Debunking donor-advised fund myths, focusing your giving, and going deeper

Private foundations and donor-advised funds: Debunking three myths

If you’ve been involved with charitable giving for a few years, you’ve no doubt become familiar with both private foundations and donor-advised funds and their popularity as charitable giving tools. As is often the case with tax and estate planning-related topics, the differences between private foundations and donor-advised funds are sometimes the subject of confusion and misunderstanding.

As you work with your advisors and the team at the community foundation to establish your immediate and long-term charitable giving plans, take a few minutes to check out how to debunk these three common myths. 

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

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

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

–A donor-advised fund at the community foundation is frequently a more effective choice than a donor-advised fund offered through a brokerage firm (such as Fidelity or Schwab). That’s because, at a community foundation, you and your family 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 you and your family on a charitable giving plan that extends for multiple future generations. That is because the team at the community foundation supports your family in strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference. 

As you explore the many opportunities to deepen your work with the community foundation, consider the unique mix of flexibility and services available to you and your family when you establish a donor-advised fund.

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

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

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

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

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

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

Many philanthropists and their advisors are aware of the many benefits of using both a donor-advised fund and a private foundation to accomplish their charitable goals. For example:

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

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

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

Some private foundations are even considering transferring their assets to a donor-advised fund at the community foundation to carry on the foundation’s mission. Terminating a private foundation and consolidating giving through a donor-advised fund is sometimes the best alternative for a family when the day-to-day management and administration of the private foundation has become more time-consuming than expected and is taking time and focus away from nonprofits, the community, and making grants. In addition, some families find that the tax rules related to investments, distributions, and “self-dealing” have become harder to navigate and are perhaps even preventing the family from maximizing tax benefits of charitable giving. Finally, the administrative load of managing a private foundation sometimes becomes overwhelming, especially if the family members who handled these functions initially have retired, passed away, or simply become busy with other projects.

Evaluating options for focusing your philanthropy

If you’ve been giving to favorite charities for many years, it will not surprise you to learn that most donors are interested in deepening and focusing their impact as they maintain the frequent and total amount of giving. 

Focusing on impact is hard, but it’s easier when you work with the community foundation and follow best practices for making grants to favorite causes. The community foundation’s expertise can be invaluable to you and your family as you pursue your charitable goals.

Here are three suggestions for refining your giving strategies to support your favorite causes.

Educate yourself. 

Learn about best practices that are emerging in the growing field of philanthropy. You can discover various philosophies that can drive charitable giving and gain insights from examples of what other philanthropists report has worked well and not so well. Working with the community foundation team is an excellent way to gain access to the most up-to-date research and resources on making an impact, including ways to make decisions with your partner or involve your family.  

Follow your heart.

Your charitable giving is going to be most effective when you support the causes you truly care about. You’ll be more committed and better able to focus on impact if you experience the psychological rewards of providing financial support to organizations that align with your personal beliefs about how quality of life can improve for people in the community. 

Seek information.

Information about nonprofit organizations is widely available to you through several online sources, including being able to access nonprofit organizations’ tax returns to see detailed financial data. As you do your online research, consult the team at the community foundation. We are happy to interpret the information available online and provide important context for the meaning of that information as it relates to the actual work of the nonprofit organization and the ways you are supporting it. 

Go deeper

Many donors are continuing to support relief efforts in Ukraine, as well as exploring how to help the victims of the earthquakes in Turkey and Syria. The team at the community foundation is happy to help you balance your desire to meet the most critical needs in our local community while also supporting international relief efforts. Please reach out anytime. Our team is also happy to share insights about what's trending in philanthropy overall, including best practices in disaster giving. We are here to help you achieve your short-term and long-term charitable goals and work with you and your advisors to do so in the most tax-effective manner.

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

Local giving, reasons to smile about corporate philanthropy, and what's in the news

We are excited that 2023 is in full swing. Our team appreciates the many opportunities already this year to talk with those of you who are current fundholders, as well as those of you who are considering becoming fundholders. We look forward to working with current and new donors through donor-advised funds, field-of-interest funds, scholarship funds, or unrestricted funds at the community foundation to achieve the charitable goals that are important to you and your family.

Our update this month covers the importance of local giving, trends in corporate giving, and tips to keep top of mind as you, your family, and your advisors work together to pursue your philanthropic priorities. 

Happy February! Thank you for the opportunity to work together.

Your community foundation

Community foundations: Unparalleled resources for local giving with major impact 

As economic times get tough, more and more people are asking how they can make the biggest difference right in their own backyard. Indeed, local giving is a topic that has even made its way into the opinions of the mainstream media, causing many charitably-inclined people to pay more attention to the impact their dollars are having on the causes they love.  

Sometimes the greatest needs really are right here at home. As donors explore charitable giving opportunities and receive requests for funding from charities near and far, it can be helpful to read first-hand accounts of why other philanthropists have been so inspired by uncovering local needs that they simply were not aware of.  

Over the years, researchers have consistently validated the important emotional elements of giving to familiar and nearby organizations to foster the rewarding sense of connection that is such an important driver of repeat philanthropic behaviors. Today’s donors want to be able to actually see the results of charitable investments. 

Here are three suggestions for anyone who wants to get started on a “give local” journey.

First, scan the local news. Many people are very accustomed to scrolling the news feeds on phones and catching the national and international headlines. Local news can be hard to find, but those outlets do still exist! In particular, many television stations’ websites include a local news tab. Spend five minutes scrolling through the local news for three days in a row, and you might be surprised at how much you learn about your own community. Make a mental note of issues that raise your eyebrows or make you ask yourself “I hope someone is doing something about that.”

Second, with this research in hand, run a few quick Google searches with the key words you’ve identified, along with the terms “nonprofit,” “charity,” and the name of your town or city. Sometimes these searches will illuminate organizations you might have heard of or even be involved with already. At the very least, you will begin to frame your own description of the local causes you care about.

Third, reach out to the team at the community foundation. The community foundation’s mission is to improve the quality of life in our region, and that is possible through the work of nonprofit organizations and people like you who support them. The community foundation team will know which nonprofits are addressing the issues you’d like to learn more about and can provide advice about how your charitable dollar can make the greatest possible difference. 

The community foundation is unparalleled in its ability to be flexible and responsive, providing outstanding, personal service designed around your needs while at the same time working closely with legal, tax, and wealth advisors to ensure that you are maximizing the financial elements of your charitable giving plan. 

We look forward to working with you to make as big a difference as possible in the causes you love and make our community an even better place for everyone. 

