading selections

Giving is down, but the total amount-–nearly $500 billion—is still impressive

Just reported in June by Giving USA was a rare decline, 3.4%, in charitable giving by Americans in 2022. Though giving totaled nearly $500 billion, officials cited high inflation and the stock market’s pullback as reasons for the decline from $516 billion of total giving in 2021. Despite households’ financial pressures, 64% of giving came from individual donors. Dig into this compelling (and free!) infographic for a comprehensive look at the state of philanthropy in America. 

NIL collectives: DOA?

NIL collectives have been all the rage in some higher education circles, but that may be changing. Contributions to these entities may not be tax-deductible after all, according to the IRS in a May 23, 2023 memo. This development serves as an excellent reminder that private benefit and charitable tax exemptions do not mix well. 

Even more reasons to talk about philanthropy with your clients

If philanthropy is not a regular topic of your client conversations, you may be missing out. Not only can it be an easy icebreaker, but also studies have documented strong organic client growth through such conversations. And as this article points out, the combination of client dissatisfaction, wealth transfer, and the affluence of future generations spells o-p-p-o-r-t-u-n-i-t-y for advisors.

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

A toss up between giving cash versus stock, dealing with family disagreements, and what's in the news this summer

Gifts of cash or stock: Is it a toss up?

As your philanthropic clients can likely attest, the going has been rough for many of the nonprofit organizations they support. Turbulent economic conditions, concerns about inflation, and challenges in the banking sector are just a few of the factors that are causing donors to be more financially conservative and perhaps begin to evaluate whether to keep their charitable giving at the levels of years past.

At the same time, many of your clients deeply understand the need to support the nonprofit sector and continue giving to the charities they love. Philanthropic support to these organizations is critical to maintaining and improving the quality of life in our region. This is especially true as the number of households giving to charity has declined by more than 16% over the last three years. 

As we head into the summer months, it’s a good idea to touch base with your clients about their charitable giving budgets for 2023, and in particular, evaluate the types of assets that are best suited for each particular client to give to charity. In some cases, it will be best for your clients to give cash. In other cases, stock will be more appropriate. 

For example, as interest rates and inflation continue to increase clients’ concerns about their household finances, you and your clients may decide that preserving cash is a priority. This means that some of your clients who have typically given cash to their favorite charities or to their donor-advised funds at the community foundation may be reluctant to do so this year. There’s a silver lining here because giving appreciated, publicly-traded stock to charitable organizations is a highly effective tax strategy in any economy. 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. And even in a rocky stock market, not all stocks are down. Many of your clients are no doubt holding long-term stock positions that have appreciated substantially since they bought them, even with the current stock market malaise.

For some clients whose portfolios are down significantly, this may be a year to consider contributing cash to a donor-advised fund instead of donating highly-appreciated stock (which may have been these clients’ go-to gift for so many of the last several years). Gifts of cash could reduce the burden on a client’s personal stock positions that may have fallen in value dramatically, giving these positions more time to recover value and, at some point in the future, be contributed to a donor-advised fund at a higher value (thereby resulting in a higher tax deduction for the client). 

Overall, in turbulent times like this, donor-advised funds at the community foundation can come in especially handy. Now is the time to discuss charitable giving with those clients who regularly added to their donor-advised funds throughout the market’s long bull run. If these clients intend to ride out today’s market conditions in their personal portfolios, an up-and-down stock market doesn’t mean the clients’ 2023 charitable giving must take a hit. These clients can use their donor-advised funds to support their favorite organizations, sometimes even at levels consistent with prior years. 

As always, please reach out to the community foundation to discuss options for your clients’ charitable giving. We are happy to help you help your clients achieve their goals, even in a year as bumpy as 2023 appears to be! 

Bridging the gaps in multi-generational family philanthropy 

Differing views within families is nothing new; differing views about nearly anything and everything is centuries old. For generations and generations, common topics of disagreement have included popular culture, politics, religion and parenting, just to name a few. Frequently outranking all is money—how it’s made, spent or saved—or not. 

How benevolent families share money, whether agreeably or disagreeably, is a topic all its own. It’s perhaps never been more relevant than now given these realities: up to four generations living simultaneously; longer lifespans; more willingness to discuss family finances; differing social views; and the desire of older generations to set a good philanthropic example while retaining some control of assets built over many years. 

And the “share” discussion will likely continue for decades. 

According to figures cited in a May 2023 New York Times article (subscription required), total U.S. family wealth of $38 trillion in 1989 more than tripled to $140 trillion in 2022, with Baby Boomers and Generation X holding 90% of that. By 2045, older Americans will pass down a projected $84 trillion to Millennial and Gen X heirs, with $16 trillion transferring by 2033. With evermore wealth circulating, both ideas and conflicts about its use will likely result. 

As an advisor, it is your responsibility to help your clients achieve their goals for their estate plans, financial plans, and charitable objectives. As you work with your multi-generational philanthropic clients, you have no doubt noticed that even a subject as uplifting as philanthropy can lead to lively discussions and sometimes even disagreements. To fulfill your role, you will need to lean on strategies to navigate conversations about charitable priorities when not everyone is on the same page. 

You can also lean on the community foundation–and we encourage you to do so! Community foundations occupy a unique position in the midst of the unprecedented wealth transfer now underway: that of arbiter, guide and even peacemaker among benevolent multi-generation families. In addition to understanding the needs of the community, the nonprofits and programs that are addressing those needs, and the ins and outs of the tax vehicles best suited for your clients to help meet those needs, our team is also deeply experienced in facilitating productive dialogue among people who bring valuable, diverse viewpoints to the table.

As a secure, convenient, and trusted partner to help a family invest wealth in charitable causes, the community foundation can help you work with your philanthropic clients in a variety of ways:

–The community foundation team focuses on listening to understand the cross-generational and intra-generational values of a family. 

–We ask a lot of questions about what causes matter to your clients and the origins of those preferences, both historically and now. 

–When possible, we pair community foundation staff with family members to align according to personality and generation to foster more intimate, empathetic, and meaningful discussions. 

–Our team seeks to understand a family’s values, and then we research and suggest potential grantee organizations or causes if the family is seeking input. We can also deeply research organizations that the family is already supporting. 

–The community foundation offers to educate the various generations about the tactical opportunities including donor-advised funds, field-of-interest funds, unrestricted funds, designated funds, and anonymous giving, among others. 

–Our team is happy to develop options for multi-cause allocations that peacefully meet the needs of all involved.

–For geographically dispersed generations, our team offers to meet at agreeable intervals, even digitally, to understand a family’s current and changing views. 

We are here for you and the philanthropic families you serve. As the needs, capabilities and opinions around wealth expand, the community foundation can be a facilitator of conversations, connection, and contributions among well-intended but independently-minded families and help you carry out your professional responsibilities.

Summer topics worth watching

Proposed legislation known as the Charitable Act appears to be gaining momentum. The bill calls for making available a “below the line” deduction to taxpayers who do not itemize on their tax return. This proposed deduction is slated to reach up to one-third of the standard deduction (around $4,500 for an individual filer and around $9,000 for married joint filers). In addition to providing an overall boost to charitable giving, the intent is that enabling all taxpayers to benefit from the charitable deduction might help reverse the decline in recent years in the number of households giving to charity each year.

Qualified Charitable Distributions (QCDs) are having a moment, thanks to new laws passed late last year that expand this unique charitable giving opportunity for those who are 70 ½ or older. Watch out, though, for potential pitfalls. As a recent legal analysis points out, the devil is in the details, especially with regard to the new “Legacy IRA” provisions allowing eligible taxpayers to make a one-time QCD to a charitable remainder trust or charitable gift annuity.   

A recent private letter ruling reinforced once again that the IRS takes the concept of “private inurement” very seriously for nonprofits. As in, if you do it, you’re out. Most nonprofits are well aware that they will be putting their 501(c)(3) exemption status at risk if they play fast and loose with the rules for preventing undue benefit to a private person. After all, charities are established for the public good, and public good and private profit do not mix. Take note of this if you are an advisor who counsels nonprofit organizations.

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.  

The triple power of the IRA beneficiary designation, the IRS's bigger budget, and not-to-miss news and trends

Hello and Happy May!

As you and other advisors emerge from a busy tax season, your attention may be turning to estate and financial planning for your clients, which could include how to capture charitable bequests through IRA beneficiary designations. Like us, you're likely also watching and wondering how the IRS's increased budget may affect your high income-earning clients and their charitable giving plans. And, as always, you want to keep up with the latest news and planning trends that will help you serve your philanthropic clients. We're covering all of those topics in this newsletter.

As always, the community foundation is here to help you and your clients navigate the various options for charitable giving. We’ll help give you the insights and confidence you need to develop plans that enable your clients to provide the charitable support they intend while also keeping the clients’ activities well within the boundaries of the law.    

It is our honor and pleasure to work with you and your clients. We look forward to talking with you soon!

–Your community foundation

Retirement plans to charity: Understanding the “trifecta” of tax benefits

Over the last few months, many advisors have noticed an uptick in client inquiries about leaving their IRAs and other retirement plans to charity. If you’re wondering why, it likely has a lot to do with the buzz about Qualified Charitable Distributions, which allow those who’ve reached the age of 70 ½ to direct up to $100,000 annually to qualified charities (such as a designated or field-of-interest fund at the community foundation), avoiding both the need for an RMD (if they’ve reached age 73) and the income tax hit. 

It’s probably more than just the QCD, though, that has spurred your clients to ask questions. More and more, charitable planning with IRAs and other qualified retirement plans is a topic in financial and mainstream media. A case in point is a September 2022 article in the Wall Street Journal, irresistibly titled “Win an Income-Tax Trifecta With Charitable Donations.” If you subscribe to the Wall Street Journal, the article is well worth your time. 

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 of all, 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 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 the client’s estate plan, intending 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. 

Here’s the net-net:

Traditional IRAs are often poor vehicles for your clients to use to leave a family legacy. Instead, if a client is charitably inclined, traditional IRAs are likely better deployed to posthumous philanthropy if other assets, such as appreciated stock, are available to leave to children and other heirs. 

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. 

Tax scrutiny: Should clients worry about the IRS’s bigger budget? 

A major portion of the $80 billion scheduled to be invested in Internal Revenue Service upgrades is earmarked to “increase tax compliance among wealthy taxpayers and businesses,” according to the IRS’s plan. Indeed, the IRS is investing upwards of $47 billion toward enforcement efforts, an amount that towers over the next-largest item on its spending plan, which is just over $12 billion slated for technology enhancements.

Little doubt remains that your high income-earning clients can expect more oversight and less room for error. This reality is of concern to attorneys, accountants, and financial advisors who are responsible for helping their clients adhere to the tax laws with integrity. 

If you’d like to dig into the details about the IRS’s newly-secured tens of billions of dollars, you can peruse the agency’s Inflation Reduction Act Strategic Operating Plan submitted April 5, 2023 by IRS Commissioner Daniel I. Werfel. The 150-page plan covering 2023 - 2031 speaks primarily to five areas of priority spending:

• $47.4 billion to increase tax compliance among wealthy taxpayers and businesses.

• $12.4 billion for technology enhancements.

• $8.2 billion to recruit and retain a highly skilled, diverse workforce.

• $7.5 billion targeting taxpayer service improvements.

• $3.9 billion for cybersecurity.

Significant operational efficiencies are anticipated, and the heightened compliance efforts will generally apply to taxpayers making more than $400,000 annually. What’s raising eyebrows is that high-income earners and thus, donors to charity—and the financial professionals who serve them—should likely expect more in terms of attention, oversight, and audits. 

According to the plan, “segments of taxpayers with complex issues and complex returns where audit rates are minimal today, such as those related to large partnerships, large corporations, and high-income and high-wealth individuals,” will be areas of focus. 

The new-hire ramp up and technology implementation will take some time, per experts, with some believing that 2022 tax returns will be less subject to scrutiny than those in future years. But, the agency also has a three-year window to initiate an audit, giving it time to look back. 

Of specific importance to the charitable community is Objective 3, Initiative 4 (PDF page 66 of the plan), which states: “The IRS will increase enforcement activities to help ensure tax compliance of high-income and high-wealth individuals.” 

Increasing right along with the enhanced scrutiny is the need for solid charitable planning advice to assist your high net-worth clients. The community foundation is an ideal partner, offering secure and efficient vehicles for charitable giving—including the precise tax documentation and compliance that the IRS expects. 

Indeed, a silver lining for advisors and their clients who work with the community foundation may be that the added potential IRS oversight plays to the foundation’s strengths. By offering donors fully-vetted grantee organizations, plus gift execution, documentation and compliance services, your charitable clients who’ve established donor-advised, field-of-interest, designated, or other funds at the community foundation can rest more easily knowing that their philanthropy is being handled as intended and able to withstand questioning, whether your clients are funding their contributions with Qualified Charitable Distributions, highly-appreciated stock, or complex assets such as closely-held businesses and real estate.

We look forward to working with you and your clients as we navigate a new era of IRS scrutiny.  

Here's what we're reading

As you talk with your clients about charitable giving, are you leading with tax benefits? Deferring philanthropy topics until November and December? Not looking at the big picture? If so, you may want to rethink your approach, according to a recent article. The article also points out the importance of engaging specialists to assist you in advising a client about how to make a difference in the community. The team at the community foundation specializes in charitable giving and community impact. We’re just a phone call away. 

Our team also enjoyed digging into the latest study on family philanthropy, particularly because it reinforced so many of the best practices we already deploy here at the community foundation as we work alongside you to help your clients and their families make a difference in the lives of others for generations to come. We look forward to working together on practical solutions to engage your clients, their children, and their grandchildren in comprehensive philanthropy planning that moves the needle for the organizations and causes they care about. 

Finally, as the dust settles on tax season, and as we look ahead to what the charitable deduction might look like in future years, we appreciated the perspectives in this piece about the surprising benefits of a complex tax code. More proof that it is always possible to look on the bright side! 

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 tips to stay on your toes, proposed legislation, and banking fallout

Tax tips to keep you on your toes

Charitable deductions and the vehicles that generate them continue to land on the IRS’s radar. For instance:

–The IRS is really, really picky about requiring a charitable deduction to be calculatable as a true “sum certain,” as the taxpayer in a recent tax court case found out the hard way.

–The IRS appears to be doubling down on exempt purpose requirements for 501(c)(3) organizations. Keep these rules in mind, especially as you counsel clients who are involved with starting a new charity. 

–The IRS is taking a close look at sketchy charitable remainder trusts in conjunction with its Dirty Dozen focus areas. As always, if a tax structure seems too good to be true, watch carefully for red flags and do your homework on the IRS’s positions.

The community foundation is here to help! We are always tracking the latest news and trends with charitable giving and our team is happy to help you as you serve your charitable clients.  

Turmoil in banking and technology: Optimism for charitable giving?

And, the wild ride continues! It’s been three years since the Covid-19 pandemic swept the globe and wreaked wide-ranging havoc on so many areas of the economy. Then came inflation, rising interest rates, and a volatile stock market. Now, in early 2023, advisors and clients are also dealing with concerns about the health of the banking system in the wake of Silicon Valley Bank’s collapse.

Your philanthropic clients may seek your advice on how the recent events in the banking world could impact their approach this year to charitable giving. We’re sharing three factors to keep in mind as you counsel charitable individuals and families.

The outlook is chilly for tech start ups and the venture capital firms who fund them. 

“It feels like winter is here,” according to tech sector leadership. When tech was hot and it sometimes appeared that many start ups could do no wrong, you might have noticed an uptick in conversations with entrepreneurs and venture capital clients about planning for pre-IPO gifts of closely-held stock of a tech company or even investing in tech companies using philanthropic assets. Right now, though, opportunities like this may be rare. A silver lining may emerge, however. As both the failure of Silicon Valley Bank and the overall tech sector malaise shake out, what may emerge is a “more sustainable and streamlined asset class,” which, in turn, could lead to more stable future opportunities for your clients to make gifts of highly-appreciated closely-held shares.  

Nonprofit organizations should closely examine their reserve funds.

