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.

Positive psychology, benevolent exits, and starting your own charity

Doing good, feeling better, and making a difference

At first glance, philanthropy and positive psychology appear to have very little in common. Philanthropy is a term generally associated with giving money to charities, doing good in the community, and creating social value.

Positive psychology usually conjures up images of an academic approach to emotional strengths and virtues that enable people to thrive.

But there is indeed a connection. After all, philanthropy, according to the classic dictionary definition, means a “love of humanity” in the sense of caring, nourishing, developing, and enhancing “what it is to be human” on both the benefactors’ and beneficiaries’ parts. The connection is right there.

Here's why this connection should make you feel better about amping up your charitable giving and community involvement.

First, the benefits of philanthropy aren’t limited to the good you do for others. Social impact activities are also good for your health. Activities such as volunteering and giving to charities can help you live a longer life, lower your blood pressure, and reduce your stress levels, according to the Cleveland Clinic. 

Second, the range of social impact activities is broad, offering plenty of choices for supplementing your gifts to charity with other "doing good" activities. Giving to charities is at the foundation of the many philanthropic activities going on in the lives of Americans; indeed Americans gave nearly $485 billion to charitable organizations in 2021 according to statistics released by Giving USA. Our culture embraces a full range of social impact behaviors including not only giving money to charities, but also volunteering, serving on nonprofit boards of directors, celebrating at community events, recycling and respecting a sustainable environment, marketing a favorite cause, donating items of food and clothing, purchasing products that support a cause, sharing with family and friends in need, and caring about health and wellness. 

Third, philanthropic activities are good for your career and business. Community engagement has become a crucial ingredient to attract and retain today's talent. According to McKinsey & Company’s research, employees want to work for a company that embraces purpose. An employer’s community engagement program helps keep productivity high and turnover low.

The team at the community foundation is always happy to discuss your overall philanthropy plan, including establishing a donor-advised fund or other type of vehicle to support your favorite causes, providing information about the organizations you support, helping establish a corporate philanthropy program for your company’s employees, or getting your family involved in giving. We are here for you! 

Planning a benevolent exit

If you’re a business owner, at some point you may begin thinking about an exit strategy. Before you start putting out feelers to potential acquirers, you may wish to explore the benefits of contributing an ownership interest in your business to a donor-advised fund or other type of fund at the community foundation. 

If you’ve owned your business for several years–or decades–you could be sitting on substantial unrealized capital gains thanks to the increasing value of the business over time. Upon a sale, capital gains tax will be triggered, reducing the proceeds you get to keep. No capital gains tax will apply, however, to the sale of any portion of the business owned by your donor-advised fund. Because of the favorable rules governing the taxation of charitable organizations, your donor-advised fund is likely to net 100 cents on the dollar for the portion it owns. The sale proceeds received by the donor-advised fund are immediately available for you and your family to enjoy by recommending grants from the fund to favorite charities, in whatever amounts and according to whatever schedule aligns with your philanthropic values. 

If you own a business and like the idea of potentially giving a portion of the business to a donor-advised fund or other type of fund at the community foundation, please reach out. The team at the community foundation can help you and your advisors evaluate your options and ultimately prepare for the transaction, including reminding your advisors to secure a proper valuation for the charitable deduction at the time a portion of the business interest is contributed to your donor-advised or other type of fund. 

Finally, be careful not to start negotiating for your company’s sale before you’ve talked with the community foundation and your advisors. Otherwise, you might get caught in the IRS’s step transaction trap that is a risk with any pre-sale gift to charity of real estate, closely-held stock, or other alternative asset.    

Factors to consider before starting your own charity

Has starting your own charity ever crossed your mind? If it has, you are not alone. Thousands of new charities are started each year by people who are passionate about helping others. The team at the community foundation would be happy to help you evaluate whether starting a charity from scratch is the best way to accomplish your goals, or if another option is worth exploring.

Here are factors we’ll help you consider:

Consider the cause.

Sometimes people start their own charities to meet needs that are actually already being addressed by programs at existing charities that they’re simply not familiar with. The community foundation team would be happy to share information about nonprofit organizations in the community that are addressing the causes you care about. You might be pleasantly surprised to discover a charity that is doing work that is the same or similar to the work you were planning to take on through your new charity. Instead of creating a new charity, your cause might actually be better and more efficiently served if you were to get involved with the existing charitable program.

The state and the Feds. 