Corporate giving: Amazon’s news, key trends, and a primer to kick off the new year

Since it launched in 2013, the Amazon Smile program has provided hundreds of millions of dollars to various charities. The program worked by allowing customers to identify a favorite charity in the customer’s Amazon profile. Then, Amazon would make a donation equal to 0.5% of each of that customer’s purchases for as long as the customer kept the designation in place. Amazon recently announced that it was shutting down the program, to the disappointment of a lot of people.

Because the program was so easy to use, many smaller organizations were successful in rallying their supporters to sign up for Amazon Smile and direct donations to the organization. The program was especially popular among youth groups and school-related charities where parental involvement made it easy to get the word out and secure sign ups. 

For many, the news about Amazon Smile has sparked renewed interest in corporate philanthropy, not only in large businesses, but also in small, local businesses. How much should a business allocate for charitable giving? How should the company decide where to make its charitable donations? To what extent should employees be involved?

If the company you help lead, or even perhaps own, has a corporate giving program, it may be wise to give the tires a quick kick and evaluate potential tweaks. Certainly your company’s program is unlikely to be at the scale of Amazon Smile; still, with Amazon Smile’s demise in the news, you and your colleagues may agree that a refresh is in order. It could be time to dust off the research on corporate giving best practices and evaluate how those tried-and-true principles apply to your company’s community involvement today.  

Here are three steps to consider as you discuss corporate giving with your colleagues, either formally or informally. 

Check in on strategy and process, including basic communications guidelines

If your company doesn’t have a strategy or system for prioritizing sponsorship requests, charity event invitations, and requests for donations, you may want to consider putting this in place, whether it’s a simple verbal agreement among company leaders or something more formal such as a written plan. Sometimes, a charitable giving strategy is based on the owners’ values. Some companies seek employee input. Regardless, it is important to have at least a simple communications strategy for maintaining positive relations with the charities whose requests the company turns down, as well as requests from employees.

Consider structuring the program with an easy-to-use corporate donor advised fund

A corporate donor-advised fund at the community foundation can do wonders to help streamline the administrative load. All donations into and out of the corporate donor-advised fund are tracked in one place, making it easy to see which organizations have been supported historically. A corporate donor-advised fund also makes it possible for a company to plan ahead to be able to fully fund its charitable goals even in years when revenue is down. Reach out to the community foundation to learn more about how a corporate donor-advised fund could work for your company.

Make an effort to get the word out

Many companies are doing a lot of good, ranging from employee volunteer outings to canned food drives to monetary donations. Sometimes even employees are not aware of all of the charitable activities going on at their employer. Consider carving out 30 minutes every month to report on the company’s charitable endeavors, whether that’s simply an internal communication or a more public update on the company’s website or social media channels. Business owners and executives are often surprised at how much goodwill comes from simply celebrating the good the company is already doing.

As always, the team at the community foundation is here to help you and your company with its charitable giving program. We can help you set up a corporate donor-advised fund, assist your team with creating and operating a matching gifts program, set up disaster-relief workplace campaigns, establish donor-advised funds for executives and employees, collaborate on a philanthropic component of a business sale, and much, much more. There’s plenty to smile about! 

In the news: Billionaire givers, QCDs, and celebrity inspiration

This month, we’re offering three suggestions for deeper reading on current topics in charitable giving. 

Bring out your inner academic with this blog post published by the Lilly Family School of Philanthropy at Indiana University, especially if you’re interested in the latest chatter and variety of opinions on so-called “billionaire philanthropy.”

If you’re contemplating charitable giving in your retirement years, read this Kiplinger article to brush up on the Qualified Charitable Distribution (QCD), recently enhanced by late-2022 legislation. We totally understand that the first (and second, and third) time you read about QCDs, your eyes may glaze over, but the concept really is worth understanding. Contact the team at the community foundation. We are happy to break it down for you in English! 

Finally, it can be reassuring to see high-profile individuals (Idris and Sabrina Dhowre Elba, for example) speaking up about their philanthropic values. In a world where so much needs to be done to improve lives and respect humanity, role models offer hope that philanthropy and community involvement can be important factors in progress.

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

Charitable planning in a downturn, trust-based philanthropy, and the new Legacy IRA

Happy New Year from the community foundation! 

We hope your holidays were wonderful. As our team reflects on 2022, we are grateful for your involvement with the community foundation. Many of you have been fundholders at the community foundation for years. Thank you! Some of you established a donor-advised fund, field-of-interest fund, scholarship fund, or unrestricted fund last year. Welcome! And some of you are considering including the community foundation in your 2023 charitable giving plans. We look forward to working together! 

This issue includes topics to help you and your family fulfill your philanthropy goals in a year when the stock market and economy are likely to be a bit bumpy. We’re sharing tips for budgeting for your 2023 giving, considerations for how you might approach your relationships with your favorite nonprofits, and updates on new laws passed at the end of last year.

As always, please reach out anytime! 

Your community foundation

Stay the course: Intentional philanthropy is critical in a downturn

Your family may be among those who are taking their charitable giving budgets more seriously this year, given the stock market’s challenges, rising interest rates, economic concerns, and anticipated cash crunches. 

At the same time, not surprisingly, community needs tend to rise during uncertain economic times. As 2023 gets into full swing, inflation, housing challenges, and economic uncertainty 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. 

A budget has benefits

Here are a few steps to consider in building a 2023 budget for charitable donations that can help you continue to support your favorite causes and remain fiscally cautious.

–Review all your charitable donations from the last three years and compile totals for each organization. This can be an easy exercise for people who use a donor-advised fund at the community foundation because the data can typically be pulled directly from the community foundation’s donor portal or requested from the community foundation’s team.

–Carefully review the list of organizations you’ve supported over the last three years. Regardless of your donation levels, which are the most important to you? Are you serving on the board of directors of any of these organizations? Do you regularly volunteer at any of them? Is there a personal connection?

–Are there any organizations on your list that you supported primarily because the organization was raising money for a capital campaign, or because you were helping out a friend who is involved with that organization? These may be organizations to possibly put on hold and then revisit supporting in future years when the economy picks back up.

–Add up your total giving over the last three years and then divide it by three to get your average. Is that number doable this year? If not, reduce it to a level that fits within your financial situation to arrive at your tentative 2023 giving budget. Remember to consider the value of publicly-traded stock gifts you could make this year if preserving cash is a priority. 

–Consider whether to keep certain organizations at historic levels of giving, such as those you’re personally involved with. Or on the flip side, you may decide to temporarily reduce your level of giving to organizations for which you are providing other types of support, including volunteering or board service.