A nonprofit’s accounts at a bank are subject to the same FDIC rules as a for-profit company, with a few additional twists that could allow a nonprofit to diversify. Many of your clients who serve on the boards of directors of their favorite nonprofits are well aware of this and may be working with fellow directors and nonprofits’ executives to ensure that the money is safe. This is an excellent time for any nonprofit to review its reserve funds and consider whether establishing a fund at the community foundation might be a wise move to maximize a nonprofit’s financial position–whether through a rainy day reserve fund, an endowment, or both–to ensure that the organization can meet community needs for the long term. A fund at the community foundation can be a cost-effective option for a nonprofit to access investment options that might not otherwise be available. Furthermore, the community foundation is committed to helping an organization exercise outstanding stewardship of its funds, including honoring donor intent.

Focus on the positive effects of technology on philanthropy.

Indeed, the softening of the tech sector may very well negatively impact tech stocks (and bank stocks!), at least in the short term, and therefore could diminish enthusiasm for your clients to transfer those assets to their donor-advised or other funds at the community foundation. That said, there is plenty of evidence to suggest that technology itself is increasing the opportunity and efficiency of charitable giving overall. In addition, even in the midst of an industry downturn, tech companies have made many people very wealthy, and their charitable giving stories are likely just beginning to be told. If your client base includes tech entrepreneurs and executives, it’s most certainly appropriate (and likely expected) that you would include charitable giving in your conversations.  

As always, the community foundation is here to help. Contact our team anytime to discuss your clients’ options for meeting their charitable giving goals, even in today’s challenging economic climate.

Proposed legislation: Is better deductibility back on the table?

Charitable deduction legislation ebbs and flows. Proposed reform efforts come and go, resulting in the occasional change to the provisions of the Internal Revenue Code governing charitable giving. At the same time, popular charitable giving techniques evolve and grow over time, frequently creating new opportunities for your clients to support the causes they love. 

For instance, donor-advised funds (DAFs) were first deployed as a charitable giving technique in the 1930s—long before their popularity ascended in the 1990s—and recently reached record highs.

Similarly, Qualified Charitable Contributions (QCDs) were codified in 2006 through legislation that initially approved the technique for just about a year, followed by several legislative extensions before QCDs were made permanent by the Consolidated Appropriations Act of 2016. And while QCD annual limits ($100,000 per person and $200,000 for couples) have remained constant in the past, those will change when indexed for inflation under the new laws passed at the end of last year.

Now, like then, legislation pending in Washington—if realized—may influence the techniques your clients deploy to meet their charitable goals.

Donor-advised funds and private foundations

Currently, contributions to donor-advised funds by private foundations fall under the same rules as contributions to donor-advised funds by individuals, in that the funds are not subject to any particular timing requirements to be distributed to charities. Despite the lack of a formal pay-out requirement, however, the 10-year average aggregate pay-out rate from all donor-advised funds is a whopping 22.2%, and the 2021 aggregate pay-out rate was a record 27.3%. 

In contrast, private foundations are subject to a 5% annual distribution rule. Under proposed legislation (see page 139 of the Treasury’s explanation document), while it would not affect contributions to donor-advised funds by individuals, contributions to donor-advised funds by private foundations would need to be distributed “by the end of the following taxable year,” and documented as such, to qualify for the 5% private foundation distribution requirement. Time will tell whether these proposed changes make it into law.

Beyond the standard deduction

Tax deductibility of donations has changed with the times, and another piece of in-process legislation, if passed, would again reward charitable-minded tax filers who do not itemize, at least for tax years 2023 and 2024.

The Charitable Act, as it is known, would allow deductions of up to one-third of the applicable standard deduction for non-itemizers. As background, under the higher standard deduction passed as part of the Tax Cuts and Jobs Act of 2017, many donors who’d previously deducted their charitable donations lost that ability. Indeed, to the dismay of many nonprofits, tens of millions fewer households itemized their deductions in the years following the increased standard deduction, removing part of the incentive to make charitable gifts. The Charitable Act would strive to alleviate some of the negative impact on charities.

Recent history shows that taxpayers respond positively to deductibility opportunities, with 42 million taxpayers taking advantage of the $300 "universal" charitable deduction offered in 2020, and 24% of those having gross income of less than $30,000. That opportunity was extended in 2021 but discontinued for 2022. Notably, polling has shown strong support for restoring the universal charitable deduction.

With potential restored deductibility in the works—and again, it’s early in the process and not yet law—keep in mind that the community foundation is here to help your clients organize their charitable giving through a donor-advised or other type of fund.

As the tradition of change continues for charitable giving, the community foundation will continue to be your source of smart, efficient and secure gifting.

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.  

Addressing disaster giving, eligible QCD recipients, and tips for your business owner clients

Disaster giving: Perspectives for your clients

Both the recent one-year anniversary of the start of the Ukraine conflict and the earthquake that has devastated Turkey and Syria are causing more and more people to explore ways they can help. In an era of abundant giving methods and (sadly) potential fraud, the community foundation is a source of reliability and expediency to help your clients act on their charitable instincts. 

Disaster giving frequently takes the form of a wide-ranging response, given that disasters can occur suddenly or over time, domestically and internationally. The damage can be heart-wrenching, such as loss of life and property destruction, or health-related, like Covid that has swept the globe. The urge to help is often immediate. 

There are many viable options for your clients to activate their generosity toward relief efforts, but there are also caveats. While global disaster giving is important, it is also important for clients to stay tuned to the most critical needs right here in our community. Although these critical needs do not always take the form of a time-bound disaster, the impact of ongoing crises such as low access to health care and poverty can be quite damaging over the long term.  

What is disaster giving?

Although challenging to pinpoint holistically, what’s typically referred to as “disaster giving” is perhaps best thought of as a subset of what has been a robust philanthropic climate in recent years. In 2021, Americans’ charitable giving reported by Giving USA was up 4% over 2020 to nearly $485 billion. Certainly the strong percentage increases in the categories of Human Service, Public-Society Benefit (up 23%, the second-highest percentage gain) and Health all likely involved Covid-related concerns and sentiments. 

An emerging area of challenge may be annual giving to international affairs, which declined approximately 5% from 2019 to 2021, finishing at $27.4 billion. Of course, these figures could change for 2022 when accounting for aid to Ukraine (and in future reports, to Turkey and Syria). As context, through February 2023, U.S. government aid to Ukraine has exceeded $75 billion, including 40% for humanitarian and financial purposes and the remainder for the military. Philanthropy also contributed to humanitarian needs; the 10 largest private donations, led by Microsoft, totaled more than $1.2 billion. 

How the community foundation can help

The community foundation can help your clients fulfill their giving instincts by acting as a secure, knowledgeable, and trustworthy facilitator. Our team personally knows–and regularly vets–hundreds of charities every year, and we can help you and your clients navigate the options for both local and international giving. 

Frequently, a donor-advised fund at the community foundation will be a suitable giving vehicle for your clients. Our team can help connect your clients to the causes they care about by identifying the most effective organizations addressing the critical needs both locally and globally in your clients’ areas of interest. Working with the community foundation also helps your clients secure robust tax planning benefits that can be missed when a client gives to charity on an impulse. 

Finally, the community foundation can help your clients steer clear of scams perpetrated via familiar-looking but sham websites and QR codes, both of which proliferate during highly emotional or threatening times surrounding a disaster. While your clients may be tempted to make a gift online or by phone out of compassion in response to a verbal solicitation or a news story, remind them that the community foundation has much to offer—safely, securely and advantageously—when it’s time to make impactful humanitarian gifts both here and abroad. 

Hidden no more: Designated funds and field-of-interest funds

Most attorneys, accountants, and financial advisors are well-aware of donor-advised funds and the reasons behind their popularity. Especially when a donor-advised fund is established at the community foundation, this vehicle is an excellent way for your clients to organize their charitable giving and get even more connected to the causes they care about. 

Enter the Qualified Charitable Distribution

Your clients can give nearly any type of asset to a donor-advised fund at the community foundation. A notable exception, though, is the Qualified Charitable Distribution (QCD). A QCD allows a taxpayer 70 ½ or older to make a direct transfer of up to $100,000 annually from an IRA to a qualifying charity. A donor-advised fund is not considered to be a qualifying charity.  

Although donor-advised funds cannot accept QCDs, the community foundation offers other types of funds that can accept QCDs. For example, designated funds and field-of-interest funds held at the community foundation are ideal recipients of QCD transfers. These fund types are often overlooked, despite the high value they can deliver to your client and to the community. 

What is a field-of-interest fund?

The Council on Foundations defines a “field of interest fund” as, “A fund held by a community foundation that is used for a specific charitable purpose such as education or health research.” Perhaps your client is passionate about rare-disease solutions, feeding the food insecure or preserving works of art, for example. Your client selects the name of the fund (family, cause-related or even nondescript) and then, the knowledgeable team at the community foundation distributes grants from the field-of-interest fund in a way that is aligned with your client’s values and charitable wishes outlined in the fund documentation.

What is a designated fund?

Designated funds are defined as, “A type of restricted fund in which the fund beneficiaries are specified by the grantors.” These are a good choice for a client who knows they want to support a particular charity or charities for multiple years. The client names the fund and the community foundation fulfills the distributions. Made over time, these funds can help the charity’s or charities’ cash flow planning. Distributions are aligned with your client’s wishes set forth in the original fund document. 

QCD reminders

For the client aged 70 ½ through 72, a QCD removes funds from an IRA before the client reaches the age-73 threshold for Required Minimum Distributions (RMDs). This can lessen the eventual income tax hit that accompanies RMDs. And for RMD-applicable clients, the QCD counts toward their RMD. In both cases, the QCD transfers do not fall into the client’s taxable income.

QCDs are even more popular now that the $100,000 cap will be indexed for inflation under the new laws. Also, under the new laws, a one-time, $50,000 distribution to a charitable remainder trust or charitable gift annuity is now permitted. 

Giving a business to charity: Stack the odds in your client’s favor 

Despite recent reports of a 55% decline in charitable giving by the top 50 U.S. donors in 2022, high profile giving by donors associated with well-known businesses has maintained its place in the limelight, even amid recent market volatility and tenacious concerns about inflation and interest rates. Recent examples abound, including last year’s gift of Patagonia by founder Yvon Chouinard; the well-reported generosity of philanthropists Melinda French Gates and MacKenzie Scott; and the portion of the proceeds, potentially worth $5 billion, from the eventual sale of Subway restaurants that are set to flow to a charitable foundation.  

As an advisor to business owners—and collaborating with the community foundation—you can help your clients leverage potential future liquidity events to support the community causes they care most about.

Advance planning is critical. The community foundation team is happy to get involved as early as possible in your discussions with a client about giving part (or all) of a closely-held business to charitable causes. These transactions carry with them layers of complexity, largely around the timing of the charitable gifts in relation to the sale transaction. The best outcomes are achieved through a thoughtful, multi-step process. 

Many successful closely-held exit transactions occur only after several years of planning—and most of that planning occurs well before potential buyers are even engaged. This planning period is an important time for your client to consider giving ownership shares of the company to a donor-advised fund at the community foundation, especially knowing that under certain circumstances, the proceeds of the shares held by the donor-advised fund will be immune from capital gains taxes if the business eventually does sell, leaving more money to support the client’s favorite causes.

You might even consider encouraging your client to give shares to a donor-advised fund not all at once, but in increments over time during the business exit planning period (before a buyer is identified). This can help avoid the appearance that the gift is merely a function of the business sale and as such intended to be a tax dodge. If the IRS determines that the stock gifts to charity and the sale of the company are really one and the same event–a “step transaction”--the tax benefits of the charitable deduction could be disallowed. 

Another essential part of the process is to secure a proper valuation of the stock by an independent and qualified appraiser for charitable deduction purposes when the ownership is gifted to the donor-advised fund at the community foundation. 

Please reach out to the team at the community foundation to discuss how we can help your business owner clients who intend to maximize their future ability to support the charities they love. 

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.  

Philanthropy on clients' minds, pre-spring cleaning, and three tax tips

Even though 2023 is only a few weeks old, we're hearing from many attorneys, accountants, and financial advisors that clients are already talking about their charitable giving plans for the year.

As you keep up with industry publications, we suspect that the stream of articles about charitable giving will continue. We're here to help! Please reach out anytime with your questions. Our team is happy to interpret what you're reading and help you determine whether a particular planning strategy is right for your client. 

In this issue, we're helping you gear up for your client conversations this year. We'll also explain how the topic of charitable giving can serve as a springboard for larger conversations about a client's overall estate and financial plan. Finally, we're sharing three tax tips to keep handy as you launch into 2023 client work.

Thank you for the opportunity to work together!

Your Community Foundation 

Client conversations: Why your 2023 agenda must include charitable giving 

No doubt, your news feed includes far more articles about philanthropy as a planning tool for your clients than it did just a few years ago. Charitable giving has always been an important subject of client discussions for attorneys, accountants, and financial advisors. What’s changed is that widespread coverage of both major charitable gifts and the ease of making online donations has prompted more of your clients to pay attention to philanthropy.

Among the dozens of reasons to talk with your clients about their charitable giving plans are what many advisors consider to be the top three:

Tax strategies

This is a no-brainer on the list, but still, don’t assume that tax strategies will be the driving force for every client. After all, even if the tax savings on dollars donated reaches 35% or even 40%, your client will still wind up with less money in their pocket after making the donation than they would have if they’d never made the donation in the first place. 

Happily, though, most Americans are charitable, with at least 50% reporting that they give to one or more charitable organizations each year. That means it’s likely that at least half of the clients walking into your office are giving to charity, so you need to be able to address the tax aspects of charitable planning. Keep in touch with the community foundation to stay current on the basics of tax deductibility, including AGI limitations, understanding the differences between public charities such as a donor-advised fund at the community foundation versus a private foundation, and the benefits of donating highly-appreciated assets to charity. The community foundation is also the go-to resource for more complex giving, such as bequests, Qualified Charitable Distributions where retirement-age clients can give money from their IRAs to charity, and even gifts of real estate or closely-held assets. 

Serving clients across generations

Surveys indicate that the majority of children inheriting their parents’ estates will fire their parents’ financial advisor. An aging client base can be extremely dangerous to an advisor’s business. Whether you are an attorney, accountant, or financial advisor, you’re certainly aware that you need to build relationships with the next generation to stand a chance of retaining the business long-term. That’s easier said than done, though, with client confidentiality rules and even just plain old awkwardness frequently standing in the way. 

Enter philanthropy. When you work with your clients on their charitable giving plans, there are several ways to include the clients’ children and grandchildren in the planning, thereby giving you the opportunity to build strong, multi-generational relationships. By helping your client plan an overall charitable giving strategy, including, for example, naming children and grandchildren as successor advisors to a donor-advised fund at the community foundation, you’ll get to know the family dynamics as well as build relationships with other family members. 

Responsibility to assist clients with their charitable goals

Many advisors take philanthropy seriously, adopting a disciplined approach and believing that it is their responsibility to understand their clients’ charitable goals and implement them to the best of their abilities using the very best tools available in the market. This is frequently the reason so many advisors turn to the community foundation for assistance as they serve their charitable clients, whether that assistance is behind-the-scenes or working together with the client.  

The community foundation’s purpose is to serve philanthropic individuals and families, as well as the organizations they support, to maximize overall positive impact on the community’s quality of life. The team at the community foundation is not only well-versed in the tax rules governing charitable giving, but it is also deeply familiar with the programmatic elements that are critical for a nonprofit organization to deploy a financial donation into meaningful, tangible improvement in the quality of life of the people the nonprofit serves. For advisors, the community foundation’s expertise and due diligence offer peace of mind that a client’s favorite nonprofits have been well-vetted and are in good standing, and that their programs are legitimately serving a community need. 

By keeping these three reasons in mind, you’ll be better prepared to proactively raise the subject of charitable giving in your upcoming client meetings. We look forward to working together to serve your charitable clients. 

It’s not too early for spring cleaning: Make this the year to help clients get organized

If you’re already dreading asking your clients to pull together their receipts and other documents for 2022 tax filings, this may be a good time to take proactive steps to avoid being in this same spot next year.