If you decide that starting a new charity is indeed the right move for you, your next step is to set up your legal entity. It's just like starting a business, and you file your articles of incorporation with the state. The forms are a little different for nonprofit organizations. And, unlike a for-profit business, to start a charitable nonprofit you need to apply to the Internal Revenue Service for an exemption under Section 501(c)(3). This exemption is what allows your organization to be exempt from paying income tax, and also allows someone to donate to your organization and be eligible for deducting that donation on their own tax return.

Spreading the word.

Most people who start new charities are passionate about causes and enjoy talking about the programs they’re running to help people in need. What some may not anticipate, though, is that starting a charity means you have to get out there and share the news about your cause to raise money–not just explain the programs. It's like selling, only you are asking for donations to support your organization's work instead of promoting goods or services like you would in a for-profit business. 

Please give us a call anytime you’d like to discuss the causes you care about. We would enjoy the conversation! 

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.

Your charitable giving "personality," donor-advised funds, and scholarships

Your good side: Getting in touch with your social impact personality type

Social connections and community impact are two of today’s most important cultural trends. Combined, they add up to a growing commitment to philanthropy. 

Not everyone likes to “do good” in exactly the same way, though. Understanding the ideal mix of charitable activities based on your social impact personality type–”investor,” “connector” or “activator”--can be useful.

“Investors” prefer to engage in social impact activities that are independent and do not require scheduling dedicated time or working directly with others in the pursuit of a charitable endeavor. Investors sometimes feel they have more money than time and would prefer to write a check or purchase a product that supports a cause.

“Connectors” prefer to engage in social impact activities that are social in nature, involving the opportunity to get together with other people, although not necessarily always in pursuit of the same specific charitable endeavor. This may include celebrating at community events or marketing a favorite cause on social media.

“Activators” are passionate about participating in one or two causes they care most about, and tend to focus on “changing the world” and impacting a single social issue on a broad scale. Activities generally require focused, scheduled and structured behavior oriented toward a task or community goal. A lot of people who serve on boards of directors are activators.

Whatever your personality type, the community foundation can help. For example, if you are an “investor” type, our team can talk with you about:

–Setting up a donor-advised fund at the community foundation to organize your giving to charities.

–Structuring your estate plan to include a bequest to your donor-advised fund at the community foundation.

–Giving appreciated stock to your donor-advised fund, instead of cash, to minimize capital gains tax exposure.

If you are a “connector,” here are things you might consider:

–Working with the community foundation team to occasionally hand-deliver checks from your donor-advised fund to charities as an opportunity to say thank you to the people working hard to improve the lives of others.

–Giving money from your donor-advised fund to a best friend’s favorite charity.

–Collaborating with siblings, children, and grandchildren during the holidays to make one big gift from your family donor-advised fund to a single charity instead of many small gifts to different charities.

Finally, if you are an “activator,” our team can discuss ideas with you, such as:

–Giving an increasing amount of money each year to a favorite charity based on the organization’s demonstrated results to improve the quality of life for the people its mission serves.

–Giving money to multiple charities that are collaborating to achieve a specific goal, such as increasing the graduation rate within a particular school, discovering new drugs to treat cancer, or rebuilding a community center in a blighted neighborhood.

–Giving to relief efforts after humanitarian tragedies.

Getting in touch with the ways you like to give back means you’ll enjoy your community engagement even more. That’s good for the community--and good for you, too.

Inspiration and reminders: The power of the donor-advised fund

If you’ve not yet considered establishing a donor-advised fund at the community foundation to organize your charitable giving, you may be missing out. And if you’re already using a donor-advised fund at the community foundation to organize your giving, it never hurts to review the benefits you’ve been receiving.

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 operates a lot like a checking or savings account just for charity, and it’s established according to specific IRS guidelines that create tax advantages and govern administration.

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).

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. In addition, you’re supported in strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference. 

Thinking differently about scholarships can make all the difference

According to statistics gathered by the National Scholarship Providers Association, approximately $100 million in scholarship money is left sitting on the sidelines each year, unused. Even though the number of scholarships awarded in the United States has increased overall by more than 45% over the last decade, not enough students are applying. These are sobering statistics, considering that the burden of tuition and student loan debt is weighing heavily on America’s young adults. 

This presents a challenge for you and other donors who are interested in supporting education as a charitable giving priority. On one hand, you want to help students get the education they need to thrive in their careers. On the other hand, no one wants to fund a scholarship that goes unused.

The community foundation can help. Our team will work with you to establish a tailored charitable giving plan that meets your desire to support education while helping to ensure that the money does not go unused. 