–Review the list to see if there are any organizations you’ve supported that you’d like to learn more about. The team at the community foundation is extremely knowledgeable about nonprofits in our region and would be happy to provide information on how a particular organization spends its money and how it measures impact.

–Finally, do the best you can to set targets for the amount of support you’d like to provide to each organization—and perhaps even set targets for the timing of your gifts. You can change these targets at any time, of course. The point here is that the planning and budgeting process is a great way to create more intentionality around your giving. Intentional giving is not only more rewarding for you but is also likely to increase your level of engagement with the recipient charities and enhance your understanding of how dollars are being deployed to meet the mission. This, in turn, helps your favorite organizations get better at carrying out their programs and serving those who rely on their work. 

Consider taking a year-long view of your giving 

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

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

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

–Increasing predictability of cash flow and therefore being proactive, not reactive, in supporting the causes you love. You might even consider setting up automatic contributions to a donor-advised or other type of fund at the community foundation by working with your financial advisor to formalize this component as part of your ongoing plan.

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

–Giving yourself time to include children and grandchildren in the charitable giving conversation as a learning experience for the whole family.

–If you are over 70 ½, being able to avoid the year-end scramble to process a Qualified Charitable Distribution (QCD) from your IRA directly to an eligible charity by executing a QCD in the first quarter.

–Leaving enough time to explore options for more complex giving tools that might provide tax benefits as well as meet your charitable goals, rather than waiting until the last minute when it may be hard to get on the calendars of your attorney, financial advisor, and accountant to map out the best strategy for your situation.

As always, the community foundation is here to help. Please reach out to our team to learn more about how you can make the biggest difference with your charitable dollars, including how you can use an existing or new donor-advised fund, or other type of fund, to carry out your 2023 charitable wishes. You’ll be glad you planned ahead to help your favorite organizations fulfill their missions throughout the entire year, as well as maximizing your own tax benefits and avoiding December’s crunch time.

Invest in impact built on trust

If you’ve supported a particular charitable organization for many years, and perhaps even served on its board of directors, you are likely familiar with some basic concepts of “trust-based philanthropy,” even if you didn’t know that’s what it is called.

As a devoted supporter of the nonprofit organizations you love, you know that an organization’s chances of success are greatest when the organization’s leadership and talented staff are able to deploy the organization’s resources in the ways they believe will best fulfill the mission. This, in turn, sometimes translates into the organization placing a high value on what are called “unrestricted” donations, meaning that the organization can use the dollars in whatever way it sees fit. An example of this, grossly oversimplified to illustrate the point, is when a donor writes a check to a food pantry and instructs that the money be used to purchase canned goods, but the food pantry’s leadership knows that what they really need at the moment is to fix the roof or hire a staff member to help with sorting food before the pantry will be in a position to accept more canned goods.

Unrestricted gifts are only one component of the overall trust-based philanthropy concept. The broader model is designed to increase the impact of philanthropy by encouraging collaboration, communication, and information-sharing among all stakeholders, including not only donors and the nonprofits they support, but also the community as a whole. 

Trust-based philanthropy has become somewhat of an academic phenomenon, and it is not without some controversy. Still, the fundamentals make sense, such as listening to community stakeholders and lifting some of the administrative burdens on nonprofit organizations who receive funding.

Trust-based philanthropy is nothing new to the community foundation. In many ways, the community foundation’s mission already embodies these principles: Deeply understanding the needs of the community, building strong relationships across all stakeholders, helping donors maximize the value and impact of their charitable giving, establishing permanent support for the community to address whatever needs may arise, connecting donors more deeply to the causes they care about through personal service and education, and leading on critical community issues.

We look forward to working with you as you get even more involved with the causes you care about.

Ring in the new year with new charitable giving tax laws

If you’ve been tracking federal legislation, you’re likely aware that on December 29, 2022, President Biden signed a $1.65 trillion-dollar omnibus spending bill known as the Consolidated Appropriations Act of 2023 (“CAA”). 

A component of this legislation, known as “SECURE 2.0,” includes many provisions that make it easier for people to build retirement savings, ranging from required enrollment in employer-sponsored 401(k) plans to larger “catch up” contributions to enable workers nearing retirement to add more to their retirement accounts each year.

Three of the new law’s provisions are particularly interesting to people who give to charities, especially related to a planning tool called the Qualified Charitable Distribution (QCD). Many charitable individuals who are 70½ or older have already been taking advantage of the QCD. This technique allows a taxpayer to make an annual transfer of up to $100,000 from an IRA to a qualifying public charity such as a field-of-interest fund, scholarship fund, or unrestricted fund at the community foundation. The taxpayer does not need to pay income tax on the distribution and, for taxpayers who must take RMDs from their retirement plans, the QCD counts toward that year’s RMD.

Here’s what’s new, thanks to SECURE 2.0:

More time to accumulate retirement assets

Under the new law, the required minimum distribution (RMD) age (currently 72) will increase to 73 starting on January 1, 2023. RMDs are the IRS-mandated distributions from qualified retirement plans. The RMD age will further increase to 75 beginning on January 1, 2033. This provision is a boost to retirees’ financial plans and may mean more dollars available for charitable giving, especially in the form of a tax-savvy beneficiary designation of retirement plans to charity.

Note that the age for QCD eligibility is still 70½, and, still, donor-advised funds are not eligible recipients of a QCD. 

“Legacy IRA” opportunity

SECURE 2.0 makes QCDs even more attractive because 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 components of the new law are called the “Legacy IRA” provisions. 

Bigger QCDs

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.

The team at the community foundation would be happy to talk with you about how the new laws can enhance your charitable giving plans. Reach out anytime! 

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

Family philanthropy reading and tips for the giving season

As you gear up for the holidays and build your year-end checklist, the community foundation is here for all of your charitable giving “to do’s.” Whether you’ve been a fundholder at the community foundation for years, or you’ve just established a fund or are considering doing so, our team can help.

We understand that philanthropy is an important part of your family's traditions and values. You want to involve your siblings, partner, children and grandchildren in charitable giving. Not only do you want to deepen intergenerational connections and values, but you also are committed to leaving a family legacy in the community. 

You can do both! The community foundation helps you deepen family connections through philanthropy and also helps you develop a charitable giving plan to leave a lasting community legacy. Our tools and services are designed to make your family’s charitable giving journey enjoyable and rewarding as you support the causes you love.

In this issue, we’re focusing on family philanthropy. By popular demand, we’re providing a reading list that may help you and your family round out your conversations about charitable giving. At the very least, we hope our book recommendations will validate all the good you are already doing. Perhaps a book or two will even land on your gift list this year–both to and from! 

Enjoy! 