When it comes to charitable giving, your clients may find that organizing their giving through one or more funds at the community foundation will make their lives easier. Establishing a fund at the community foundation is an easy way to organize and track charitable giving. A client can take advantage of this feature by making a single, tax-deductible contribution each year to the community foundation, to be added to their donor-advised, field of interest, or other type of fund.

An especially tax-savvy technique is for the client to make this contribution using highly-appreciated stock. After the stock has been transferred to the community foundation, the proceeds from the foundation’s sale of the stock–free from capital gains tax–are then used for distributions to support your client’s favorite charities. No matter how many different charities receive support from the fund, the client still has just one receipt to keep track of charitable donations for income tax deduction purposes.

The subject of gathering up tax receipts for charitable donations is often a prompt for clients to get organized with the rest of their financial lives, too. At the very least, the subject of charitable giving can pave the way for a discussion about the basics of estate planning. Many clients are simply not aware of the meaning and importance of critical elements, such as:

--The difference between a will and a living trust and how charitable wishes fit in to these documents

--Why it’s critical to be intentional about how each and every asset is titled so that the assets actually pass as intended (which requires making a comprehensive list of assets in the first place)

--The dangers of hurriedly filling out life insurance and retirement plan beneficiary designations and why these documents are absolutely critical components of a financial, estate, and charitable plan

--Reasons for having both a “living will” and a durable power of attorney, both of which (or the lack thereof) have a major impact in the event of incapacity

--A reminder to make sure someone in the family knows where to find a list of logins and passwords

Charitable planning is one of many steps in your work with clients, but it can be an excellent catalyst for helping clients understand why they need that comprehensive estate and financial plan you’ve been encouraging them to complete. The team at the community foundation is happy to help with the charitable components of your service to clients. We look forward to making it easier for you to address all of your clients’ needs.  

In case you missed it: Three tax tips worth smiling about

Energy incentive extends to nonprofit organizations

Nonprofits and other exempt entities are often left out of discussions when new tax incentives are proposed in Congress, primarily (and logically) because these organizations don’t pay tax. Fortunately, nonprofits are not left out of a recently enhanced tax provision known as the 179D deduction, which is intended to encourage incorporating energy efficiency measures into new or renovated buildings. While a nonprofit itself can’t use the deduction, of course, because it does not pay taxes, this incentive is still valuable because the nonprofit can transfer the deduction to the architect or engineer on the project who then uses the deduction.

The takeaway here? If you represent nonprofit executives or board members at organizations that have undertaken capital projects (universities, for example), you’ll want to be aware of this potential benefit, in addition to keeping up in general on sometimes tricky tax rules related to exempt entities.   

This again? More crypto crack down

The ups and downs (and downs) of cryptocurrency continue! If your clients are involved in the cryptocurrency market, and especially if they are contemplating giving these assets to support charitable endeavors, be aware that the IRS continues to formalize its guidance and requirements for a qualified appraisal. Recently, the IRS confirmed that an appraisal is required to claim a deduction of $5,000 or above for a gift of cryptocurrency.

A must-know: Reviewing the QCD

You’ll recall the buzz at the end of 2022 when Congress passed sweeping omnibus legislation that included a version of the long-awaited Legacy IRA provisions that expand a tool called the Qualified Charitable Distribution, or QCD. A QCD is a financially-savvy way for your clients to support the charities they care about. 

As a reminder, if your client has reached the age of 70 ½, the client may be eligible to make annual distributions of up to $100,000 from IRAs directly to an unrestricted or field-of-interest fund at the community foundation or other qualifying public charity. QCD transfers count toward satisfying clients’ Required Minimum Distributions and therefore avoid the income tax on those funds. Plus, distributed assets are no longer part of a client’s estate at death, which avoids estate taxes, too. The new law expands the QCD rules to allow for a one-time, $50,000 QCD to a split-interest vehicle, such as a charitable gift annuity or charitable remainder trust, as well as indexing the QCD cap for inflation in future years. 

Punchlist: What the IRS may be up to in 2023

Advisors of philanthropic clients are keeping an eye on the IRS’s list of priorities for the fiscal year, which includes a focus on several sections of the Internal Revenue Code that impact charitable giving. The team at the community foundation is also watching closely, and, as always, we’ll keep you posted as issues bubble up that may lead to potential charitable giving-related legislation.   

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.  

Yes! Celebrating new laws for QCDs, more reasons to love CGAs, and smart charitable strategies for 2023

Happy New Year from the community foundation!

Not surprisingly, community needs tend to rise during uncertain economic times. As 2023 gets into full swing, inflation, housing challenges, and talk of a recession are pressuring people who are already vulnerable due to financial insecurity, illness, or disability. Nonprofit organizations serving these populations need additional resources—and even more support from charitable giving—to meet the escalating demands. Unfortunately, an economic downturn typically results in not more, but less, giving because many donors are themselves dealing with fewer financial resources.  

Many families have long understood that tough times are easier to navigate with the help of a solid financial plan. “Have a plan and stick with it” is often viewed as wise advice to ride out economic turbulence. The same can be said for a planned approach to charitable giving. Now is the time for philanthropists and their advisors to be thoughtful in planning how much to give and to which organizations in 2023, and also to evaluate which tax strategies might maximize support to charities while minimizing impact on donors’ personal financial situations. 

In the spirit of the new year and the resolutions that come with it, we’re sharing tips and ideas in this issue of the newsletter that can help individuals, families, and their advisors develop a thoughtful charitable giving plan to make the best of a tough situation. Indeed, planning is a key theme across all areas of charitable giving, especially as you help your clients budget for their 2023 donations, adopt a year-round giving strategy, take advantage of the new “Legacy IRA” rules for QCDs, or consider the increased benefits of a charitable gift annuity as interest rates rise. 

As always, the team at the community foundation is here as a sounding board. We’re just a phone call or an email away from helping you work with your clients to map out a budget-conscious, tax-savvy charitable giving plan for 2023 that provides strong support for the local charities that are keeping our community afloat. 

Celebrating the new Legacy IRA and a boost for QCDs

 Congress passed the much-anticipated, $1.65 trillion-dollar omnibus spending bill known as the Consolidated Appropriations Act of 2023 (“CAA”) on December 23, 2022, followed by President Biden signing the Act into law on December 29, 2022. At more than 4,000 pages, the Act includes a wide range of provisions that impact multiple sectors.  

Of particular interest to attorneys, accountants, and wealth managers who advise philanthropists are the provisions starting midway through the bill. The bipartisan legislation often referred to as “SECURE 2.0” is included in the CAA legislation. As background, SECURE 2.0’s provisions build on the original SECURE Act of 2019 (“SECURE” stands for “Setting Every Community Up for Retirement Enhancement). SECURE 2.0 includes the Qualified Charitable Distribution (QCD) enhancements that have been in the works for many months.

Here are the new law’s top three provisions affecting philanthropists:

–Taxpayers may now make a one-time $50,000 QCD transfer to a charitable remainder trust (CRT) or other split-interest gift such as a charitable gift annuity (CGA). These are the “Legacy IRA” provisions. Note that the law effectively mandates that the CGA or CRT be created solely for the purpose of receiving a QCD because the new statute requires that the vehicle contain only IRA assets.

–The required minimum distribution (RMD) age (currently 72) will increase to 73 starting on January 1, 2023. The age will increase to 75 beginning on January 1, 2033. While this provision is not directly tied to charitable giving, it will nonetheless impact your clients’ overall financial plans and potentially affect the timing and strategy of their philanthropy. As a reminder, “required minimum distribution” (RMD) refers to the mandated amount that a taxpayer must withdraw from qualified retirement plans, which include IRAs as well as 401(k)s and other tax-deferred retirement accounts.

–The annual per-taxpayer $100,000 QCD cap is now slated to be indexed for inflation, which will allow taxpayers to give even more from their IRAs directly to charity.

Here’s what has not changed:

–Eligibility for making a QCD still starts at 70 ½. This allows taxpayers who are not yet required to take IRA distributions under the RMD rules to still take advantage of the QCD technique without the income tax hit on the distributed funds while also removing those funds from liability for future estate taxes.

–Taxpayers required to take RMDs can still count QCDs toward their RMDs, thereby avoiding the usual income tax hit on RMD dollars.

–Charities eligible to receive QCDs include designated funds, field-of-interest funds, and scholarship funds at the community foundation, but still not donor-advised funds. 

It just keeps getting better: Why charitable gift annuities are having a moment

Charitable gift annuities (CGAs) are becoming more attractive to philanthropists, making this planned giving vehicle a good fit for your clients who like the idea of an up-front tax deduction, a steady lifetime income stream, and a remainder gift to charity.

If you are not already doing so, now is a good time to consider talking with clients about CGAs. 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 popularity of CGAs is increasing for a few reasons.

Increase in payout rates

First, in late November 2022, the American Council on Gift Annuities voted to increase the rate of return assumption it uses in its suggestions for maximum payout rates for CGAs. Effective on January 1, 2023, the rate of return assumption moved from 4.50% to 5.25%. This increase translates to a significant boost in payout rates for annuity contracts and is therefore good news for a client’s income stream. The new rates are now available on the ACGA’s website. 

New Legacy IRA opportunities

Second, with the December 2022 passage of the Legacy IRA enhancements to the Qualified Charitable Distribution (QCD) rules, CGAs could become even more attractive. This is because the new Legacy IRA rules allow for a once-in-a-lifetime, $50,000 QCD from an IRA to a split-interest vehicle. While the law allows a taxpayer to make a QCD to a charitable remainder trust, the $50,000 statutory maximum for a Legacy IRA gift may be a deterrent. This is because minimums for CRTs are usually at least $100,000; that is not the case, however, for CGAs, which typically can be set up at much lower minimums. Because of the difference in minimums, the CGA may be more attractive for taxpayers who want to take advantage of the one-time Legacy IRA gift as part of a QCD strategy.

Note that CGAs created to receive a QCD contribution are different from other CGAs in a few important respects under the new law. For example, annuity payments are fully taxable, and must be at least 5%. Although the 5% requirement is not an issue at the moment due to the new, higher payout rates, this stipulation could present a challenge in the future. 

Tax planning with appreciated assets

Third, gifts of appreciated assets are always a strong planning technique, especially to a CGA. When a taxpayer contributes highly-appreciated stock in a public company, for example, to a CGA, the taxpayer typically is eligible for an income tax deduction at the stock’s fair market value on the date of the gift. When the recipient charity sells the stock, the charity pays no capital gains tax. Note that the taxpayer would have paid capital gains tax had the taxpayer sold the stock. Especially if the stock was paying low or no dividends, the CGA has enabled the taxpayer to unlock a low-income producing asset and convert it to a vehicle that pays an income stream. Plus, the taxpayer gets the benefit of the upfront tax deduction, presumably in a tax year where income is higher (and therefore taxed in higher brackets) than it will be when the taxpayer retires at a future date. 

Valuable conversations: Why it's smart to talk with your clients about charitable giving

January is a good time to start helping your clients plan for their annual giving. With the year-end flurry of donations still fresh in many clients' minds, you may discover that clients will welcome your suggestion to make 2023 the year to get organized early, particularly as economic headwinds make planning especially important.

A conversation that benefits everyone

Among the many benefits of discussing charitable giving with your clients is that your clients will see you as an expert about local community needs and nonprofits, especially when you have a close working relationship with the community foundation team. Your philanthropic clients want to learn how they can make a difference through their charitable activities, and they are expecting their advisors to be ready to help them structure and plan their giving. Indeed, for years, research has shown that a proactive advisor who offers options for incorporating philanthropy into financial and estate plans inspires client loyalty, even across client generations. 

The community foundation advantage

Advisors frequently comment that they’re surprised to discover the many ways the community foundation can help their clients, especially compared with national donor-advised fund programs affiliated with brokerage houses or financial services firms. 

Sometimes the greatest needs really are right here at home, and working with the community foundation is often the very best option for ensuring that your clients are informed and impactful philanthropists. The team at the community foundation team works with local nonprofits every single day and thoroughly understands how organizations are meeting community needs. 

In addition, the community foundation is unparalleled in its ability to be flexible and responsive, providing outstanding, personal service designed around your clients' needs while always respecting your role as your client's primary advisor. 

Options for every client's unique situation

Our team welcomes the opportunity to work with you and your clients to implement their charitable giving goals. Here are just a few of the ways we can work with you as you plan for 2023:

Wills and trusts

A client can establish a bequest to a fund at the community foundation through a will or trust or through a beneficiary designation on a qualified retirement plan or life insurance policy. The community foundation will provide proper bequest language.

Retirement plan beneficiary designations

Bequests of qualified retirement plans can be extremely tax efficient. Funds flowing directly to a client’s fund at the community foundation from a retirement plan after the client’s death will not be subject to income tax or estate tax.

Family philanthropy

Consider encouraging clients to involve their children and grandchildren in philanthropy, especially when the clients are working with the community foundation through a family donor-advised fund or other collaborative vehicle.

Income tax planning

Remind clients that they are eligible for an income tax deduction for lifetime charitable gifts, and the gifted assets are no longer subject to future estate taxes. 

Complex giving

Consider more complex giving vehicles, including charitable remainder trusts, charitable gift annuities, and gifts of closely-held stock. The community foundation can work with you to establish these structures to help facilitate your clients’ charitable giving goals and meet the clients’ financial and tax goals at the same time. 

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.  

Getting creative with NFTs, FAQs about QCDs, and must-know year-end reminders

Greetings from the community foundation, and happy December! 

The final weeks of 2022 are upon us. We’re hearing from attorneys, accountants, and financial advisors not only that your plates are full as the end of the year approaches, but also that questions from clients are rolling in about charitable giving, especially related to the alphabet soup of various planning techniques.  

In this newsletter, we’re covering a few of the most talked-about ingredients in that alphabet soup, including donor-advised funds (DAFs), Qualified Charitable Distributions (QCDs), and non-fungible tokens (NFTs). Indeed, the confusion around QCDs and RMDs is an example of how acronyms, although intended to be useful, often hamper communication instead. 

As always, please reach out to the team at the community foundation. We are here to help you help your clients achieve their 2022 charitable goals.

Thank you for your partnership. We wish you all the best for the holiday season.

Your Community Foundation 

How NFTs are connecting makers, investors and donors with causes they love

As if advisors didn’t have enough financial acronyms to explain to their clients—DAF, RMD, IPO and ETF come to mind—along comes NFT to stir the multi-letter madness further. Even under the shadow of recent turmoil in the cryptocurrency marketplace, “non-fungible tokens,” or “NFTs,” are still creating quite a buzz. 

The IRS has not directly addressed the tax rules governing NFTs, but it has issued guidance on the broader asset category of virtual currency. A comprehensive look at the tax rules and trends related to NFTs and charitable giving is eye-opening, both because of the complexity as well as because of the creative ways charities are leveraging the NFT phenomenon to engage NFT creators in unique fundraising efforts.  

NFTs defined 

Context is useful here, so let’s take a step back.

A fungible item is one that can be freely exchanged or interchanged. For example, a refrigerator can be exchanged for dollars or another item; companies may have interchangeable customers, one replacing another. Differently, a non-fungible item is not interchangeable or easily replaced. They’re represented as tokens on a blockchain and designated as non-fungible tokens or NFTs. Examples are a piece of art, a musical score or a video that can be authenticated as unique and cannot be duplicated. Like the unique history traceable to a car or truck’s VIN number, NFTs have unique serial numbers or ownership details. Their data is recorded on a decentralized blockchain and can be verified by network participants. 

NFTs are digital, not tangible or physical. They are the online and portable equivalent of a traditional collectible, like a baseball card, that can gain value, particularly over time, and largely due to scarcity. In August 2022—70 years following original production—a 1952 Topps Mickey Mantle rookie card became the most highly valued trading card when it sold for $12.6 million. Its value was enhanced by pristine condition and scarcity (fewer than 1,800 are said to still exist, with many worn or frayed). Similarly—but in the digital era—NFTs are valued for their controlled availability, always-new condition, and appeal among buyers or collectors. 