First, we’ll help you think broadly about education. Limiting a scholarship fund to four-year institutions could result in a lot of missed opportunities. A college or university is not the only option for post-secondary learning and career readiness. Community colleges, trade schools, vocational programs, and out-of-the-box learning experiences may be a better fit for some students. The community foundation can even help you structure gifts to support teachers, classrooms, and school districts, all of which need resources to deliver the best possible education to students.  

Next, our team will help you craft the criteria for the scholarship so that it is not too narrow. In other words, casting a wide net can be important to ensure a strong pool of applicants. Limiting scholarship recipients to a small geographic footprint, area of study, or very specific high school credentials may mean that there simply will not be enough applicants to fully utilize the scholarship dollars.

Finally, the community foundation team is happy to help you with the strategy for getting the word out. Many times, would-be applicants simply are not aware of all the options for scholarships. If scholarship funds don’t adequately promote the opportunities, it may be hard to capture students’ attention as they wade through the vast amount of information available about paying for college. 

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.

Giving retirement plans to charity, cause marketing, family philanthropy planning

Tips for giving retirement assets to charity

The Covid era is sometimes referred to as the Great Resignation because of the large number of people who have exited the workforce in the last couple of years. Some are referring to this period as the Great Retirement, considering that, as Goldman Sachs estimated, more than half of the people leaving the workforce were over the age of 55.

For people exiting the workforce, now is a good time to review charitable giving priorities. If you are recently retired, you may find that you have more money in motion, from 401(k)s rolling over into IRAs, to being motivated to ensure that your financial and estate plans are in good shape, including the ability to fund your charitable priorities.

All of this means it’s a great time to review the various ways you can gift retirement assets to charitable organizations, including to a fund at the community foundation. Here’s a quick checklist:  

–Cashing out. Of course, you can always contribute retirement assets (IRAs, 401(k)s and 403(b)s) by simply cashing them out and paying the income tax, and then donating the rest to charity. Almost certainly, though, in most cases, this is not a good tax strategy. 

–Gifts upon death. When you designate a charitable organization, such as a fund at the community foundation, as the beneficiary of your retirement plans, you can potentially reap huge tax rewards in terms of avoiding estate taxes and income taxes attributable to the retirement assets.  

–Lifetime gifts. The Internal Revenue Code contains special provisions for Qualified Charitable Distributions ("QCDs") that may allow you (if you are over 70 ½) to give up to $100,000 from an IRA directly to a charity (with some exclusions, such as donor-advised funds) and avoid paying income taxes on the distribution. You can work with the community foundation to establish a field-of-interest fund or designated fund to receive your QCDs.

–Avoid “gotchas.” Remember that you may not stay retired! Going back into the workforce presents unique tax challenges, such as the tax implications of “rehiring” and its impact on Qualified Charitable Distributions. 

Just (be)cause it’s popular, should you do it?

If you’re considering launching a cause marketing program in your own company, or if you’re simply curious as a consumer to learn more about how exactly cause marketing works, you are not alone! From Starbucks to Subway, companies are aligning with causes to help boost their brands and, simultaneously, boost their social impact.

Cause marketing’s growth has been fueled in large part by consumers. Indeed, 72% of consumers in the United States report that they are inclined to buy products from companies whose values align with theirs. Consumers feel they’re helping address global issues when they support companies that align with causes. 

You’ll be glad to know that cause marketing is subject to legal standards that apply generally to preventing consumers from being misled by false claims and advertising, including ensuring that the money winds up in the right place.

If you tend to be a cautious consumer, here’s what to look for if you’re considering whether to purchase a product that supports a cause:

–Does the cause resonate with you? You’ll feel better about your purchase if you care even just a little bit about the cause.  

–Does the cause seem to be aligned with the brand? For example, a pet food company that supports animal shelters makes sense. But maybe it does not make sense if a pet food company is supporting the arts. It still might be a fit; it’s simply worth considering.

–Do you really need or want the product? This seems obvious, but it is amazing how frequently we overlook this basic threshold!

–Does the fine print on the product packaging, or perhaps a write up on the company's website, sound legitimate in terms of the company’s commitment and support of the cause it’s promoting?

As always, the community foundation is here to connect you with causes you care about. So if cause marketing has inspired you, please reach out! We’ll help you turn that philanthropic passion into local action.

Adult children and parents: Yes you can build a philanthropy plan, together

More and more often, philanthropic families are working together across generations to build lasting legacies to support the causes they care about. At the same time, the common communications challenges between parents and their adult children don’t magically go away, even when the subject of conversation is as uplifting as charitable giving.