Your Community Foundation

Level up family philanthropy at any age with these books

Because immediate families often gather for the holidays—and especially if adult children living away are visiting—this time of year lends itself to conversations about personal or family finances, generosity and especially philanthropy. Not to steal away the joy of the season, but these discussions, either comprehensive or brief, can pay dividends, so to speak, for 2023 and even decades beyond. 

Timely conversation starters can include: 

--Were 2022 savings goals reached? 

--Are employer-provided benefits being fully matched or used?

--How to make the most of a down year in the market?

--What effects are inflation having?

--And last but not least, against that overall financial backdrop, what causes are you most passionate about and want to support or continue supporting?

For some, a big-picture conversation about family philanthropy may be in order. 

For generations, community foundations have served families’ formal needs for philanthropy. And indeed, it is generational wealth—the passing of the torch—that often provides lasting sustenance to a preferred cause or organization. 

In Putting Wealth to Work, author Joel L. Fleishman writes, “Where the genes and values of founding individuals or families are strong enough, families can not only endure but can blossom in pursuing a kind of philanthropy that adapts well to changing time while preserving the essential focus of their founders.” Referring to the rewards and fulfillment of family investment, he quotes the late Ford Foundation officer Paul Yivisaker as saying, “There is something distinctive and precious about family foundations that suggests they should remain as they are: a unique opportunity for families to make and leave their mark on society around them, to share with others the fortune they have enjoyed and the creative energies they so often possess.”

Family finance conversations—be they about budgeting or philanthropy—can occur anytime, and the younger the better to build a knowledge base. Accordingly, we offer a list of books suitable for all age ranges, and we've included the published descriptions and a few reviews. We hope you and your family will discover new reading material to feed the lifelong learning and giving process. 

Raising Charitable Children by Carol Weisman

Giving is the necessary counterbalance to getting, according to Carol Weisman, MSW, CSP, MOM. Otherwise, she says, most children will grow up thinking only of themselves. This realization is what led her to write Raising Charitable Children, where she shares real-life stories collected from all over the world of how parents, grandparents, aunts, uncles, teachers, scout leaders, friends, next door neighbors, and her own family have either initiated or supported ways to teach children how to give back to those in need.

Family Philanthropy Navigator: The Inspirational Guide for Philanthropic Families on Their Giving Journey

The Family Philanthropy Navigator offers an easy-to-use, step-by-step inspirational guide for new and legacy philanthropic families to initiate or enhance their giving journey. The book speaks to the highly rewarding ways that individuals and families can make a difference in a rapidly changing world. Steps cited to ensure meaningful and impactful giving include: 

• Understanding the importance of philanthropy as an integral part of your family enterprise or ecosystem.

• Exploring the motivation, focus and ambitions of your giving.

• Selecting the people and organizations you wish to partner with.

• Deciding on resources, structures and processes you need to achieve impact.

• Learning from the stories of active philanthropists to inspire and inform your giving.

• Preparing thoroughly to begin your own philanthropic journey or to change the direction of your giving.

Creating Change Through Family Philanthropy: The Next Generation

This book explains how young people can use privilege to better society. Based on the authors’ experiences with Resource Generation, a national nonprofit working with wealthy young progressives, the book makes the case for financially addressing urgent social and economic issues. It frames controversial topics from power dynamics to grants payout in an accessible way, offering next-generation readers the tools they need to transform their funds. Drawing on more than 40 interviews, this is an essential guide for both young philanthropists and anyone working with wealthy families interested in learning a point of view on ethical giving.

Generation Impact: How Next Gen Donors Are Revolutionizing Giving

Released in 2017 and since updated, authors and philanthropy experts Sharan Goldseker and Michael Moody provide a contemporary view of how today's donors are measuring successful giving through impact. Going beyond prior generations’ knack of giving for the sake of generosity or recognition, the authors focus on intergenerational giving and offer a series of best practices for families including: 

• Starting discussions early in the next generation’s life.

• Embracing the idea of a multigenerational family team.

• Showing the impact of the family’s giving.

• Talking about each generation’s values to find ones to be shared.

• Helping next gen donors find their place in their family’s legacy of giving.

A Kid’s Guide to Giving by Freddi Zeiler

A comprehensive guide to giving money, volunteering, donating goods, and organizing charity events, this book includes listings of charitable organizations in three categories—People, Animals, and Environment—that make it easy for kids to get involved in the charities that mean the most to them and make a difference in the world.

Wealth in Families by Charles W. Collier

"Charles W. Collier, a Harvard University fundraiser, offers a philosophical look at the meaning and purpose of wealth, in the hope of helping readers–especially those with substantial financial means–to explore family issues, shape their philanthropy, and make wise giving decisions. Wealth in Families builds on the premise that wealth is not just financial–it's also defined in human, intellectual, and social dimensions."
- The Chronicle of Philanthropy

"This book is a small treasure, exploring several different perspectives on the deeper meaning and use of family wealth. Many investment advisers have purchased copies of this book for their clients. It is a resource both for individual families that are looking at what to do with their wealth and for family advisers who want to work better with their clients."
- Dennis T. Jaffe, Saybrook Graduate School 

Strangers in Paradise: How Families Adopt to Wealth Across Generations

Surprising to many, wealthy people often come from middle-class or working-class backgrounds. Born and raised in modest economic circumstances, they find themselves as adults in the wonderful but unfamiliar world of wealth, like immigrants to a new land. Whether their wealth came from spending long careers at companies with generous savings plans or their own successful entrepreneurial exits, the adjustment is often harder than they anticipate. Yet awaiting wealth’s newcomers is an even more daunting task: how to raise children and grandchildren successfully in the family’s new world of affluence. Strangers in Paradise takes an innovative approach to the challenges facing wealth’s “immigrants and natives.” Combining clear reasoning with real-world stories, the book outlines for the first time how the key process for families of wealth—like all immigrant families—is adaptation.

In the season of giving, teaching or learning how to give may be the best gift of all. The team at the community foundation is here to help you and your family make the most out of your charitable giving to support the causes you love and build even stronger ties across family generations. 

The gift of giving, community foundation style

The community foundation can work with you to create and package a gift of a community foundation fund, pre-established and pre-funded, personalized in the name of your gift recipient. Your gift recipient can be a partner, child, grandchild, colleague, or friend. Frequently taking the form of a donor-advised fund, a gift of a fund empowers the recipient to experience the benefits of working with the community foundation to support their favorite causes.

Whether you are a current fundholder at the community foundation or just considering it, the team at the community foundation can help you create a gift fund from soup to nuts, including granting the recipient online access to recommend grants from their new fund. You can literally put a bow on the carefully rolled up fund document, sign a card listing the login URL and credentials to view the fund online, and present the package to the child, grandchild, friend or colleague as a gift. Both giver and receiver will love the experience.