History of NFTs

Only about 10 years old, even the early history of NFTs is still being written. Quantum, a digital animation by the artist Kevin McCoy in 2014, is said to be the first NFT. NFTs often appear as other art forms, games and memes circulating on the internet.

The term “NFT” appears to have been coined in 2017 and was popularized by the game Cryptokitties, where players breed, sell and trade digital cats, adding value through customization of up to 12 “cattributes,” including their fur, mouth shape and eye color that can change through “family” generations. Hosted on the Ethereum network, game activity was so robust following the December 2017 introduction that it congested the network with a record number of transactions. 

Overall, 2021 NFT sales were estimated at $24.9 billion, including artist McCoy’s Quantum for $1.47 million, up from just $94.9 million in 2020.  

NFTs have grown through the popularity of sites and apps like NBA Top Shot, where video highlights and memorable moments (think buzzer-beating basket or championship celebration) featuring current and former basketball players can be acquired for as little as $3.00 or well into the thousands. The site’s inventory includes both the National Basketball Association and Women’s National Basketball Association alike. Buyers can acquire, sell and earn specific “moments” and can use them within online challenges or other interactive activities. 

For football enthusiasts, NFL All DAY “is where fans come to buy, sell and play for officially licensed NFL video collectibles.” And according to the site, “Your collection of NFL All DAY Moments is with you anywhere you go, will never lose quality, and is yours to own forever.”

Those same types of attributes have made art, where pieces are as unique as the artists themselves, a popular source of NFTs. Traditionally a “make one, sell one” proposition, art has become more easily scalable via digital, where a maker can offer a limited quantity of the same work, allowing one or multiple admirers or investors to own a piece. In March 2021, a digital collage with thousands of colorful images was sold by auction house Christie’s for nearly $70 million. 

How can philanthropy benefit?

NFTs’ broad reach via digital offers organizations many fundraising opportunities; therefore, your clients will be more and more likely to encounter NFTs in their involvement with charities. 

Charity advocates with artistic abilities can offer their works through NFT marketplaces like Open Sea, Magic Eden and Nifty Gateway, and then direct buyers’ proceeds to their preferred organization, such as their fund at the community foundation. Platforms like The Giving Block help charities both fundraise and receive funds via crypto. They often help organizations meet donors or creators aligned with their purpose wherever that sponsor is on their giving journey. 

The team at the community foundation would love to hear from you if you’re working with clients at the intersection of NFTs and philanthropy. We can help design a charitable giving strategy to maximize the impact of NFT proceeds and facilitate sale transactions to be processed through The Giving Block or another provider. What’s more, our team can help you and your clients envision the enormous philanthropic potential of digital assets, both in terms of clients using valuable NFTs assets to generate funds for charitable causes and creators using the power of NFTs to boost the profile of worthy causes.  

Finally, while caution is always advised in leveraging new types of assets to further charitable giving, the team at the community foundation is also committed to staying on the cutting edge of strategies and techniques to fuel the growth of philanthropy. Indeed, we need only think back to when donations were largely made by cash or check—and then consider the advances enabled by technology. Whether by debit or credit card, EFT or ACH, digital has become a preferred donor payment method that increases reach, efficiency and cash flow. For thousands of philanthropically-minded individuals, NFTs and crypto are the latest technological pipe to further the causes they care about and help important nonprofit organizations secure mission-critical financial support. 

Five of 2022’s most-asked questions about Qualified Charitable Distributions

Qualified Charitable Distributions, or “QCDs,” are becoming a very popular financial and charitable planning tool. At the same time, QCDs are growing as the source of more and more confusion.

Here are answers to the questions we’ve been asked most frequently this year by both advisors and donors. Be on the lookout for these and other client questions, and please do not hesitate to reach out to the community foundation for assistance.

“Is an IRA (Individual Retirement Account) 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 72. RMDs are taxable income. The Qualified Charitable Distribution, by contrast, is a distribution directly from certain types of qualified retirement plans (such as IRAs) to certain types of charities. When a taxpayer follows the rules, 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 I make a Qualified Charitable Distribution even if I am 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 was shifted from 70 ½ to 72 (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).

The IRS’s rules for QCDs are captured in Internal Revenue Code Section 408 and summarized on pages 14 and 15 in Publication 590-B in its FAQs publication. 

“Can I direct a QCD to my 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 designated funds, unrestricted funds, field-of-interest funds, and scholarship funds. 

“How much can I give through a QCD?” 

Short answer: $100,000 per year.

Long answer: A Qualified Charitable Distribution permits you (and your spouse from your spouse’s own IRA or IRAs) to transfer up to $100,000 each year from an IRA (or multiple IRAs) to a qualified charity. So, as a married couple, you and your spouse may be eligible to direct up to a total of $200,000 per year to charity from your IRAs and avoid significant income tax liability. 

So long, 2022: Important charitable tax planning reminders as the year winds down

Now is the time to share important reminders with your clients about year-end gifts. Time is indeed of the essence!

Gifts of appreciated stock still shine

Giving in a roller coaster market may continue to be a real concern for many of your philanthropic clients, but remember, not all stocks are down. Gifts of appreciated stock to a donor-advised fund or other type of fund at the community foundation is still one of the most tax-savvy ways to support favorite charitable causes because capital gains tax can be avoided. And of course, a stock market rally can present timely opportunities.

Donor-advised funds help both the donor and the donor’s favorite nonprofits

Grantmaking from donor-advised funds (DAFs) continues to rise, especially as donors and their advisors pay increasing attention to the ways a donor-advised fund can help with tax planning and, importantly, keep a donor’s giving levels consistent even in lower income years. Reach out to the community foundation to learn more about how “bunching” at year end can maximize clients’ tax benefits, and at the same time ensure that nonprofits are supported as demands on their missions continue to grow in choppy economic waters.

Year-end giving deadlines are firm

Watch the calendar closely! Year-end can sneak up on all of us, and it’s important not to miss key deadlines for accomplishing your clients’ charitable goals. Please reach out to our team to find out when certain transactions must occur to be completed during this tax year, including checks to a fund at the community foundation which must be postmarked or hand-delivered no later than December 31. Gifts of marketable securities also need to be fully transferred by December 31, so please urge clients to contact us in plenty of time for our team to process and receive the transfer. 

Handy tools in a bear market, GivingTuesday, and avoiding valuation pitfalls

Hello from the community foundation, and happy November! 

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.

In this issue, we’re covering three highly-requested topics:

–Outlining how to use donor-advised funds to help your clients continue giving to their favorite charities even when stocks are down.

–Clarifying GivingTuesday so that you can be prepared to answer clients’ questions and help them participate in a meaningful way.

–Reinforcing the importance of valuing gifts of hard-to-value assets to avoid running afoul of the IRS’s stringent rules.

As always, we are here for you! Please call or email anytime with your charitable giving questions. More often than not, the team at the community foundation can help your clients. If we’re not a fit, we are happy to point you in the right direction. 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

Strong year-end giving in a bear market: Donor-advised funds come in handy

Giving appreciated stock to charitable organizations is certainly a highly-effective tax strategy. During years when highly-appreciated stock is in short supply, however, implementing this strategy may be easier said than done. 

This is when donor-advised funds come in especially handy. Now is the time to discuss charitable giving with those clients who regularly added to their donor-advised funds throughout the market’s long bull run. If these clients intend to ride out today’s market conditions in their personal portfolios, this year’s bear market doesn’t mean the clients’ year-end charitable giving has to take a hit. These clients can use their donor-advised funds to support their favorite organizations, sometimes even at levels consistent with prior years. 

Related, now is a good time for clients to evaluate the asset allocation in their donor-advised funds. The community foundation is happy to assist your clients with assessing cash positions in their donor-advised funds as a potential source of year-end giving. 

Similarly, for some clients, this may be a year to consider contributing cash to a donor-advised fund instead of donating highly-appreciated stock (which has been the go-to gift for so many of the last several years). Gifts of cash could reduce the burden on a client’s personal stock positions that may have fallen in value dramatically, giving these positions more time to recover value and, at some point in the future, be contributed to a donor-advised fund at a higher value (thereby resulting in a higher tax deduction for the client). 

Now may also be a good time for clients to consider using their cryptocurrency in creative ways to meet their charitable giving goals. Clients holding cryptocurrency may have come to the conclusion that it does not necessarily provide the protection against inflation they thought it would. A client could, for instance, sell their cryptocurrency at a loss and contribute the cash to their donor-advised fund. Then, the client can keep an eye on the cryptocurrency market and decide when–or whether–to wade back in. 

Finally, consider encouraging your clients who’ve not yet established donor-advised funds at the community foundation to consider doing so now. Not only does a donor-advised fund help organize charitable giving, but over the long term it can also protect a client’s ability to support favorite charitable organizations even when market conditions are rough.

The team at the community foundation is always happy to help your clients maximize both the philanthropic and financial elements of their charitable giving strategies. We look forward to hearing from you.

It’s a big deal: Answering clients' questions about GivingTuesday

Among the many client questions you and other attorneys, accountants, and financial advisors can be prepared to answer as year-end approaches is, “What is Giving Tuesday? And why the hashtag that often precedes it in print or online?”

Giving Tuesday–or “GivingTuesday” to be more accurate–has become a philanthropic phenomenon of sorts, generating support and enthusiasm from a wide range of people and institutions. Many of your clients are likely reading about GivingTuesday in the media, especially after the Gates Foundation recently announced its $10 million gift to support the effort. 

Celebrating 10 years in 2022—and vastly different from both the Black Friday and Cyber Monday that it follows—GivingTuesday is a day of generosity. Generosity of time, effort, money, concern or any other well-intended act of giving. 

Facts about GivingTuesday:

–Started in 2012.

–More than a day, GivingTuesday is a movement and an organization. 

–Founded at New York’s 92nd Street Y and celebrated globally.

–Falls on the first Tuesday following Thanksgiving, always. 

–Though not strictly a fundraiser, money “moved” has grown from $28 million in 2013 to $2.7 billion in the U.S. in 2021. 

Clients typically get involved in GivingTuesday by supporting their favorite charitable organizations. Many nonprofits promote GivingTuesday as an important source of funds for their organizations, and they frequently encourage their donors–your clients–to give via cash, check, online or even via cryptocurrency. Your clients also can participate in GivingTuesday by recommending grants from their donor-advised funds to favorite organizations. 

Far beyond simple acts of benevolence, GivingTuesday is steeped in the idea of “radical generosity,” which the organization describes as giving to create systemic change, or to “recognize that we each can drive an enormous amount of positive change by rooting our everyday actions, decisions and behavior in radical generosity—the concept that the suffering of others should be as intolerable to us as our own suffering. Radical generosity invites people in to give what they can to create systemic change.”

Beyond monetary donations, systemic change comes from participating in activities like social media advocacy (the # in #Giving Tuesday that creates ripple-effect awareness online), sharing love, spreading kindness, supporting a food pantry, shopping local or hosting a food or coat drive. 

To help clients learn more or get answers to additional questions about GivingTuesday, please reach out to the community foundation. Our team welcomes your call!  

Adopt a “donor beware” attitude when clients make non-marketable gifts

Market declines and inflation have made 2022 a more challenging year for some clients to fulfill their traditional giving objectives or early-year gifting intentions. 

With annual inflation hovering at 8% (and no relief in sight) and liquidity perhaps less than ideal, cash may be hard for donors to part with. Giving stock may also be hard to swallow, at least psychologically, in a down market. For example, assume shares of a client’s stock have dropped 15% over the last quarter, from $200 per share to $170. If the client has been intending to make a $10,000 gift to charity this year, last quarter the client could have accomplished that with a gift of 50 shares. Now, though, the client will need to give nearly 59 shares to hit that $10,000 target. Realizing that it will "take more shares to do the same good,” your clients may be less inclined to give depreciated stock shares to their donor-advised funds and other charitable recipients.

So, with money tight and stock perhaps painful to give, your clients may be considering alternatives to cash or securities for their gifts to charity. You and your clients need to be aware of the rules—meaning the IRS’s rules—to both meet the clients’ objectives and stay in Uncle Sam’s good graces. 

A high-level understanding starts with the $5,000 threshold for documentation that appears on IRS Form 8283, titled Noncash Charitable Contributions. This form is required to be filed with any tax return claiming such a deduction. 

Substantiation of value up to $5,000 is routine and consistent with securities (i.e., acquisition and contribution dates, fair market value of the item(s) and method of value determination). Requirements for gifts up to $500 are less stringent. 

Real estate, closely-held stock, art, jewelry, vehicles or baseball card collections, for example, valued at $5,000 or greater require more specifics. They’re also subject to greater scrutiny if the donor is audited or questioned. 

Consider the additional documentation requirements:

–From the donor (your client): the type of gift, description, physical location and a third-party appraisal of value. 

–From the appraiser: a signed declaration on the tax form describing their qualifications and identification number; that they do this work regularly; and where they can be located. 

–From the recipient (the charity, sometimes known as the “donee”): signed confirmation of qualification, receipt, federal identification number and a commitment to document and notify if disposition occurs within three years. (The community foundation is accustomed to filing this documentation for donors' gifts to funds.)

Your clients also need to know that meeting the requirements for declaring value rests with them and not their tax preparer, recipient organization or appraiser. In the recent case of Heinrich C. Schweizer v. Commissioner, a donor/taxpayer was found liable for reimbursements and penalties related to a decade-old donation of art first valued at $600,000—later reduced by more than 50%—and exacerbated by the IRS’s determination of participants’ roles and responsibilities. Tax advisors continue to be reminded of the intricate requirements to substantiate hard-to-value gifts such as conservation easements, watching carefully to see how taxpayers can win valuation arguments with the IRS.

So while a high-value donation of real property to your client’s donor-advised at the community foundation or a little-used auto to benefit a charity is admirable and relieves the pressure on making traditional cash or securities gifts, patrons should take a vigilant and “donor beware” approach to alternative gifting. While beauty is in the eye of the beholder, value and deductibility are determined by others. 

Charitable giving in a bear market, helping your clients support hurricane relief, and need-to-know insights about the nonprofit sector

Hello from the community foundation! 

This month, we’re providing updates in response to many of the questions we’ve received lately as market conditions continue to present challenges for your clients and as yet another natural disaster impacts millions of lives. We’ve also taken this opportunity to share a few reminders about why the nonprofit sector is so important to the fabric of our society. 

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 

P.S. We are in the midst of exploring ways we can help bring to life and summarize key information related to the funds established by your clients at the community foundation. If you’d like to discuss an early prototype and help us brainstorm, we would welcome that opportunity.

THE BEAR MARKET

Hanging in there: Charitable giving in a challenging economy 

Earlier this year, Bankrate and Psych Central released the Money and Mental Health study and, not surprisingly, a large number of people surveyed in the research reported that money has a negative impact on their mental health. Survey results varied across generations: Financial concerns psychologically impact 48 percent of Millennials, 46 percent of Generation X, and 40 percent of Generation Z. Needless to say, every generation will feel the sting of any bear market, including (and especially) Baby Boomers.

At the moment, economic conditions feel, well, awful. Some people feel better if they can gain a better understanding of the factors that created the unpleasant mix of inflation, rising interest rates, and a bear market in the first place. Others are comforted knowing they are not alone as they ride the emotional rollercoaster. And for those who are charitable inclined, challenging economic times might actually serve as an inspiration to become more intentional about charitable giving priorities. Happily, not all donors will reduce their donations. 

Here are three messages worth sharing with your philanthropic clients as bear market conditions hang on into the fourth quarter: 

“All stock is not down!” 

Giving appreciated stock to a donor-advised fund or other type of fund at the community foundation is always a tax-savvy alternative to giving cash, regardless of the economic situation. Your clients may feel disappointed that their portfolios are down, but this does not mean that there aren’t still plenty of opportunities to avoid capital gains tax on stocks held for more than a year. (Take a look at the historical share price of Apple, for example, and imagine the capital gains tax liability for clients who’ve held the stock for several years.)

“Consider the needs of others who are even more acutely feeling the pinch of inflation.” 

Community needs are rising, and the community foundation is dedicated to staying on top of the issues that are critically important to quality of life at any given time. Families with low or moderate household incomes can be especially vulnerable to high inflation. The team at the community foundation can help your clients zero in on nonprofits in our community that are serving the people who need the most help right now.  