If you are a parent of adult children, or if you are one of those adult children, it will not surprise you to read a few of the typical complaints parents and adult children express about each other. According to Jane Adams, a columnist for Psychology Today, those complaints include offering unwanted advice, thinking they know everything, bringing up unwelcome subjects, invoking feelings of guilt, and the ever-popular catch-all, pushing each other’s buttons.

What’s a family to do, then, when the overall goal is to develop and implement a family charitable giving plan that will stand the test of time and make a difference in the community? 

First, consider involving a neutral third party, even informally. Certainly the community foundation can play that role if you choose to establish your family philanthropy structure in the form of a donor-advised or other type of fund. This third party can play a significant role, such as serving as facilitator of every family meeting, or a minor role behind-the-scenes, such as offering advice and coaching to members of the family as you navigate philanthropy plans.

Second, keep family discussions focused on the work. The task of developing and implementing a family philanthropy plan can be daunting. On one hand, you’re dealing with the reality that the needs in your community keep growing and philanthropic support is critical to sustain a thriving region. On the other hand, your resources, like everyone else’s, are limited, and you must balance community needs with the need to narrow the focus areas of your family’s philanthropy to make the biggest impact possible with your limited time and money. 

Third, commit as a family to a few ground rules for when you are discussing philanthropic matters. Even one ground rule–”We will not push each other’s buttons,” for example–might do the trick to keep communications flowing positively. Or you can adopt more detailed norms, such as: 

–“We will be specific in our communications and provide as much detail as possible for our grant recommendations and other suggestions.”   

–“We will be authentic. We commit to always staying in tune with how much we care about improving the quality of life in our community.”  

–“We promise to keep in touch with all members of the family who are involved in our philanthropic planning so that no one feels left out, whether we keep in touch in person or virtually.” 

The team at the community foundation is always happy to work with you and your family to explore ways you can bring your own family’s philanthropic passions to life. We encourage you to reach out.

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.

Serving on boards, estate planning, accountability in charitable giving, and transferring a private foundation

To serve or not to serve: Making the most of your nonprofit board experience

Serving on the board of directors of a favorite nonprofit organization is a great way to celebrate a cause you love and share the gift of your leadership. But is a stint on a board of directors the right move for you? It depends.

Here are three factors to help make the decision easier when you are weighing whether to accept an invitation to join a charity's board of directors:

--Be honest with yourself about what you think the nonprofit organization wants from you. Is your perspective valuable because you’ve been personally served by the organization? Is your name well-recognized in the community, making you a magnet for the charity’s positive public relations? Does the charity want your money—or want you to ask your friends for money? If in doubt, ask. Having an open conversation with the charity’s executive director will help you get clarity about what’s expected of you.

--Consider what you want for yourself. Are you interested in getting to know the other people on the board? Do you want to help improve the charity’s financial situation and governance? Are you devoted to this charity and want to give back? There are no wrong answers, but knowing what you want is a key part of ensuring a mutually-beneficial experience.

--Remember that the most important part of serving on a board is showing up. The charity is counting on your smart, objective voice in the board meetings, asking constructive questions, and ensuring that the public’s trust in the charity is maintained. Before saying yes, be sure to find out when the meetings are scheduled. Most boards of directors meet at a pre-set date and time several times throughout the year. If you can’t make the meetings, you and the charity are both better served if you graciously decline the invitation to serve.

Of course, the team at the community foundation is happy to discuss these factors (and more!) anytime to help you make this important decision.

Planning your estate: Capturing your wishes in legal documents

Half of Americans don’t have a will. Why does this matter? If you die without an estate plan, the laws of the state where you live will dictate where your assets are distributed under legal proceedings supervised by the probate court. This prevents you from leaving bequests of your money and property to family members and other loved ones according to the terms you prefer. Plus, you’ll miss out on the opportunity to give money upon your death to the charities you’ve supported during your lifetime.

Even if you don’t have a will, though, chances are, you do have an “estate plan” of sorts. Whether you know it or not, you’ve created a plan through beneficiary designations on your life insurance policies and retirement plans, joint ownership designations on bank accounts, and transfer-on-death designations on stock or deeds to real estate. These beneficiary and ownership designations supersede both state laws and a written will. Many people don’t realize this.

To ensure that your wishes are followed after you die, including making bequests to charities, you should seek the help of an experienced estate planning attorney. An attorney can develop a full estate plan for you that includes not only a will, but also a revocable “living” trust if avoiding probate is a priority for you. You can also sign durable powers of attorney so that a loved one can manage your affairs if you become incapacitated, as well as a living will if you don’t want to be kept alive on life support under certain circumstances. Finally, if you have minor children, an estate plan allows you to name a guardian for the children in the event of your death, instead of the court appointing someone.