When the recipient is a child or grandchild, educational opportunities are a natural follow up. For example, you can work with the community foundation to find resources on the community foundation’s website and structure a family giving session over Zoom where participants learn the basics of charitable giving and are introduced to key issues facing communities in our region and across the country. This type of experience helps the family’s values stay intact across generations.

We look forward to hearing from you soon about creating a gift of giving for someone you love! 

Four year-end reminders

Don’t forget about stock gifts

Even with late November's rally, 2022’s rough stock market may still be a concern for some. Chances are, though, that not all of your holdings have had an unusually down year. Gifts of appreciated stock to your donor-advised fund or other type of fund at the community foundation is still one of the most tax-savvy ways to support your favorite charitable causes because capital gains tax can be avoided on the appreciated stock.  

If you are over 70 ½, consider a Qualified Charitable Distribution

A Qualified Charitable Distribution (“QCD”) is a very smart way to support charitable causes. If you are over the age of 70 ½, you can direct up to $100,000 from your IRA to certain charities, including a field-of-interest, unrestricted, or scholarship fund at the community foundation. If you are over the age of 72, QCDs count toward your Required Minimum Distribution (RMD) for the year. That means you avoid income tax on the distributed funds. Our team can work with you and your advisors to go over the rules for QCDs and evaluate whether the QCD is a good fit for you.

Use your donor-advised fund to do as much good as possible

The team at the community foundation can help you maximize your already-established donor-advised fund, or set up a donor-advised fund if you are not yet a community foundation fundholder. Please reach out to the community foundation to learn more about how “bunching” at year end can maximize the tax benefits of your donor-advised fund, and at the same time ensure that nonprofits are supported as demands on their missions continue to grow in choppy economic waters. Grantmaking from donor-advised funds continues to rise, especially as donors catch on to the ways a donor-advised fund can help with tax planning and, importantly, keep your giving levels consistent even in your lower income years. 

Watch the calendar

An important note: 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 contact us in plenty of time for our team to process and receive the transfer. 

Checkout charity, feeling good, and the perfect Thanksgiving plate

Hello from the community foundation!

We hope your November is off to a good start.

Market conditions remain challenging, and the team at the community foundation is here to help you navigate your charitable giving priorities even in choppy economic waters. 

Many of our fundholders, and even many people who are considering establishing a fund at the community foundation, are asking our team good questions about how to maximize charitable giving this season. Involving families is important to you, as is watching out for scams. Accordingly, in this issue we’re covering the topic of “checkout charity,” which many of you are experiencing when you shop at the grocery store or even online. We’re also including reminders about the health benefits of getting involved in philanthropy, which is so important to consider as the giving season gets into full swing. Finally, we’re offering suggestions for how you might incorporate charitable giving into your Thanksgiving festivities this year.  

Thank you to all of you who are already fundholders at the community foundation. If you are considering establishing a fund at the community foundation, we’d love to work with you. The community foundation is our region’s trusted source for all things philanthropy, and we are honored to serve you as you pursue the charitable endeavors that mean the most to you and your family.  

Wishing you all the best for a safe and happy Thanksgiving.

–Your community foundation

“Checkout charity”: Cause for concern? 

Though you may not recognize the term, you’re likely familiar with “checkout charity.” That’s the name given to a relatively new and fast-growing way for making charitable contributions. 

Different than the more strategic or planned giving that occurs through the community foundation, checkout charity donations are often the result of spur-of-the-moment, periodic or one-time asks triggered by a tragedy (Hurricane Ian), holiday (feeding the food-insecure at Thanksgiving) or cause (health and safety products during the pandemic). Solicitations can occur in person or online, and by either a familiar face or automated means like text messaging. 

And while these donations may appear small on an individual level—say a dollar or more added to a grocery store visit—they quickly add up! In fact, Engage for Good reported that $605 million was collected in 2020 by 76 campaigns that each exceeded one million dollars, a 24% increase from 2018 when 79 campaigns exceeding one million dollars brought in more than $486 million.   

However, concerns about such efforts have included feelings of anxiety, uncertainty or lack of knowledge about such causes; whether the gifts would reach their proper destinations or be used as intended; or if there could be elements of fraud or misrepresentation. Nearly 50% of survey respondents described such campaigns in negative terms or feelings like “annoyed,” “pressured,” or “being judged.” Of the remainder, 30% had neutral feelings; only 20% were positive. 

The community foundation encourages support of all legitimate organizations and causes. But given the rising number of opportunities to give, their frequency and spontaneity—at a checkout line, initiated by a social media post or a stranger’s ask—we also encourage proper vetting of the requester and obtaining an appropriate confirmation for tax purposes when applicable. Donors should proceed with caution, but also know that many impulse gifts to charity, often made at a local grocery store or through a national brand retailer, are “pass-through” in nature, with no financial benefits accruing to the point-of-purchase organization. 

The community foundation works for you as a one-stop shop for impactful giving specific to the organizations you hold dear. We have and will continue to offer: 

–A welcoming attitude and relationship of trust built over time. 

–Discretion in receiving and distributing your gifts, providing anonymity when that is a priority. 

–Appropriate recordkeeping for tax deductibility or other legalities. 

–Professional management of your donor-advised fund or other account.

We welcome your questions regarding any organization or cause seeking your financial support. 

Give a little and feel a lot better

In the classic book The Go-Giver: A Little Story about a Powerful Business Idea, authors Bob Burg and John Mann share how Joe, a young professional, uses unselfishness to ultimately find business success. 

Among the philosophies:  

–Your true worth is determined by how much more you give in value than you take in payment. 

–Your income is determined by how many people you serve and how well you serve them.

On a personal level, we’ve all heard the adage, and to paraphrase, “It’s better to give than to receive.” Two often-cited benefits of giving are (a) that it makes you happy, and (b) it makes you healthier and live longer. 

These benefits can be experienced through small gestures, like opening a door for a stranger; surprising the next-in-line at the drive through with a free cup of coffee; or checking on a neighbor before or after a storm. 

Volunteering is another source of happiness and health enhancement. According to the University of Maryland Health System, volunteering can bring physical and behavioral health benefits including a broader social network, lower blood pressure (which can reduce risk factors associated with heart disease and stroke), improved mental health and stress relief. 

By doing good, we feel better ourselves.

In many ways, interestingly enough, your community foundation can be a facilitator of health benefits. By helping to establish, manage and distribute your gifts of generosity to the causes you care about, the community foundation can simplify the giving process to your favorite organizations that power medical innovation, support equipment acquisitions and fund construction at university health centers, hospitals, and blood banks, as well as the many important services delivered by community health providers. 