“Don’t forget about the Qualified Charitable Distribution.” 

We mention this tool a lot because it is such a financially-savvy way for your clients to support the charities they care about. If your client has reached the age of 70 1/2, the client may be eligible to make annual distributions up to $100,000 per spouse from IRAs directly to an unrestricted or field-of-interest fund at the community foundation or other qualifying public charity. QCD transfers count toward satisfying clients’ Required Minimum Distributions and avoid the income tax on those funds. Plus, those assets are no longer part of a client’s estate at death, which avoids estate taxes, too. What’s more, the QCD may get a boost if the EARN Act becomes law; proposed bipartisan legislation would expand the QCD rules to allow a one-time, $50,000 QCD to a split-interest trust such as a charitable remainder trust. 

HURRICANE RELIEF

Disaster philanthropy: Your clients and the important role of individual philanthropy

Sadly, your philanthropic clients have likely grown accustomed to making charitable donations to support disaster relief. Individual donations provide critical resources to help communities recover from the many disasters–weather, fire, humanitarian, disease, war–that occur each year. 

In the wake of Hurricane Ian, your clients may ask you about their options to support those affected by the storm. We encourage you to reach out to the team at the community foundation. We can connect your donors with a variety of options for giving that are trustworthy and effective. Indeed, disaster relief funding is frequently coordinated by community foundations, which are widely viewed as one of the very best vehicles to help donors provide financial support to relief efforts. Individual giving is critically important to any disaster relief effort, and the community foundation can help your clients make an immediate, powerful, and positive impact on the lives of those affected by Hurricane Ian or any disaster. 

What’s more, many donors are now exploring ways to help improve a community’s readiness for disaster response, including building reserve funds for future disaster relief and bolstering emergency preparedness infrastructure for medical care, food, clothing, and shelter delivered by a network of local, on-the-ground nonprofit organizations. We are happy to work with your clients to establish field-of-interest funds or unrestricted funds at the community foundation to ensure that the people in our region remain as safe and supported as possible when disaster strikes. Disaster-preparedness field-of-interest or unrestricted funds at the community foundation can be especially attractive because these funds are qualified recipients of QCDs (Qualified Charitable Distributions) from clients’ IRAs.

We look forward to helping your clients improve the lives of those affected by disasters both here in our community and across the nation and world. 

NONPROFIT SECTOR INSIGHTS

Counseling your clients about nonprofits: The good, the bad, and the big leaps

The nonprofit sector accounts for more than 12 million jobs in the United States, and job growth in the nonprofit sector in recent years has outpaced job growth in the private sector. As an advisor, you are more likely than ever to represent clients who hold executive positions at nonprofits, serve in key roles on nonprofit boards of directors, or do business with nonprofit organizations.

Please reach out to the community foundation as a resource when questions about nonprofit matters arise in your client discussions. Here are three examples of the types of issues that come up in the nonprofit arena: 

–The good: The application process for exempt status has improved dramatically in recent years, thanks to IRS enhancements to the Form 1023. This is important for you to know when you are advising clients who are involved with a new charity. For those in the business, the new Form 1023 was a huge win and a major IRS accomplishment. 

–The bad: Watch out for exempt status issues. At the heart of a nonprofit’s favored tax treatment is the concept of “exempt purpose.” For charitable entities organized under Internal Revenue Code Section 501(c)(3), exempt status is crucial for an organization to remain exempt from paying income tax. Exempt status under Section 501(c)(3) also allows contributions to the organization to be eligible for income tax deductions (as well as estate and gift tax deductions). A bitter case in point is described in a recent private letter ruling outlining the reasons a healthy juice enterprise lost its exempt status. 

–The big leaps: The nonprofit sector, powered by private philanthropy, can be, and has been, transformational for our society. If you’ve not spent some time reading up on the major societal changes that have their roots in the nonprofit sector, you might consider doing so. As always, the team at the community foundation would welcome an opportunity to provide big picture background and inspiration to support the ongoing service you provide your clients who are involved in the nonprofit sector.  

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.

Inherited IRAs, missed opportunities for stock gifts, topics for client meetings, and, wait for it, crypto

Greetings from the community foundation!

The last weeks of summer are already ushering in the usual uptick in questions about charitable giving and year-end tax planning. Typically, in the weeks leading up to the fourth quarter, we field quite a few questions from advisors and donors about the laws governing nonprofits and charitable giving in general. We are always glad to hear from you!

We've heard your feedback that it is easy to get caught up in the minutia of specific charitable giving vehicles and the ever-changing tax laws at the expense of the valuable big picture. For that reason, as you work with your clients this month, we encourage you to listen carefully for questions that signal the need for a quick refresher. “How much should I give to charity this year? Remind me what’s deductible and what’s not? What am I missing in my tax planning that could really save me money and help me support my favorite causes? Can you explain this whole foundation concept again? It’s been awhile.”

The team at the community foundation is here to help. We are always happy to join you for “lay of the land” conversations to help ground your clients in the charitable priorities that mean the most to them, and then connect the dots to actual charitable planning vehicles that will help your clients support the community, save taxes, and create legacies for future generations, all at the same time. We’re also always happy to point you in the right direction to find resources, articles, and tutorials that can help quickly orient your clients to the philanthropy industry as a whole. (We really like this overview sheet, for example, from Candid.) 

Thank you for the opportunity to serve your clients. We look forward to hearing from you in the weeks and months ahead as you bring your clients’ 2022 charitable giving goals to successful conclusion. 

Inherited IRAs: Big headache, or big opportunity? 

Don’t be surprised if your clients are walking into your office in a state of bewilderment over something they’ve read recently about the IRS’s distribution rules for inherited IRAs. 

What’s the back story?

Until the law changed a few years ago, a client who was named as the beneficiary of a parent’s IRA, for example, could count on a relatively straightforward and tax-savvy method of withdrawals called the “stretch IRA.” With the passage of the SECURE Act, that changed for many clients who inherited an IRA after December 31, 2019. Instead of taking distributions over their lifetimes, affected clients would need to withdraw the entire inherited IRA account within a 10-year period as calculated under the law. 

What’s the problem now?

Too bad about the loss of the stretch IRA, but we’ve all had time to adjust to the new IRS rules, right? Wrong. Unfortunately, the IRS rules are, at the moment, clear as mud. Concern escalated when the IRS issued proposed (but not yet final) regulations earlier this year. Advisors and clients are facing an acute discrepancy between what had been understood by practitioners immediately after the SECURE Act was passed, on one hand, and what the IRS has included in the proposed regulations, on the other hand.

Specifically, some non-spouse beneficiaries of an inherited IRA may not be able to wait until the 10-year post-inheritance mark to fully withdraw the funds in a lump sum, but instead, according to the proposed regulations, must begin taking annual distributions immediately following the inheritance and throughout the statutory 10-year period during which all funds must be withdrawn. This is a hard pill to swallow for clients who were counting on years of additional tax-free growth and who had hoped to defer an income tax hit until a lower-income year.

The situation is complicated but worth understanding (we like this very clear article) because of the potential headaches the proposed regulation could cause for your clients who are caught in the gray area.    

A charitable giving opportunity?

The current state of confusion could present a golden opportunity to serve your philanthropic clients.

First, anytime you are talking about IRAs, inherited or not, you’ll want to make sure your client knows about Qualified Charitable Distributions (QCDs). As tax enthusiasts, we may feel we talk about QCDs all the time. Hearing the message multiple times, though, is crucial in order for clients–who are likely not tax experts–to truly appreciate the benefits of the QCD. 

As a reminder, through QCDs, a client who is 70½ or older can use a traditional IRA to distribute up to $100,000 ($200,000 for a couple) per year, which happily counts toward satisfying Required Minimum Distributions, to a qualified charity, including certain types of funds at the community foundation. The distribution is not reported by the client as taxable income because it goes straight to charity.  

Second, for your clients owning inherited IRAs who are caught in the confusion of SECURE Act proposed regulations, a QCD could come in very handy. The IRS does permit taxpayers to make QCDs from inherited IRAs, not just their own IRAs. This option could be a welcome relief to clients who are facing the more stringent proposed IRS regulations governing the payout requirements for inherited IRAs.

Please contact us if you have questions about how your clients can use their IRAs to support their favorite charitable causes. We’d be glad to help. 

Highly-appreciated stock: If your client missed the ideal window, it’s still not too late to support charity

During a routine check-in meeting, your client casually mentions that the client’s employer, a local company, was just acquired. The client and dozens of fellow employee shareholders are now flush with cash. “I’d like to use some of the money to give to charity,” the client tells you. “Let’s talk about a family fund at the community foundation.”

You try not to flinch as you mentally calculate the capital gains taxes your client could have avoided if the client had given some of those shares to a fund at the community foundation years ago when the company was clearly growing fast, making it a natural target for acquisition or IPO, but well before an exit was in the works.  

All is not lost. You can still help the client establish a donor-advised, field-of-interest, unrestricted, or other type of fund at the community foundation to fulfill the client’s charitable intentions. The client’s gifts to the fund qualify for a charitable tax deduction in the current tax year, helping to offset the income from the sale of the shares.  

Still, this situation is all too common and a good reason to regularly remind clients about their options for making gifts to charity and the tax benefits of each.

Giving cash to a public charity, which is what your client in this situation will be doing (!), is always a viable option. The general rule is that your client can deduct cash gifts to up to 60% of their adjusted gross income (AGI) in any given year. While this may not completely offset large gains from the sale of the stock, it will help to reduce the client’s taxable income.

Giving appreciated stock, which is what you wish your client had done, is a very tax-effective method of supporting public charities. Clients who donate stock outright avoid all capital gains tax that would be levied on a sale of the stock if it were sold prior to making the donation. Even with the 30 percent of AGI limitation imposed on gifts of highly-appreciated, long-term capital gains property to a public charity, your client likely will still come out ahead because the client’s AGI is presumably a lot lower than it will be in the year of a future stock sale. 

The “i’s” have it: Two key topics for client meetings

Inflation, interest rates, income tax, and the IRS are ever-present topics during discussions with your clients. Right now, there’s a lot to talk about, especially related to charitable giving.

Let's look at two examples of hot topics that may take a front seat in your client conversations this fall as you are helping your clients consider their options for structuring charitable giving and philanthropic legacies in the current economic environment.

Our first hot topic is the notion that rising interest rates can increase the attractiveness of certain charitable remainder gift vehicles.

Clearly, wealth planning priorities are impacted by interest rates. Charitable components of estate and financial plans are no exception. When interest rates are high, your clients may want to look closely at annuity vehicles that leave a remainder gift to charity, such as a charitable remainder annuity trust or a charitable gift annuity. 

Creating a charitable remainder annuity trust in a high interest rate environment, versus a low interest rate environment, drives down the present value of your client’s income stream, which means that the value of the remainder passing to charity is relatively high and therefore so is the client's upfront tax deduction for the charitable portion of the gift. 

Charitable gift annuities also are becoming more attractive to philanthropic clients, for different reasons. Thanks to the recent increase in rate of return assumptions for charitable gift annuities, this planned giving vehicle is now more attractive to donors who like the idea of a higher payout rate for their lifetime annuity.

Our second hot topic relates to the IRS. Projected increases in the IRS’s ranks may be raising more advisors’ and clients’ eyebrows than actual tax hikes. The much anticipated Inflation Reduction Act is now law, and while the Act did include changes to a few income tax provisions, many tax professionals are viewing the Act’s $80 billion in funding increases for the IRS to be the bigger headliner. 

Some commentators worry that the IRS still may not be able to build its staff and update technology as quickly as the legislation anticipated. Nonetheless, financial advisors, attorneys, and accountants are taking note. In all likelihood, shoring up the IRS’s operations means that the chances of client audits will increase. Your clients may even be reading up on this in the mainstream media, which frequently cites unusually large charitable deductions as a potential trigger for an IRS audit. 

Now is the time to make sure your clients understand the rules for charitable deductions and commit to keeping track of their donations in detail. Establishing a fund at the community foundation is an easy way for clients to organize and track their annual giving.

Some clients, for example, make a single, tax-deductible transfer of highly-appreciated stock each year to their fund at the community foundation. The proceeds from the sale of that stock are then used for distributions from the fund to the client’s favorite charities. In this situation, no matter how many different charities benefit from the fund, the client still has just one receipt to keep track of charitable donations for income tax deduction purposes. 

Please reach out to learn more about ways the community foundation can work with you and your clients to navigate the ever-changing economic factors that influence their charitable giving plans.

Cryptocurrency: What if your clients own it and you don’t think they should?

Most advisors exercise extra caution when advising clients about cryptocurrency. Indeed, 68% of investment fund executives surveyed do not believe it is a good idea for their clients to own cryptocurrency in the first place. Still, according to some sources, 43% of clients hold cryptocurrency in their portfolios. 

If you’re among the advisors who routinely caution clients about investing in cryptocurrency, what is the best way to navigate conversations with clients who are among the 43% who already own it?

In a case like this, consider talking with your client about giving cryptocurrency to a family fund at the community foundation or other public charity. Gifts of cryptocurrency are similar to gifts of other highly-appreciated assets, including the documentation required to substantiate value. Be aware, though, that the IRS is watching cryptocurrency closely and considers it an area of potential underreporting and abuse. Recently, for example, for the very first time the IRS has targeted a cryptocurrency trading platform with a subpoena-like process to gather information about possible abusive transactions. 

As cryptocurrencies’ profiles rise in the marketplace, the team at the community foundation is happy to work with you to evaluate whether charitable giving strategies could be a tax-savvy option for your community-minded clients to exit the cryptocurrency market and simultaneously support their philanthropic goals. 

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.

Making wills, looking ahead to 2026 (!), and giving away the farm

Hello from the community foundation!

As we’re marching ahead through the weeks of summer, proper philanthropic planning is becoming even more important to your charitably-minded clients in an economic climate fraught with inflation, stock market volatility, rising interest rates, fears of a recession, and even fears of a new global health crisis. 

We understand that factors like this are very much on your clients’ minds, even if clients might not express their concerns directly during your meetings. To that end, the topics in this newsletter are designed to equip you with conversation starters and planning ideas to allow philanthropy to enrich your relationships with your clients as you guide them through challenging times. This month we’re featuring important reminders about bequests, legislative updates and a look ahead to 2026, and food for thought as you build estate and financial plans for clients who own farmland.

As always, please reach out. Our goal is to earn your trust in our team’s knowledge and expertise so that you will not hesitate to pick up the phone and give us a call whenever a client mentions anything about philanthropy. Most of the time, we can help you serve the client. If we can’t, we will point you in the right direction.

Thank you for the opportunity to work with you and your clients to make this community a better place. We are grateful.

–Your Community Foundation

Back to basics: Reminding clients about wills, trusts, and charitable bequests

August is national Make a Will Month, and the publicity surrounding this designation may prompt your clients to ask you about whether their affairs are in good order. Of course, making sure a client has established an estate plan and executed corresponding legal documents is a priority for any attorney, accountant, or financial advisor who practices in the field of estate planning, tax, or wealth management. Still, it’s always helpful to remind clients to keep their estate plans up to date and review their plans with you on a regular basis.  

Indeed, despite the many cautionary tales arising out of the Covid-19 pandemic, most Americans do not have a will. Even those clients who do have estate plans in place may not truly understand the difference between a will and a trust (and the reason they still need a will even if they have a revocable living trust). A client also may not understand that a charitable bequest can be part of an estate plan whether the client’s main estate planning vehicle is a will or whether it is a trust. 

Of the $485 billion given to charity by Americans in 2021, according to Giving USA, 9.5% of that giving came from bequests–that’s $46 billion. Giving USA’s data visualization tool illustrates the ebbs and flows of bequest giving, which has long been a significant component of philanthropy. 

Research reveals fascinating psychological factors behind a person’s decision to leave a bequest in the first place, which helps to understand the motivation for leaving a gift to a charitable organization in a will or trust. Not surprisingly, altruism has long been one of those factors. Bequests to charity are not a new idea. Examples of high profile estate gifts date back centuries. Some of your clients may be familiar with the bequests of Benjamin Franklin, who established testamentary charitable trusts dedicated to supporting Boston and Philadelphia tradesmen, and George Washington, who left bequests in his will to colleges and trade schools.