Because you are philanthropic, creating or updating your estate plan is a great way to implement your charitable giving plans. The team at the community foundation is happy to work with you and your legal counsel to navigate how your fund at the community foundation figures into your estate plans and goals to leave a legacy.  

Due diligence basics: Infusing accountability into your approach to charitable giving

American households enthusiastically give money to charity, volunteer for a favorite cause, or participate in social impact activities in some way. Chances are, you are doing it yourself, maybe even two or three times a year. But how do you know the charity you choose is a good one? That's a good question.

First and foremost, the community foundation is here to help! Our team is closely connected to nonprofit organizations in the community. It's our job, and it's our mission. Please reach out to discuss the organizations and causes you care about.

Second, do your own research. Well-respected national resources, such as Candid's GuideStar, can give you a good sense of a particular organization's financials, governance, and how the charity is measuring the impact of its programs.

Third, check out the charity's website. Does it make sense? Does it look well organized? Can you find the information you're looking for in five minutes or less? You'll be able to get an excellent feel for the way an organization is run, just by looking at how it presents itself online. Check out the organization's website, too, to learn how the organization describes the work it's doing and also to see lists of its staff members and board of directors. These are the people responsible for making sure the organization is fulfilling its mission in a financially sound manner.

Fourth, as you browse the website and look at other materials provided by the charity, see how quickly you can identify the actual people that the charity helps. Not names, of course, but the group of people who are benefiting directly from the charity's activities. So, for example, at a children's hospital, you will want to know that children are being well cared for. If it's a homeless shelter you're supporting, scan the website quickly to look for stories and information about specific activities the charity is doing to help those in need, beyond broad generalizations.

Finally, and most importantly, ask yourself if you truly love this cause. If it feels good to support a cause, that counts for a lot. Giving works best when it's self-defined, and that means defined by you. The results of your giving will be that much better if you support the causes you love, in the ways you choose to support them. Sure, every once in a while, it's okay to support a friend's cause because you care about that friend, but try to stick with your own personal favorite causes as much as you can. Doing good should feel great--to you.

From private foundation to donor-advised fund: What's involved in making a move?

With the total number of private foundations in the United States topping 140,000, with combined assets over $1 trillion, it’s no wonder so many individuals and families immediately think about establishing a private foundation when they begin to explore structuring their charitable giving activities. The growth in donor-advised funds (from $31.1 billion in 2006 to $141.95 billion in 2019!) as a popular tool for organizing charitable giving, however, has caused many philanthropists to consider the benefits of using both a donor-advised fund and a private foundation. 

Some private foundations are even considering transferring their assets to a donor-advised fund to carry on the foundation’s mission. How do you know whether this might be a smart move for you? Here are a few factors to consider: 

–Whether 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.

–Whether 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.

–Whether the accounting, legal fees, and investment management have become more cumbersome and expensive than anticipated, especially if family members who handled these functions initially have retired, passed away, or simply become busy with other projects.

If you think one or more of these factors may apply to you, the team at the community foundation can help you evaluate your options, working with your tax and legal advisors to ensure that the i’s are dotted and the t’s are crossed. If it turns out that transferring your private foundation to a donor-advised fund at the community foundation is the right move for you, the steps are straightforward–and the community foundation team will assist you every step of the way. Here’s a snapshot of what’s involved:

–The board of the private foundation will approve the termination and capture that approval in meeting minutes or a consent of directors. (The foundation will need to be sure it pays all of its liabilities and expenses before accounts are closed.) 

–You’ll establish a donor-advised fund at the community foundation so that the structure for selection and succession of advisors to the fund (who will handle grantmaking) mirrors the board of directors structure of the private foundation. You can name the donor-advised fund so that it matches as closely as possible the name of the private foundation. This ensures continuity and a smooth transition for both family members and nonprofit grantees. 

–The private foundation will distribute (grant) its net assets to the newly-established donor-advised fund. 

–As long as the private foundation corporate entity is in good standing according to state laws, the foundation’s termination for tax purposes will be automatic and smooth because the community foundation is an organization in good standing that has been in continuous existence for more than five years. The private foundation will then simply file an informational tax return with the Internal Revenue Service for its final year (even if it is a short tax year).

–The last step is for the private foundation to take any steps required for termination under the laws of any and all states in which it was registered, especially if the private foundation was organized in corporate form.

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.