Quite notably, many generous and significant gifts received by health centers in 2021 referenced family foundation involvement. Among those facilities are Cedars-Sinai Health System (Los Angeles, CA); Atrium Health (Charlotte, NC); Wolfson Children’s Hospital (Jacksonville, Fla.) and Saint Barnabas Medical Center (Livingston, N.J.).

By giving through the community foundation, whether to an unrestricted fund, field-of-interest fund, or a donor-advised fund, and whether to health-related charitable organizations or others, a donor’s gifts to charity can go above and beyond simply meeting individual or family tax and giving goals. By serving those in need and the greater good, gifts to charity help others feel happier and healthier—donors and recipients alike. 

The perfect plate: Turkey, pumpkin pie and charitable giving

As you prepare to gather with family and friends over the Thanksgiving holiday, we invite you to reach out to the team at the community foundation for suggestions on how to incorporate charitable giving into the festivities.  

For example:

–Take this opportunity to brush up on the rich history of charitable giving in America.

–Consider asking each family member to conduct quick research on a community need that they feel strongly about, such as homelessness, early childhood education, preserving the environment, medical research, and so on. Even just 15 minutes of online research on how the issue is playing out locally can be eye-opening! 

–When your family is together, each person can briefly share what they found in their research. If the group feels strongly about one or two issues, you might consider pooling donations–whether $5 per person or $50. 

–Contact the community foundation to find out which nonprofit organizations in the community are most closely aligned with addressing the issues you’ve selected. Make your family donation to those organizations.

Thanksgiving is also a good time to start planning for year-end charitable giving to meet your philanthropic goals. For instance:

–Making gifts of cash or appreciated stock to your donor-advised fund at the community foundation can help you streamline your charitable giving recordkeeping and still allow you to support your favorite charities with year-end gifts. If you’ve not yet established a fund at the community foundation, we’d love to help you set that up. There is still plenty of time to put it in place to meet your year-end tax planning and charitable giving needs.

–If you are over the age of 70 ½, consider making a Qualified Charitable Distribution (QCD) from your IRA to one or more qualifying charities, which include an unrestricted or field-of-interest fund at the community foundation. QCDs, available up to $100,000 annually per taxpayer, are an excellent way to bypass required minimum distributions and the corresponding income tax liability. 

–Many families update their estate plans around the holidays. If you’re planning to review your wills and trusts, it’s a great time to check in on any bequests and adjust those provisions, especially if you’ve recently established a donor-advised or other type of fund at the community foundation and intend for part of your estate to flow into those vehicles.

As always, please contact the community foundation for charitable giving inspiration and insights. We are here to help! 

Altruism, bright spots in a volatile economy, and tips for disaster giving

Hello from the community foundation! 

We hope this note finds you well. In our community and across the country, concerns about rising inflation, worries about more frequent natural disasters, and fears of a lingering bear market are weighing heavily on everyone. 

In this issue, we’re covering topics in three broad areas–altruism, finances, and community–in the context of a somewhat harrowing start to the fourth quarter. Our priority at the community foundation is to help keep philanthropy strong in our region so that our citizens and our nonprofit organizations can weather the storms now and for years to come. 

If you are already a fundholder at the community foundation, thank you! We hope you’ll continue to reach out to our team with questions and ideas about how you can deploy financial resources to achieve your charitable goals. If you’ve not yet established your own individual, family, or corporate fund at the community foundation, we encourage you to reach out to learn more. This is a perfect time to take advantage of the tax benefits of charitable giving while at the same time engage your family in making a real and immediate difference in the lives of people in our community who need assistance.

Thank you for all you do. We are honored to work together and wish you the best.

–Your community foundation

High-profile acts of altruism are inspiring philanthropists large and small

We often hear from some of our largest fundholders that one of the reasons they love working with the community foundation is because the foundation is truly the community’s foundation. Whether a family has established a multi-million dollar field-of-interest fund or a donor-advised fund to organize thousands of dollars of annual charitable gifts, the family knows that they have full access to the community foundation’s charitable giving expertise and deep knowledge of the needs in our region.

This is part of the reason our team and our donors find it so heartwarming to see a focus on altruism appear in the mainstream media. When people from all walks of life can share in the joy of philanthropy, everyone wins. 

Here are three stories we’ve particularly enjoyed that are worth checking out if you happened to miss them.

–Yvon Chouinard, Patagonia’s founder, and his family have just given their ownership of the company to charity by establishing a group of trusts and nonprofits. Chouniard’s inspiring act of philanthropy is reminiscent of the work of Chuck Feeney, founder of Atlantic, who was “driven by a belief that the best use of one's wealth is to help people.” Business leaders aren’t the only people who are increasingly publicizing their charitable giving commitments. More celebrities are sharing their stories of charitable passion, too.

–Keeping with the celebrity giving theme, we enjoyed reading this heartwarming piece comparing philanthropy to Ted Lasso. Playing the long game, listening, focusing on relationships, and staying humble and flexible indeed are important tenets of building a charitable giving plan. 

–If you are interested in exploring the philosophical dynamics and roots of altruism, we recommend checking out a Time interview and a feature in Vox. And of course, Peter Singer’s 2013 TED talk is an altruism classic.

We look forward to hearing your thoughts on these and other stories as philanthropy pops up in your news feed. The community foundation is here to answer your questions and provide the tools you need to activate your charitable intentions in a concrete, meaningful, and tax-savvy way. 

Bright spots in the midst of economic challenges

Bear markets aren’t much fun for anyone. But that doesn’t mean your charitable giving commitments have to be put on hold. If you are like many donors, you are still looking for ways to support the organizations you care about that rely on your support to achieve their missions.

Remember, not every stock is down. It’s still incredibly tax-efficient to donate highly-appreciated stock to your fund at the community foundation. When you give appreciated stock held for more than one year (a long-term capital asset) to your donor-advised or other type of fund, 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 overall income tax situation.

Don’t forget about the Qualified Charitable Distribution (QCD), either. If you’ve reached the age of 70 ½, the QCD is an elegant and effective planning tool. You are still required to take Required Minimum Distributions (RMDs) from your IRA even in a down market, and the QCD can help offset this tax hit by allowing you to direct up to $100,000 to a qualified public charity, including a field-of-interest fund or unrestricted fund at the community foundation. 