Our team welcomes the opportunity to work with your clients to establish bequests to your clients’ funds at the community foundation through a will or trust or through a beneficiary designation on a qualified retirement plan or life insurance policy, including providing you with proper bequest language to ensure alignment with your client’s intentions. Make a Will Month is also a good time to remind your clients that bequests of qualified retirement plans can be extremely tax-efficient. Funds flowing directly to a client’s fund at the community foundation from a retirement plan after the client’s death will not be subject to income tax or estate tax. 

We look forward to working with you to establish your clients’ philanthropic legacies. 

Summer legislative updates–and looking ahead to sunsets

Reconciliation legislation is back in play, and while it includes a few tax provisions (e.g., adding a corporate minimum tax and eliminating the carried interest tax break), the proposed legislation is far less sweeping than reforms proposed in earlier versions. Notably, though, the proposal includes $80 billion in budget increases for the Internal Revenue Service, which will help shore up the IRS’s expertise and pay for enforcement efforts to collect taxes. Taxpayers and their advisors can likely expect greater scrutiny from the IRS on complex or aggressive transactions in the years ahead if this legislation passes.

Philanthropic individuals and families and their advisors also continue to watch the status of SECURE 2.0 because of the enhancements it proposes to the rules for Qualified Charitable Distributions. SECURE 2.0 could pass through Congress by the end of the year.

While potential tax reform through budget reconciliation legislation may be top of mind for taxpayers and advisors, it’s also important to remember that the Tax Cuts and Jobs Act of 2018 (which seems like a long, long time ago!) included several changes to the tax rules for individuals that are set to expire after the close of the 2025 tax year. Unless those provisions are extended, the sunsets could impact tax planning for philanthropic families and individuals. For example, the standard deduction will decrease by nearly half, adjusted for inflation. This means some clients may once again itemize their deductions, thereby influencing charitable giving income tax strategies. In addition, the estate and gift tax exemption amount, increased under the Tax Cuts and Jobs Act, will be cut down so that in 2026 the exemption amount will be approximately $6.2 million adjusted for inflation. This will impact not only estates valued above the current exemption amount of $12.06 million but also estates valued in the $6 to $12 million range. Because assets transferred through lifetime gifts and bequests to charitable organizations are not subject to gift or estate tax, philanthropy may be an effective tax planning tool for even more taxpayers after 2025.   

As your clients begin to set their philanthropic goals for the next several years, the team at the community foundation is happy to help structure long-term strategies to maximize not only your clients’ tax benefits, but also the benefits to the community. Our professionals are deeply familiar with the short-term, mid-term, and long-term needs of our community, as well as the nonprofits that are working to address those needs. Our experienced team works with you to help your clients support community needs now and in the future through clients’ donor-advised funds, field of interest funds, designated funds, and other vehicles established at the community foundation. We strive to align the interests of everyone involved: your client, the charities your client wants to support to improve our community, and you in your trusted role as the client’s advisor. 

Farms, tax planning, and funding a family legacy

Given that there are more than 2 million farms in the United States, most advisors have at least one client who owns farm property. Although the number of farms has been dropping slowly but steadily since 2000, still, millions of dollars of wealth are tied up in farms as agricultural land continues to be valuable. 

Farmland, like many other hard-to-value assets, tends to carry with it a lot of emotional attachment. Farmland also can be hard to deal with in an estate plan because of the challenges of multiple owners and the complexity of the estate tax as it’s applied to farm-related assets. For these reasons, it is worth exploring philanthropic options with your clients who own farmland.

Multiple ways to structure a gift

A fund at the community foundation can receive a tax-deductible gift of farmland in a variety of ways. An outright gift is always an option; lifetime gifts of farmland held 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 the client’s taxable estate. Other ways to give farmland include a bargain sale or a transfer to a charitable remainder trust which produces lifetime income for your client.

Keeping the family together

A gift of farmland to a fund at the community foundation doesn’t just provide tax benefits. The gift also helps your client overcome the emotional challenges associated with letting go of an asset that in many cases has been in the family for generations.

By donating farmland to a fund at the community foundation, a client can work with the foundation to extend the emotionally important, family-related dynamics that were previously linked to the land, even after the foundation sells the farmland and the client’s fund holds the proceeds. For example, multiple generations of family members can serve as advisors to the fund and collectively recommend grants to charities that carry on the values held by the family during the years it operated the farm, such as funding agricultural scholarships, promoting sustainable farming, or supporting programs that educate entrepreneurs about how to build a successful farming operation. 

A cautionary note

Closely related to gifts of farmland to charity are conservation easements. Conservation easements can be a tax-effective way for a client to fulfill charitable intentions with real estate, but these vehicles must be carefully constructed to avoid landing on the IRS’s radar. 

We are happy to help you and your client structure a gift of farmland to a fund at the community foundation so that the client’s family members can continue to work together even after the farm is sold. Please reach out anytime!

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.  

Younger donors and "bunching," surprising benefits of community foundations, and a SECURE Act reminder

Hello from the community foundation!

As the second half of 2022 gets into full swing, many people are already starting to think ahead to year-end tax planning. Perhaps you’re even reviewing client files to schedule annual meetings, update estate plans, or adjust 2022 tax planning to align with the realities of the year. A lot might have changed for your clients now that we are in the midst of high inflation and stock market volatility. 

The team at the community foundation is on the same page. We’re working with our donors to ensure that their charitable giving plans are aligned with what’s going on in 2022. For example, we’re helping donors increase support for organizations that are struggling to keep up with rising costs; we’re working with donors and their advisors to implement tax planning strategies that involve the charitable tax deduction; and we’re engaging in conversations about how donors’ estate plans can leave a legacy to the community we all love.

We are grateful for the opportunity to work alongside so many of you as you’re advising your philanthropic clients. If we’ve not yet had a chance to work together, please reach out. Our team would love to get to know you and learn how we can be a useful, behind-the-scenes resource for the charitable components of the services you provide to your clients.

To that end, this issue of our newsletter features three topics related to the ways we can work together:

–Tax planning strategies for your younger, philanthropic clients

–Benefits of collaborating with the community foundation that surprise some advisors

–A quick reminder of why the SECURE 2.0 Act is on our radar

We wish you a wonderful summer and hope to hear from you soon! 

Sincerely,

Your Community Foundation

Bunching, long-term appreciated assets, and the fruits of helping younger clients plan their charitable giving

Developing a thorough estate plan isn’t important only for Baby Boomers and Gen Xers. Millennials, who now make up nearly a quarter of the population in the United States, may prove to be more enthusiastic planners than their parents and grandparents, according to the 2022 Estate Planning Study: Millennial Estate Planning Continues in a Pandemic.

What does this mean for planning gifts to charity?

Your millennial clients may be interested in setting up charitable gift vehicles earlier in their lives than some of your older clients. And because millennials tend to be better savers than their elders, it’s never too soon to discuss philanthropic intentions with your younger clients.

What’s an example of a giving technique that is well-suited for millennials?

As they build careers, switch jobs, and start businesses, millennials’ incomes may ebb and flow from year to year. This makes “bunching,” or “bundling,” through a donor-advised fund at the community foundation very useful. Because contributions to the donor-advised fund are eligible for an immediate tax deduction--but are not required to be granted from the fund to charities right away--your client can “front load” donations into a donor-advised fund at a level that takes advantage of itemizing deductions during a high income year, and then contribute less to the donor-advised fund in lower income years. Each year, your client can recommend grants from the donor-advised fund to favorite charities according to the timeframe that aligns with the client’s goals for supporting those organizations, regardless of the client’s income in that particular year.

Does bunching work with long-term appreciated assets?

Yes! Although it may seem obvious to professionals in the financial world, it’s not always top of mind for your clients to remember to donate long-term appreciated assets to their donor-advised funds. This is especially true of millennial clients who only now might be reaching a point in their lives when they own stock or other assets that have gone up in value. Donating an appreciated asset is tax efficient because the asset given to the donor-advised fund or other public charity typically is deductible at the asset’s fair market value. The charity, in turn, pays no capital gains tax on its sale of the asset, thereby generating more dollars to support charitable causes than your client would have had if the client had sold the asset and given the proceeds to charity.

Does it work to give real estate?

Yes! Real estate is an excellent long-term asset to donate to a donor-advised fund at the community foundation, especially now. In late 2021, buying a second home appeared to be a strengthening trend. While higher interest rates and inflation might dampen that trend in the short-term, the ability to work from anywhere is a reality that’s unlikely to disappear. This means even your younger clients, not just retirees, may be buying and selling second homes and even rental properties. These clients could be good candidates to donate real estate to a donor-advised fund. As with gifts of other long-term appreciated assets, a client’s gift of real estate to a donor-advised fund at the community foundation avoids capital gains taxes and generates more money for charitable causes than selling the property first and donating the proceeds. 

Any fun facts here?

Millennials’ end-of-life planning preferences have departed from the previous generations’ traditions, according to the study, right down to the most popular songs played or performed at a memorial service. Sought after titles now include Beyonce’s “I Was Here” in addition to Frank Sinatra’s “My Way.” 

The community foundation edge: Personal knowledge, QCD eligibility, and public support  

Advisors frequently comment that they’re surprised to discover the many ways the community foundation can help their clients, especially compared with national donor-advised fund programs affiliated with brokerage houses or financial services firms. Here are three examples of the types of comments community foundations have heard over the years from attorneys, accountants, and financial advisors:

“I didn’t realize that the community foundation’s donor-advised fund offering was so much more than just an online account. My clients have loved getting to know other donors, accessing first-hand knowledge about what’s going on in the community and how their favorite charities are making a difference, and being able to involve their children in philanthropic events and activities.”

“I’m amazed at the variety of funds the community foundation can administer. Many of my clients have established donor-advised funds and have also augmented their philanthropic planning with a specialized fund such as a scholarship fund, designated fund, or field-of-interest fund. A big bonus for my retirement-age clients is that the IRS allows the community foundation to receive a Qualified Charitable Distribution from a client’s IRA and place it into one of these specialized funds.” 

“My clients who sit on boards of directors of start-up charities have been so happy that grants from donor-advised funds–their own and others’--count toward the IRS’s public support test. That’s really helped new organizations in our community get off the ground.” 

QCD enhancements: Steps forward and fingers crossed 

In legislative news, a recent flurry of activity in the Senate has inched forward the legislation known as SECURE 2.0. Philanthropists and their advisors are watching this legislation closely because of the proposed inclusion of provisions that would adjust the annual $100,000 Qualified Charitable Distribution (“QCD”) cap for inflation and allow a one-time, $50,000 QCD to a charitable remainder trust or other split-interest gift. It’s impossible to predict what might happen when the House and Senate bills are combined and reconciled and then brought to a final vote. If we were forced to speculate, we’d guess that the legislation will pass late this year, the QCD enhancements indeed will make it into the final bill, and the legislation will be signed into law later this year. Our fingers are crossed, as no doubt yours are as well, because we are huge fans of the QCD and its ability to unlock charitable dollars.

Philanthropy and retirement planning: Intertwined in today's market

Greetings from the community foundation!

We hope this newsletter finds you well. 

As global and national events continue to remind us about what’s really important, our board of directors and staff remain deeply and increasingly committed to deploying the power of giving to create positive change in the world. 

Recently, we reflected on a 2017 Forbes post about the important role community foundations play in responding to tragedies and disasters. Still relevant nearly five years later, this article offers a simple review of the ways our community foundation and other community foundations across the country are uniquely qualified to address global issues with local impact, and local issues with global impact, through a combination of deep community knowledge and charitable giving expertise. The short article may also be worth sharing with clients who are building philanthropic legacies now and for their families’ future generations. 

Thank you for trusting the community foundation to help you stay current on legislative changes that impact charitable giving, trends in philanthropy, and planning techniques. We look forward to continuing to help you serve your philanthropic clients by offering solutions to address local, national, and global needs, as well as helping your clients build legacies across generations. 

–Your Community Foundation

Planning for retirement and giving to charity: Intertwined solutions in economically puzzling times  

Retirement planning no doubt is an important discussion topic during client meetings every year. In recent months, though, you may have observed an uptick in clients’ questions about their plans for retirement, perhaps related to:

–Required minimum distributions (“RMDs”) from qualified retirement plans, including questions prompted by media coverage of pending legislation known as SECURE 2.0;

–Stability of retirement investments, a topic that is widely covered in mainstream financial news; and

–Rising interest rates and what that means for retirement, which is also a frequent topic in the media, along with inflation’s impact on retirees.  

Against this backdrop, the issues become particularly complex for philanthropic clients. Here are answers to questions you may be asking:

What’s going on with updates to the charitable giving components proposed in the SECURE 2.0 Act?

Right now, SECURE 2.0 includes a provision that would index the $100,000 Qualified Charitable Distribution (“QCD”) allowance for inflation and also expand the technique to allow for a one-time transfer of $50,000 to a charitable remainder trust or other split-interest vehicle. But those enhancements are not the law, yet. Overall, the legislation appears to stand a good chance of becoming law. Still, a lot can happen as the House and Senate reconcile their respective bills before the legislation heads to President Biden for signature.

So what should I be telling my clients about the potential changes to the Qualified Charitable Distribution rules? Or should I say nothing?

For clients who are seriously considering a QCD, it may be worth mentioning these potential enhancements. But in general, it’s usually more confusing than helpful to bring up pending legislation, no matter how exciting. Instead, consider placing your focus on the QCD rules as they currently stand. The QCD already is a strong planning tool.

When should I reach out to the community foundation for help with QCDs?

The answer is, anytime! The community foundation can help establish a qualifying fund to receive your client’s Qualified Charitable Distribution, regardless of whether the SECURE 2.0 enhancements become law. The recipient fund can’t be a donor-advised fund, but there are other very effective options. 

With interest rates rising, are there particular techniques that I should be discussing with my clients who are planning for retirement and are charitable inclined?

Yes. Now is a good time to consider talking with these clients about charitable gift annuities. A charitable gift annuity, 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 the client’s designated beneficiary) 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. 

What if my client needs the tax deduction this year but won’t be retiring for several years? 

Charitable gift annuities offer flexibility, in that your client may choose to structure the contract as a “deferred gift annuity,” meaning that the client starts receiving payments at a future date (or upon a future event such as retirement), rather than immediately while the client's effective income tax rate may still be high. In this way, the charitable gift annuity can be a tax-savvy component of an overall retirement plan.

How do rising interest rates factor in?

Client discussions about charitable gift annuities are especially timely because the American Council on Gift Annuities recently voted to increase the “rate of return assumption” used as guidelines for maximum payout rates. Effective on July 1, 2022, the return assumption will increase from 3.75% to 4.5%. This means that the Council’s suggested payout rates will be going up. That’s good news for a client’s income stream. 

What’s the bottom line on this?

The net-net here is that rising interest rates make the charitable gift annuity an even more attractive tool for clients who want to combine charitable planning with retirement planning. The team at the community foundation can help you evaluate this option to determine if it is a good fit for your client.

Playbook: Helping clients organize their giving through a donor-advised fund

Your clients will arrive in 15 minutes. You’re reviewing the file. Everything is in order. The estate planning documents are up to date, you’re ready to share the latest investment results, and you are prepared to debrief the 2021 tax season and make tax planning recommendations for the remainder of this year. It sounds pretty typical up to this point, right? 

As you continue to scroll through the materials, you see the names of several charitable organizations that your clients have supported every year for at least a decade. Ah ha! This is an opportunity to add even more value to your clients. Easy for a busy advisor to overlook, charitable giving habits are actually an important window into helping a client make planning decisions around their philanthropic intentions.

Here’s a simple playbook to guide you through a client conversation to begin establishing a charitable giving plan using a donor-advised fund at the community foundation.

–Call your clients’ attention to their charitable giving history. They might not even be aware of how much they are giving or how long they’ve been supporting their favorite charities. 

–Gather more information about why the clients support those particular causes. Family tradition? Past involvement as a beneficiary of an organization’s services? Desire to impact a particular area of need? 

–Talk with your clients about their community involvement. Do they serve on any boards of directors? Do they volunteer at local organizations?

–Review any charitable giving provisions in the current will or trust. Are the clients leaving a bequest to favorite charities?   

–Ask your clients if they’ve ever considered organizing their giving through a donor-advised fund. If they are not familiar with donor-advised funds, perhaps offer a quick primer, and certainly offer to introduce the client to a member of the community foundation team.

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

–Also mention that a donor-advised fund at the community foundation is frequently a more effective choice than a donor-advised fund offered through a brokerage firm (such as Fidelity or Schwab). That’s because, at a community foundation, the donor is part of a community of giving and has opportunities to collaborate with other donors who share similar interests. In addition, the donor is supported in strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference. 

Finding the good, giving as a wealth strategy, and an open invitation

It can be hard to see the good in people as heartbreaking exceptions seem to dominate modern life, but it is worth remembering that philanthropy–”love of humanity”--is alive and well. A study at Stanford University indicates that a sense of community and calls to action help align people around common values. Indeed, high-profile examples of philanthropy, from Carnegie Hall to the manatees, help reinforce the notion that people can turn altruism into action through their leadership and financial resources. 

What’s more, nearly two-thirds of high net-worth philanthropists agree that charitable giving is part of their overall wealth strategy, according to a recently-released study by BNY Mellon reporting the results of a survey of individuals with investable assets of at least $5 million. Once again, the takeaway here for advisors is that it is important in any situation to at least ask whether the client would like to incorporate charitable giving into their financial and estate plans. If the answer is yes, the team at the community foundation is just a phone call away to provide guidance and serve as a sounding board. 

Your clients’ charitable intentions, coupled with the community foundation’s ability to structure donor-advised funds and other charitable giving vehicles to meet your clients’ financial and community impact goals, create many opportunities for us to work together. The offer is always open for our team to stop by your office over breakfast, lunch, or even as a midday break to exchange ideas. We’d love to help you help your clients make a difference in our community. 

QCDs, NIMCRUTs. and other reminders for advisors

Hello, and Happy May!

This month, our newsletter is heavily focused on tax and legal matters. As you and other advisors emerge from a busy tax season, we know that legislative changes, charitable giving vehicles, and even cautionary tales are topics that are likely to capture your interest.

As always, the community foundation is here to help you and your clients navigate the various options for charitable giving. We’ll help give you the insights and confidence you need to develop plans that enable your clients to provide the charitable support they intend while also keeping the clients’ activities well within the boundaries of the law.    

It is our honor and pleasure to work with you and your clients. We look forward to talking with you soon!

–Your Community Foundation

QCDs: Good news and important reminders

Qualified Charitable Distributions, or “QCDs,” have been in the news a lot lately, especially in light of proposed SECURE Act 2.0 legislation that passed the House of Representatives in March and is now pending in the Senate.

Through a QCD, starting at age 70½, your client can instruct the administrator of an IRA to direct up to $100,000 per year to a qualified charity. This helps your client’s tax situation because the client does not need to report the amount of the QCD as taxable income.

Here are four important reminders about QCDs:

–Even though the SECURE Act changed the Required Minimum Distribution (RMD) age to 72 from 70 ½, the QCD age is still 70 ½. 

–QCDs cannot be made to donor-advised funds, but your client can set up a field-of-interest or unrestricted fund at the community foundation to receive a QCD.

–Under a version of the proposed SECURE Act 2.0 legislation, QCDs would be indexed for inflation. In addition, proposed legislation would allow a client to make a one-time QCD of up to $50,000 to a charitable remainder trust or other split-interest entity.

–Finally, be sure to help your clients coordinate their QCDs with their Required Minimum Distributions. Proper planning will help avoid troublesome tax pitfalls. 

Please reach out to the team at the community foundation to learn more about QCDs and how your client can establish a fund to support financial and tax goals as well as charitable giving goals.

Income timing: A NIMCRUT could hold the key

Clients who own closely-held businesses, real estate, or even cryptocurrency may be good candidates for a particular type of charitable remainder trust known as a NIMCRUT, which is short for “Net Income with Makeup Charitable Remainder Unitrust.” 

The way it works is that your client transfers a highly-appreciated asset to a trust. The trust terms provide for the payment of a fixed percentage (at least 5%) of the trust’s value, revalued annually, to your client or another beneficiary. 

Here’s the key with the NIMCRUT: The terms of this type of trust also provide that if the trust’s income is less than the designated fixed percentage, the trust will only distribute the actual income. Later, upon the liquidation of the highly-appreciated asset, for example, the income distributions will be made up. 

In this way, not only does the NIMCRUT keep the highly-appreciated asset growing under favorable tax conditions inside the trust until it is sold, but it also allows your client to receive the higher income in later years, such as retirement, when the client’s tax bracket is likely to be lower. As with other types of charitable remainder trusts, when the term of the NIMCRUT expires, the remainder passes to charity. 

Some NIMCRUTs deploy a “FlipCRUT” feature which removes the net income limitation upon a triggering event (such as the sale of an asset or a date). This creates even more flexibility in timing income for your client.

Note that it’s wise to consider naming a public charity, such as a donor-advised fund at the community foundation, versus a private foundation, as the charitable remainder beneficiary of a NIMCRUT or other charitable remainder trust. This optimizes the amount of your client’s up-front charitable deduction when the trust is funded.

Social consciousness: Today's expectations of advisors

Especially over the last few years as social consciousness has increased, many of your clients have no doubt become more interested in how they can make a difference through their philanthropic activities, whether those activities include giving to favorite charities, volunteering, serving on boards of directors, purchasing products that support a cause, and respecting a sustainable environment.

As clients grow more in tune with social impact, they are expecting their advisors to be ready to help them structure and plan their charitable giving. What’s more, clients who receive charitable planning advice from their advisors tend to be more loyal and more willing to recommend their advisor to others, especially when that advisor is proactive in bringing up options for incorporating philanthropy into financial and estate plans. 

With that in mind, the community foundation is here to help you stay up to date with philanthropy topics so you can, in turn, have the conversations and deliver the services your clients are seeking. To that end, for an insightful look into the inner workings and current state of the philanthropy industry, we suggest skimming the written testimony that the Council on Foundations recently provided to the Senate Finance Committee. The Council, a major voice and advocate for philanthropy in the United States, notes that the current economic and legislative environment has created a “pivotal moment for nonprofits and their philanthropic partners.” 

The community foundation is also here to help you avoid treacherous situations as you create philanthropic plans for your clients.

High-income earners, highly-appreciated assets, and cash crunches

As we enter 2022's second quarter, we’re struck by how much–and how little–has changed already this year in the world of charitable giving. Where big changes are concerned, the war in Ukraine and inflation are topping the charts in the minds of many philanthropic Americans. At the same time, questions about tax reform still are never far from our thoughts. We suspect the same is true for you and your clients. 

In this issue, we’re covering topics related to philanthropy today–right now–as charitable priorities shift in the geopolitical and economic landscape and more light is shed on what we might expect in terms of changes to the tax laws impacting charitable giving. 

Before we dive in, we’d like to draw your attention to a report updated last month by the Congressional Research Service. The Charitable Deduction for Individuals. Overall, this two-pager is an excellent primer for your clients who want to learn more about the history, policies, and fundamental concepts behind the income tax deduction for contributions made to charities. You might even find it useful for your own review purposes, as our team certainly did. 

Thank you for the opportunity to work with you and your philanthropic clients. It is our honor and pleasure. 

Wishing you all the best for the spring,

Your Community Foundation

Thumbs up: SECURE Act 2.0

Across the board, individuals, employers, and charitable organizations are celebrating the recent passage of the Securing a Strong Retirement Act of 2022 (House Bill 2954, known as the "SECURE Act 2.0") in the House of Representatives on March 29, 2022 by an overwhelming vote of 414 to 5. The legislation is headed to the Senate (which has its own, similar version of the legislation) before it becomes law.

Building on 2019 legislation known as the Setting Every Community Up for Retirement Enhancement (SECURE) Act, among SECURE 2.0's many components is a provision that would allow taxpayers to make a one-time qualified charitable distribution of up to $50,000 from an IRA to a charitable remainder trust or charitable gift annuity. In addition, the new provision would apply inflation indexing after 2022 not only to the $50,000 limit on this new split-interest distribution, but also to the qualified charitable distribution (“QCD”) limit (currently $100,000) for direct gifts to qualified charities. 

A mixed bag: Budget legislation

With President Biden’s Build Back Better 2022 budget reconciliation bill still pending, the White House just released its Fiscal Year 2023 budget proposal laying out several revenue-generating components and including a “deficit-neutral reserve fund” to buffer the impact of Build Back Better provisions that may or may not pass the Senate.

Here are a few of the tax proposals in play that could most significantly impact the way your clients plan for their charitable giving priorities:

High-income earners + highly-appreciated assets = high alert

A proposed 20% minimum tax on high-income individuals, slated in the proposal to become effective for tax years beginning in 2023, is referred to as the “Billionaire Minimum Income Tax.” The tax would be applied to the "total income," defined to include unrealized capital gains, of any taxpayer whose net wealth exceeds $100 million. Simplistically speaking, the mechanism of the tax roughly mirrors a pre-payment of capital gains tax. This is similar to the so-called “wealth tax” proposals in Build Back Better. 

Politics aside, a tax such as the one proposed in the Fiscal Year 2023 budget could mean daunting recordkeeping requirements for those impacted. Taxpayers would report their assets to the IRS annually, including closely-held assets which would be subject to a statutory valuation method. Taxpayers who qualify as “illiquid,” however, would be permitted to defer tax payments until a sale of certain illiquid assets, perhaps creating an incentive for taxpayers to increase their investments in real estate, closely-held companies, and other non-marketable assets. 

If some form of tax on unrealized capital gains becomes law, it could prompt the need for your clients to adopt even more proactive strategies to donate highly-appreciated assets to charitable organizations. In other words, giving highly-appreciated assets to charitable organizations is already a tax-savvy strategy and may become even more beneficial, depending on whether a “wealth tax” goes into effect and how the regulations interpret the law’s impact on the current charitable giving rules. 

Private foundations + donor-advised funds, take note 

Families who conduct their philanthropy using both a private foundation and a donor-advised fund will want to plan carefully if a particular item in the Fiscal Year 2023 budget package becomes law. Proposed changes to the private foundation rules seek to “clarify” that contributions to donor-advised funds do not meet the definition of "qualifying distributions" for purposes the five percent annual distribution requirement for a private non-operating foundation. These distributions still would be permissible, though, if the private foundation can show that the funds transferred to the donor-advised fund were distributed by the end of the following tax year. 

Even if the proposed change becomes law, combining a private foundation with a donor-advised fund at a community foundation is still an effective charitable giving technique. At the very least, the donor-advised fund can hold the distribution for a year to give a family time to create a grant-making strategy and set goals for the impact the family wishes to make in the community through its support of nonprofit organizations. 

Donor-advised funds–no longer on the hot seat?

Donor-advised fund reforms proposed in the Accelerating Charitable Efforts (ACE) Act, introduced in June 2021 via Senate Bill 1981 and again in February 2022 in the form of House Bill 6595, have been prominently featured in the media and subject to a range of opinions. Notably, though, the just-released Fiscal Year 2023 budget proposal appears to meaningfully address donor-advised funds only in relation to receiving private foundation qualifying distributions. We’ll be watching this carefully, but for now, it appears that sweeping reform of donor-advised fund rules is not imminent.   

Of course, as with any budget proposal or pending legislation, it's impossible to predict which, if any, provisions will ultimately become law.

Cash crunch: Gifting non-income producing assets

For clients who rely on fixed-income assets, such as bonds, as well as wages, to cover their living expenses, the inflation pinch indeed may mean fewer dollars available for charitable giving. Still, for clients who own property, stocks, and other assets that tend to go up in value in an inflationary environment, now may be a good time to take advantage of tax-savvy giving of highly-appreciated assets–especially stocks that pay low–or no–dividends and therefore are not critical to maintaining a client's income levels. 

Giving highly-appreciated stock remains one of the most effective ways your clients can support their favorite charities. That’s because when a taxpayer gives stock to a public charity, such as a donor-advised fund at the community foundation, instead of selling it outright, the capital gains tax is avoided. Plus, marketable securities are typically deductible at their fair market value, further helping your client’s overall income tax situation.

As you counsel a client who is emotionally attached to a particular stock, don’t let that attachment prevent a client from making a smart tax move. Your client can donate shares of the highly-appreciated favorite stock and then immediately repurchase the same number of shares. This essentially resets the client’s cost basis to the current price, which could help reduce capital gains taxes on a future sale.

Finally, remind your clients that there are significant differences in the tax treatment of donating cash versus securities. Currently, the deductibility of gifts of cash to a public charity is limited to 60% of adjusted gross income, versus gifts of non-cash assets to a public charity which are deductible up to only 30% of adjusted gross income. Also remind your clients that the maximum benefits associated with giving appreciated assets to a public charity are realized only with long-term capital gains property, in which case the deduction is set at the fair market value of the property on the date of the gift; gifts of short-term capital gains property are valued at cost basis for purposes of calculating the deduction. 

Change is in the air: Charting a course for philanthropy amid uncertainty

Greetings!

We hope all is well in your world as current events continue to present challenges for so many people. No doubt, your clients are relying on you more than ever to help them weather the storms of inflation, financial markets impacted by global unrest, and the looming potential of changes to tax laws.

As is so often the case during periods of volatility, philanthropy can be a calming force. In that regard, the team at the community foundation is particularly interested in the latest research on the importance of meaningful relationships between advisors and their clients, and we strive to help you create those strong bonds of loyalty.

In particular, we are struck by the results of a study recently published in the Journal of Financial Planning, which illuminated the disconnect between how advisors perceive their effectiveness versus how their clients actually rate it. Related to charitable giving, for example, 68% of financial planners said they made an effort to gather information about their clients’ cultural values, but only 41% of clients agreed. 

Philanthropy, and partnering with the community foundation, can help you close that gap. Charitable giving is a natural and easy way to start a conversation with clients about their values and what’s important to them in their estate plans and financial plans beyond just dotting the i’s and crossing the t’s.  

With that in mind, we’re focusing this issue on topics that may help you start even more meaningful conversations with clients as we navigate the rollercoaster of 2022’s first quarter.

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

Your Friends at the Community Foundation 

Winds of change and headwinds: Legislation and inflation

You’ve no doubt noticed that donor-advised funds have been featured more prominently over the last few weeks in financial and wealth management publications. That’s in part because the Accelerating Charitable Efforts Act was reintroduced in the House of Representatives on February 3, 2022. The legislation contains the same proposed law changes as the bill introduced in the Senate in July 2021, which stalled. 

Portions of the bill are designed to address concerns that donor-advised funds are not required to make distributions to charities according to any timeframe or monetary level. The ACE Act proposes to create four new categories of donor-advised funds, each with different tax consequences to the donor.

Donor-advised funds are excellent charitable planning tools for many situations, including for individuals and families who want to organize a regular stream of giving to community organizations and unlock illiquid assets to do so. Indeed, the proposed legislation recognizes special categories of donor-advised funds established at community foundations, referred to as Qualified Community Foundation Donor Advised Funds, which are treated favorably for tax deduction purposes.

We’re tracking closely the various conversations surrounding this proposed legislation, including a proposal by some community foundations that calls for a five percent aggregate minimum payout and other measures to address concerns while also maintaining the characteristics of donor-advised funds that motivate more charitable giving overall, especially as Millennials catch on to this particular vehicle to fund their charitable priorities. 

As with any proposed legislation, no one can predict whether or when new laws impacting donor-advised funds will be enacted, and if they are, what parts of the proposed legislation will be included in the version that becomes law. What we can tell you, though, is that we are watching this legislation very carefully, on a daily basis, just as we do with any proposed legislation that could significantly impact your clients’ charitable giving strategies. You will hear from us if changes are enacted. In the meantime, please reach out with questions. 