This is also a good time to make sure your estate plan is in good shape, including bequests you may wish to leave to a fund at the community foundation so that the causes you care about can continue to be supported for generations to come. A bequest by way of a qualified retirement plan beneficiary designation is an especially effective tool to support your charitable intentions after you are gone. That’s because funds flowing directly to a fund at the community foundation from a retirement plan after your death will not be subject to either income tax or estate tax. 

Please reach out to the team at the community foundation. We are here to help! 

Activate immediate and effective assistance for people in need

When a major earthquake occurred 16 miles west of Port-au-Prince, the capital of Haiti, more than a decade ago, it was hard to imagine the new era of philanthropy this disaster would usher in. According to many, the 2010 Haiti earthquake was the first time social networks played a major role in philanthropy. At the time, analysts at the Pew Research Center who studied the phenomenon described the “Text to Haiti” effect as “a new mode of engagement” that “offers opportunities to philanthropies and charitable groups for reaching new donors under new circumstances as messages spread virally through friend networks.”  

In recent years, you and other donors have become accustomed to making charitable donations to support disaster relief, whether through text, online, writing checks, or giving gifts in kind. While it is sad that these donations are needed in the first place, it is good to know that 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, please reach out to us about your options for giving aid and financial support to those most affected by the storm. We can provide you options for giving that are trustworthy and effective, including leveraging our connections with fellow community foundations that are closest to the geographic areas affected. Community foundations are widely viewed as one of the very best vehicles to help you and other donors provide financial support to relief efforts. We’d be honored to help you play a role in speeding recovery from the tragic storms.

Record-keeping, new nonprofits, and bundling

Greetings from the community foundation! 

Thank you for all you do to improve the quality of life in our region. We continue to be inspired by the generosity of our community. In each and every conversation with fundholders, donors, and community leaders, our team learns so much about all of the ways you are making lives better for the people who live here. Many of you have established funds at the community foundation to support the causes you love. Others are serving on boards of directors of local nonprofits. Some of you are involved in discussions with your family and your advisors about establishing a fund at the community foundation to fulfill your philanthropic goals.

Wherever you are in your charitable giving process, we are here to support you. The community foundation is just that–the community’s foundation–and we are here to help increase charitable giving, deepen your connections with the causes you care about, and provide leadership on critical community issues.

We hope you enjoy this newsletter, where we’ve captured updates on issues that are trending in the charitable giving world and covered topics that are bubbling up in conversations with our fundholders.

We look forward to continuing to serve you. If we’re not yet working together, we hope you’ll reach out with questions about the topics below or anything else that captures your attention and imagination in the world of philanthropy.

With gratitude,

Your community foundation

Keeping track of your charitable donations is more important than ever

When the Inflation Reduction Act was signed into law in August, many taxpayers were relieved that the Act did not include heavily-debated proposed tax hikes that were so prominent in early versions of the legislation. What’s weighing on a lot of taxpayers’ minds, however, even more heavily than the few changes to income tax rules, is the Act’s $80 billion in funding increases for the IRS. 

The IRS will use the money to shore up its staffing, technology, and, notably, enforcement efforts. The additional capacity means that the IRS’s customer service should improve. It also means that the chances of audits almost certainly will increase. 

A well-known trigger factor for audits is a list of charitable deductions that looks out of whack. It is very important to understand the rules for charitable deductions and keep track of your donations in detail.

Establishing a fund at the community foundation is an easy way to organize and track your charitable giving. Perhaps you and your family already take advantage of this feature by making a single, tax-deductible transfer of highly-appreciated stock each year to your fund. If you are deploying this tax-savvy technique, you know that the proceeds from the sale of the stock–free from capital gains tax–are then used for distributions from the fund to support your favorite charities. No matter how many different charities receive support from your fund, you still have just one receipt to keep track of charitable donations for income tax deduction purposes.

The community foundation offers different types of funds for different types of giving. We’ll work with you to set up a fund to meet your specific needs. Many of our donors have even established two or more separate funds to fulfill different goals.

Available types of funds include:

Donor-advised fund. A donor-advised fund enables you to establish a dedicated account for charitable giving. You make tax-deductible contributions of cash or other assets to the fund, and then you are able to recommend grants to favorite charities. 

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

Field-of-interest fund. If you would like to target your giving to specific areas of community need (such as education, health, environment, or the arts), you can create a field of interest fund to establish parameters for grant making under the ongoing guidance and expertise of the community foundation’s staff.  

Designated fund. A designated fund allows you to direct your giving to a specific nonprofit organization. Over time, the community foundation's staff manages the distributions from the fund according to the terms you’ve established.

Any of these funds enables you to organize your giving for tax purposes, which helps you stay prepared in the event of an IRS audit. 

Here’s what to know before giving money to a new nonprofit

The number of nonprofits in the United States now tops 1.7 million, and hundreds more are started each year. As the nonprofit sector grows alongside the increased needs in our community, you may be asked by friends or colleagues to support a brand new nonprofit organization. You want to help, but you’re not sure about the rules.

First, remember that you can give money to anyone and anything you want, charitable or otherwise. If you want to be sure that your money is put to good use, check things out. If the charity has started a website, take a look at it and see if it makes sense. Even new charities should be able to clearly explain what they are doing and who exactly it is that they are serving. Also take a look at who’s involved. Perhaps the friend or colleague asking you for help is on the charity’s board or is even a founding staff member. If you know and trust the people involved, that is a good sign. 

Your questions may boil down to whether you are hoping to get a charitable deduction for your contribution to the new charity. The IRS has very specific rules about which types of donations are deductible and at what levels. If the new charity has filed an application (Form 1023) with the IRS to qualify as a 501(c)(3) charitable organization, and you make a donation to the charity while the application is pending, you still may be able to deduct that donation on your income tax return, provided the charity does in fact receives its exemption ruling from the IRS. You are taking a risk, though. If the charity’s application fails, you cannot deduct your donation.

Please reach out to the community foundation with any and all questions about how best to support charities and causes in our community. It’s our job to provide insights not only related to the tax aspects of charitable giving, but also related to the effectiveness of charitable giving and the impact of the nonprofit organizations that serve our community. 

How to grow your charitable giving by bundling tax savings

Many donors elect to use a donor-advised fund at the community foundation as an organizing tool, frequently recommending grants to their favorite charities in ways that mirror the ways they would make donations outright. Often, contributions to a donor-advised fund are in the form of highly-appreciated stock or other hard-to-value assets that generate a favorable tax outcome. Using a donor-advised fund in this way is very effective to get resources into the hands of the nonprofits who need it to fulfill their missions. 