Potential legislative changes aren’t the only choppy waters as 2022 gets into full swing. Charities are impacted by inflation, and your clients may wish to take that into account in their charitable giving plans for 2022. Certainly as your clients’ purchasing power dips, so does their ability to make charitable contributions. But, it’s possible that the charities your clients love to support are feeling the sting to an even greater degree. This might sway your clients toward maintaining–or even increasing–their historical charitable giving budgets and perhaps even adjusting those budgets for inflation. Be mindful, though, that even the possibility of inflation can have a significant psychological effect on your clients, impacting everything from their confidence as consumers to attitudes toward (and longing for??) Girl Scout Cookies.

The team at the community foundation has decades of experience working with advisors and donors through economic ups and downs. We’re happy to be a sounding board as your clients evaluate whether and how to adjust their charitable giving in 2022, especially in cases where establishing a fund at the community foundation can help achieve both a client’s and a charity’s objectives. 

Closely-held business interests: Adventuresome giving

The number of businesses in the United States totals more than 27 million, but only a tiny fraction of those are publicly traded. Even so, your clients still have plenty of opportunities to give highly-appreciated marketable securities to fund their charitable endeavors. With the millions of closely-held businesses that aren’t publicly-traded, though, many of your clients may have an untapped opportunity to give corporate interests, especially considering that private equity fundraising continues to soar. 

As you talk with your clients about giving LLC and partnership interests, keep in mind that complex tax and legal rules may apply. For example, the operating agreement or partnership agreement will indicate whether interests can be gifted to charity in the first place. Another consideration in the case of an LLC is whether the entity is taxed as a partnership. Finally, if the interests are given to a public charity, such as a fund at the community foundation, in general, the contribution is deductible up to the fair market value of the gifted property (minus reductions for certain components that may include liabilities, short-term capital gain, and ordinary income). 

Please contact the team at the community foundation to explore ways your clients can fund their charitable giving strategies through gifts of closely-held business interests. We’d love to help! 

Crypto and CRTs: Buried treasure, or hidden pitfalls?

“For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.”

That’s a key phrase in IRS Notice 2014-21, where the Internal Revenue Service outlined its position on the tax treatment of the disposition of cryptocurrency. In other words, a taxpayer’s disposition of cryptocurrency will generally be treated as triggering a gain or a loss.

With this core principle at its foundation, taxpayers have been using cryptocurrency to fund their charitable goals, including establishing charitable remainder trusts with gifts of bitcoin and other cryptocurrencies. While this is certainly a strategy worth exploring for some of your clients, beware that the IRS’s commitment to increased enforcement, coupled with the purported widespread underreporting of cryptocurrency-related income and corresponding tax revenue losses, clients should proceed with caution. The IRS has even launched a special initiative to audit crypto reporting and catch fraud, calling the effort Operation Hidden Treasure. 

As always, keep in mind the old saying that a client “should not give away a dollar to save 50 cents.” As is the case with any legal structure that results in tax consequences, there are pros and cons, ie.,“charms and dangers.” Think of a charitable remainder trust–including one funded with cryptocurrency–as a vehicle for helping clients support the charities they love, not simply a tax-planning tool. Viewed through that lens, clients will be pleased that a charitable remainder trust not only provides them with an income stream, but also can offer flexibility in the ways they provide for their intended charitable beneficiaries, especially when aligned with a fund at the community foundation that supports a client’s philanthropic goals.

Is big giving back?

Greetings! 

We’re honored to work with so many attorneys, accountants, and financial advisors who are committed to helping clients achieve their philanthropic goals. Every day, we are inspired by our donors–your clients–who frequently tell us how grateful they are for the strong working relationship between you, as their trusted advisors, and our team, as a trusted source for community knowledge and charitable gift planning.

In that spirit, we publish this newsletter to help you stay current on the charitable giving topics that are on the minds of your philanthropic clients, including tax developments that impact charitable giving. Our goal is to provide a valuable top-line run down and an open invitation to reach out to our team to discuss topics that catch your eye. We’d love to share more and add value to your work. 

In this issue, we’ll be covering tax legislation (actually, the lack thereof!), exploring the trend toward bigger charitable gifts, and reviewing the rules for gifts of artwork, especially in this era of NFTs.

As always, we’d love to hear from you! 

–Your Community Foundation Team  

So, what happened to tax reform? And what does that mean for charitable giving strategies? 

Last year’s heavily-debated versions of the Build Back Better Act called for tax increases that potentially could have impacted charitable giving. But, as 2022 gets into full swing, legislation that’s eventually passed may bear little resemblance to early iterations. In particular, debate over the cap on the deductibility of state and local taxes (“SALT”) has illuminated a parallel debate over whether the changes to the cap would impact charitable giving. At the moment, though, tax increases to support President Biden’s legislative agenda are still very much up in the air. 

In other tax news, advocates for charitable organizations are lobbying lawmakers to bring back Covid-19-related tax incentives, including the $300 ($600 for joint filers) so-called “universal” charitable deduction.

Meanwhile, taxpayers may find themselves in limbo over timing decisions for their gifts to charity, as well as other tax-sensitive transactions, creating ongoing discussions with advisors about whether to pursue “bunching” strategies or instead to wait for more clarity on the legislative situation.

Big gifts are getting bigger. How does that change your conversations with your clients?

Ranging from $175 million to a whopping $15 billion, the 10 largest gifts to charity in 2021 may have caught your clients’ attention. Not only do philanthropic gifts seem to keep getting bigger, but the future looks bright, too, with more than $84 trillion projected to be handed down in what may be one of the largest intergenerational transfers of wealth in history. Although most of that money will flow to heirs, projections indicate that charities could receive as much as 14% (nine percent in the form of bequests and the rest as lifetime gifts to charity). 

As your Baby Boomer clients plan their estates, keep that 14% in mind, especially as philanthropists at all levels are becoming increasingly intent on making an immediate impact on important causes instead of leaving behind perpetual philanthropic structures. 

The community foundation can help you develop an impact-focused philanthropy plan for your clients, including helping your clients “reverse engineer” the philanthropy structures that will be most likely to result in the difference your clients want to make in the world. 

Keep an eye out for clients who match these characteristics: 

--Families who have started to talk with you about multi-generational participation in philanthropy but do not yet have any formalized plans.

--Families who have publicly demonstrated a commitment to three or more charitable organizations.

--Families who own a multi-generational family business such that corporate giving and enterprise legacy have become intertwined.

--Families in which members across multiple generations appear to be actively involved in philanthropy discussions.

The team at the community foundation has the depth and breadth of experience to help you in these instances, and much more. 

When giving hard-to-value assets, creativity–and caution–are critical in the digital age

For some of your clients, the thought of giving artwork to a museum or other charity might have crossed their minds. Otherwise, in the estate plan you’ll build for the art collector, the choices largely boil down either to selling the pieces, or giving them to family and loved ones during life or through a bequest.

It is imperative to understand the tax consequences of each disposition scenario as you advise your clients about their collectibles. For example, clients may not realize that the higher capital gains rate of 28% generally applies to artwork and other collectibles–not the 20% rate typically applicable to sales of other types of capital gains assets. And even this higher rate has been the subject of some tax reform discussions. 

Indeed, many clients would prefer to hold onto their art collections, rather than sell during their lifetimes, in order to take advantage of the step up in basis upon their deaths. 

Charitable giving is an option here, too, and your client can potentially avoid capital gains and estate taxes by donating artwork to a nonprofit organization. Be very careful, though, because the rules are different depending on the type of charity (e.g., a museum versus a foundation) and whether the charity’s use is related to its exempt purpose (e.g., a museum versus an animal shelter). 

So, what happens if your client wants to give an NFT to charity? Which rules apply–the usual rules for non-cash assets, or the rules for donating artwork? The law is equal parts emerging, fascinating, and intricate! As IRS guidance emerges–and similar to the tax treatment of gifts of art collections–the proper tax treatment likely will hinge on factors such as how the NFT will be used, whether the donor is a “creator,” and whether the NFT is marketable and easily converted to cash. 

The team at the community foundation thrives on complex giving opportunities. Whether your clients’ estates include artwork, digital assets, real estate, or closely-held stock, please reach out. We’d love to help you evaluate the options for achieving both your clients’ tax goals and charitable planning goals. 

A fresh start: Family businesses, hard-to-value assets, and transfer of wealth

We’re ready for a fresh start. How about you? 

Alas, it’s still not clear what might happen with tax reform given the fluid status of the Build Back Better Act. But that doesn’t mean we can’t begin 2022 with enthusiasm for helping philanthropic individuals and families achieve their goals for improving the quality of life in our region. Indeed, according to a 2021 Harris Insights & Analytics survey, 60% of Americans are expecting their taxes to go up in the next four years. And most of them are looking for ways to minimize taxes now, rather than waiting for retirement. 

With that in mind, we’re kicking off our newsletter series this year with topics that will help you more easily start conversations with your clients about their philanthropic plans by raising the issue not in a vacuum, but within the context of their families, their businesses, and a charitable giving marketplace that continues to deliver twists and turns such as cryptocurrency and NFTs.

Thank you for allowing us to help you serve your clients. We are honored, and we’re sending our best wishes for a happy, healthy, and productive year for you, your clients, and the community we all love. 

Your Friends at the Community Foundation 

Philanthropy and the family business: Ripe for great questions 

More than half of the country’s GDP is generated by the 5.5 million family-owned businesses in the United States. Profits aren’t the only priority for most family businesses; indeed, the vast majority of family business owners report that other factors, such as culture, community, charity, and values, are also important to the business. Although it is not surprising that philanthropy is a vital part of the family business fabric, setting up the right structure to leave a legacy is not a cakewalk. As you advise a business-owner client, consider sharing questions that might help your client create or grow an effective corporate philanthropy program within the family enterprise.

Getting organized

Does the company have a strategy or system for prioritizing sponsorship requests, charity event invitations, and requests for donations? Is the strategy based on the owners’ values, along with employee input? What is the communication strategy for maintaining positive relations with the charities whose requests the company turns down? How are requests from employees handled? Could a corporate donor-advised fund at the community foundation help streamline administrative load? Is there a corporate foundation in place and if so could it be streamlined into a corporate donor-advised fund to save administration hassles and better leverage tax strategies?

Getting employees engaged

If the company has a community engagement program, how popular is it? For example, is there a matching gifts program and is that program being utilized as expected? Are employees eager to attend community events to sit at the company’s tables, or is it sometimes hard to fill seats? Are there opportunities for employees to volunteer together at local nonprofits? Has the company surveyed employees to learn about their favorite causes and the ways they prefer to give back (e.g., donate money, volunteer, serve on boards)? 

Getting the word out

How is the company letting employees and other stakeholders know about its community commitments? Is it a priority to share civic engagement with the outside world, such as through a page on the company’s website, or is the company’s approach to stay under the radar? Do the employee handbook and recruiting materials describe community engagement opportunities for employees?  

Helping your clients ask the right questions can make a big difference in the success of their corporate philanthropy programs.

Related, and importantly, it is wise to remind your clients that the sale of a closely-held business creates strong opportunities for tax-savvy charitable giving–and that it is critical for the business owner to plan ahead.  

As always, the team at the community foundation is here to help you serve your family business clients by setting up a corporate donor-advised fund, assisting with a matching gifts program, creating donor-advised funds for employees, collaborating on a philanthropic component of a business sale, and much, much more.

Giving hard-to-value assets: It’s not just for real estate anymore

You are no doubt familiar with the many benefits of giving hard-to-value assets to a charity–and especially to a client’s donor-advised fund at the community foundation. Because the community foundation is a public charity, your client is eligible for the maximum allowable tax deduction for their contributions. This is because a client typically can deduct the fair market value of the asset given to the fund, and, furthermore, when the fund sells the asset, the community foundation (as a public charity) does not pay capital gains tax. This means there is more money in the donor-advised fund to support charities than there would be if your client had sold the hard-to-value asset on their own and then contributed the proceeds to the donor-advised fund.  

Individuals can take advantage of giving hard-to-value assets, and so can businesses. For example, when a business is sold, its owners may find themselves with artwork, insurance policies, or real estate on their hands, any of which can be donated to a donor-advised fund with the favorable tax treatment described above. Gifts of real estate have long been popular (although still underutilized) gifts to charity, sometimes making up nearly 3% of the value of all charitable contributions in any given year. 

And the universe is expanding! In 2021, gifts of novel non-cash assets made their mark as a viable way to fund donor-advised accounts and other charitable efforts. Cryptocurrency is one type of asset that clients are now giving to charities, which was to be expected given the rise in popularity of Bitcoin and other currencies. But advisors might not have expected to see NFT (non-fungible token) auctions result in more than $1 million in 2021 Giving Tuesday charitable donations processed by Giving Block.  

Will NFTs be the next hard-to-value asset donation craze? That remains to be seen. In the meantime, though, the team at the community foundation is staying close to the trend. We can help your charitable clients make any type of gift by guiding you and your client through the gifting process and, in the case of crypto, collaborating with well-vetted intermediaries like Giving Block, so that your client’s donor-advised fund at the community foundation can grow and support your client’s favorite charities.  

Notably, we will be watching closely as more information becomes available about the environmental cost of donating ephemeral assets because of the stress that mining and transferring Bitcoin and other cryptocurrencies place on the energy grid. The toll is so great, for example, that Greenpeace is backing away from accepting gifts of cryptocurrency. But if the $23 billion in NFT sales generated in 2021 (compared with less than $100 million in 2020) is any indication, philanthropy may see significant NFT activity in the years ahead.

Transfer of wealth: Following the money

“The greatest wealth transfer in modern history has begun,” according to a mid-2021 report in the Wall Street Journal. And, with tax reform’s big bite into estate values off the table, at least for now, many of your older clients may be thinking seriously about their legacies.

And these legacies will be significant. As of March 31, 2021, according to data collected by the Federal Reserve, Americans in their 70s and older had a total net worth reaching almost $35 trillion. By 2042, an estimated $70 trillion will change hands, including an estimated $9 trillion flowing to charities, according to research conducted by Cerulli Associates. 

As you advise an older client, an important part of the conversation will be to determine the best charitable giving vehicles to achieve your client’s community goals, particularly evaluating the potential role of a donor-advised fund or private foundation. Increasingly, your clients are learning about their options in mainstream media and likely have a greater level of awareness about charitable giving options than ever before, especially in the wake of the recent twists and turns concerning potential tax reform. 

Here are key points to keep handy for those conversations (as you pick up the phone to call the community foundation team!):

–A donor-advised fund at the community foundation costs nothing to set up, and ongoing fees are minimal. 

–A donor-advised fund can be created quickly–within a week or even days. A private foundation, by contrast, requires establishing a legal entity through state and IRS filings. 

–Donating hard-to-value assets to a donor-advised fund delivers better tax benefits (deduction of fair market value) than a gift of the same assets to a private foundation (deduction of cost basis).

–A client can deduct a greater portion of AGI (e.g., cash deductible up to 60% of AGI) with a gift to a donor-advised fund than with a gift to a private foundation (e.g., cash deductible up to 30% of AGI). 

–Ongoing operations of a donor-advised fund through the community foundation are very easy, with no tax filings required. 

–Sometimes, both a private foundation and a donor-advised fund are useful tools to meet a client’s charitable giving goals. The team at the community foundation team can help you develop a structure for your client that maximizes the benefits of each vehicle within an overall philanthropy strategy.

Next, consider encouraging your clients to make charitable giving part of “living large” in their golden years, especially in light of an emerging trend that some retirees are spending their money instead of giving it away.

Finally, remind your clients that the best time to set up their philanthropic plans really is right now. By being proactive, your client has nothing to lose and everything to gain in ensuring that their charitable wishes are carried out. To that end, the community foundation regularly works with advisors helping clients who wish to establish “shell funds” to receive bequests after the clients pass away. A shell fund allows a client to describe charitable intentions, including naming advisors and suggesting nonprofits to receive fund distributions, to guide the heirs through the client’s charitable legacy. Your client can name the fund, and even provide that the community foundation’s board of directors work with advisors to make grants and evaluate impact. A shell fund agreement can be modified anytime before your client’s death.