Because the charitable income tax deduction is not currently available to taxpayers who do not itemize, however, you may worry that you have less incentive to give to charities during certain years. A donor-advised fund can help with that. Consider a situation where you have a high-income year and you make a large contribution to your donor-advised fund in that year. You are able to benefit from the charitable deduction because you are eligible to itemize deductions on that year’s tax return. Let’s assume, then, that your income is lower in the next two years; therefore, you do not itemize deductions. This means you have a reduced tax incentive to support charities, although you have loads of philanthropic incentive!  

In this situation, the “bunching” strategy you deployed in year one allows you to support charities from your donor-advised fund in years one, year two, and year three. This technique creates important financial motivation to complement your philanthropic motivation. This, in turn, keeps your giving strong and steady across the years, which is very much appreciated by the charities you support. 

The community foundation is happy to help you develop a charitable giving plan that meets both your tax planning objectives as well as your desire to support the charities you love. 

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

Events, generational giving, and the IRS

Is the cost of event tickets tax deductible?

As charitable organizations emerge from pandemic restrictions, in-person fundraising events are beginning to rebound, especially athletic events that are held outside. This is a good time for a quick refresher course on the charitable deduction rules related to events, which can be tricky. 

As a general rule, if you purchase a ticket to a fundraising event and attend the event, the IRS only allows a tax deduction for the portion of the ticket price for which you received nothing of tangible value in return. So, when the charity sends a receipt for the gift, you will see that the charity has subtracted the fair market value of the perks--food, beverage, entertainment, T-shirts, and other goodies--from the full amount of the contribution. The rules for raffles, auctions, and games of chance are also complex, exacerbated by the increase in virtual events and online fundraisers.

What’s more, while straightforward gifts to charities from your donor-advised fund at the community foundation are perfectly fine (and indeed, one of the primary purposes of donor-advised funds), it’s problematic to purchase even the charitable component of an event ticket using donor-advised fund dollars. 

What’s the reason for all of this complexity? Simply put, tax-deductible dollars cannot be used for private benefit. The whole point of the charitable tax deduction in the first place is to incentivize taxpayers to use their own money to help others. Even when a portion of a donation can be tied to funding the charity's programs, the intermingling of event-related benefits back to the donor (even if it’s just a T-shirt or a chicken dinner) becomes too much of a tangled web, in the IRS’s view, to discern the true amount of the charitable deduction, and without that clarity, none of it is deductible.

The good news here is that the team at the community foundation is on top of it. We are here to answer your questions about the deductibility of certain transactions and how best to deploy your donor-advised or other fund assets to help the charities you care about.

Generational giving through retirement plans, life insurance, and meaningful bequests

 August is national Make a Will Month. You’ve likely already worked with your advisors to establish an estate plan, including a will and even a trust. Still, this is a good time of year to review your plan in case things have changed.

As you review your estate plan, consider whether your documents are aligned with your philanthropic intentions, especially if you’ve captured your philanthropic intentions through one or more funds at the community foundation. A fund at the community foundation can be an ideal recipient of estate gifts through a will or trust, or through a beneficiary designation on a qualified retirement plan or life insurance policy. 

In particular, bequests of qualified retirement plans can be extremely tax-efficient. This is because charitable organizations such as the community foundation are tax-exempt. This means the funds flowing directly to your fund at the community foundation from a retirement plan after your death will not be reduced by income tax. This also means the assets will not be subject to estate tax. 

Don’t overlook life insurance, either. Not only are you able to designate a fund at the community foundation as the beneficiary of a life insurance policy, but in some cases you also may elect to transfer actual ownership of certain types of policies. For example, if you were to make an irrevocable assignment of an eligible whole life policy to your fund at the community foundation, a tax-deductible gift of the cash value of the policy occurs at the time of the transfer. A gift like this could potentially ease your income tax burden, especially if the foundation continues to own the policy and you make annual tax deductible gifts to cover the premiums.  

The community foundation makes it easy for you to work with your advisor to draft bequest terms in legal documents, including beneficiary designations of retirement plans and life insurance policies. Please ask your advisor to contact our team for the exact language that will ensure alignment with your intentions. In many cases, anytime during your lifetime, you may even update the terms of a fund at the community foundation that you've designated to receive a bequest upon your death. 

What seems charitable may not always be deductible in the eyes of the IRS

With such a wide range of options available for you and your family to support your favorite causes and your community, ranging from crowdfunding to online solicitations, how do you know whether (and why) your donations are eligible for funding out of your account at the community foundation? 

In short, contributions to organizations and causes that would fall into the non-tax-deductible category, although worthy investments to help the community, generally are not eligible recipients of grants from your funds at the community foundation. Remember, you received a tax deduction when you transferred assets to your fund at the community foundation, which means the money needs to be distributed to charitable organizations and causes qualified to receive tax-deductible contributions.

If you're interested in the legal background, keep reading!

Section 501(c) of the Internal Revenue Code lays out the requirements for organizations to be considered tax-exempt, meaning they don't pay taxes. This is a status for which an organization must seek IRS approval.

Even under Section 501(c), there are different types of nonprofits that are recognized by the IRS as tax-exempt. To qualify specifically under the Internal Revenue Code Section 170 charitable deduction for gifts to Section 501(c)(3) organizations, the recipient organization must be organized and operated exclusively for “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.” In other words, “charitable,” according to the IRS, has a very specific definition. Your funds at the community foundation help you support the 501(c)(3) charitable organizations you and your family care about.    

Separate from your charitable donations, perhaps you and your family also support social welfare groups (organized under Section 501(c)(4) of the Internal Revenue Code). Examples of social welfare groups include neighborhood associations, veterans organizations, volunteer fire departments, and other civic groups whose net earnings are used to promote the common good. Donations to social welfare groups are tax deductible in only certain cases (e.g., gifts to volunteer fire departments and veterans organizations). Your fund at the community foundation can't be used to support non-tax-deductible civic causes, but certainly you can continue supporting these causes out of your personal assets.

Similarly, chambers of commerce and other business leagues fall under Internal Revenue Code Section 501(c)(6); donations to these entities are not tax deductible, either.

In addition to your civic activities, perhaps you’ve also helped set up a dedicated account at a bank to provide scholarships to the children of an accident victim, or even participated in a GoFundMe fundraiser to help a specific family. These vehicles, along with other crowdfunding platforms, typically do not meet the qualifications for a charitable organization under Section 501(c)(3), usually because the funds are earmarked for a particular person or persons. 

We know the rules are complex and can be overwhelming! If you have any questions about the tax deductibility of your contributions to various organizations, and whether your community foundation funds can be deployed to make the contributions, please reach out to the team at the community foundation. We are immersed in the world of Section 501(c) every single day and are happy to help you navigate the rules. 

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