Hello from the community foundation!
Recently, we've heard from nonprofit executives that your conversations with board members and donors have become more challenging, especially related to fundraising and planned giving. That's to be expected, given the market turmoil and ever-increasing needs in our community that you and your team fulfill every single day.
This month, we're focusing our newsletter on tricky topics that you may run across in your conversations, and we're sharing ideas for how the community foundation can help.
We look forward to hearing from you, and we are grateful to be part of a community where your organization and so many other nonprofits are improving the quality of life for so many people. Thank you.
--Your Community Foundation
Protecting your organization’s future in challenging times
During periods of economic uncertainty, a charitable organization’s board of directors may ask more questions about the most effective ways to grow the organization’s endowment, how to structure and accept gifts of real estate and other hard-to-value assets, and how to follow best practices for establishing and following an investment policy. Sometimes even the most well-planned board meetings wind up as a venue for surprising discussions!
If conversations about your endowment, gift acceptance standards, or investment policies are bubbling up with your board members, please give us a call. At the very least, we can offer suggestions for addressing board members’ concerns. Our team can also fill you in on the benefits of establishing an agency fund at the community foundation. Here’s why many organizations in our community have done so:
–An agency fund at the community foundation is a powerful step toward securing your organization’s financial future for generations to come.
–Nonprofit organizations frequently establish agency funds at the community foundation to set aside reserves or rainy day funds.
–The team at the community foundation is adept at navigating the specific accounting standards that are unique to this type of arrangement.
–The community foundation team can help establish investment policies and gift acceptance policies, making it easier for you to engage in fundraising discussions.
We’d love to help your organization navigate today’s challenging marketplace and help you build a bright future for the people you serve.
Avoiding pitfalls in complex planned giving
As nonprofit executives, you and your team are well-versed in planned giving basics. Your conversations with donors regularly cover topics such as inviting the donor to include your organization in a will or trust, name your organization as the beneficiary of a life insurance policy or retirement account, and maximize tax benefits through lifetime gifts of highly-appreciated stock instead of cash.
But what happens when conversations with donors take a turn toward complexity? If you feel uneasy when that happens, you are not alone. You’re also not wrong to feel that way. Planned giving can involve plenty of potential pitfalls. One of many examples is that recently the IRS has caught on to a charitable remainder annuity trust technique where the donor’s transferred assets are allegedly eligible for a step-up in basis and then sold by the trust (with no recognition of capital gains). Under this dubious arrangement, with the sale proceeds, the trust purchases an immediate, single-premium annuity inside the trust. The income beneficiary of the charitable remainder annuity trust claims that only a small portion of the annuity payment is taxable income on the grounds that the rest of the payment is a return of investment. Although there likely are very few donors and advisors who would attempt to pull off a sketchy strategy like this, the IRS’s position is a good reminder for every fundraiser that the charitable nature of a transaction does not shield that transaction from IRS scrutiny.
Indeed, the IRS will strive to unravel even the most complex transactions to discern substance over form. Transactions in which form overshadows substance are consistently frowned upon by the IRS. From time to time, taxpayers attempt to have their cake and eat it too, which was the situation in a Ninth Circuit case, Moore v. Commissioner. Here, the taxpayer’s estate plan included a clause attempting to set the amount passing to charity so that the amount would match the precise amount needed to avoid taxes. The IRS disallowed the charitable estate tax deduction on grounds that the value passing to charity was not ascertainable because of the formulas and contingencies, citing nearly century-old case law holding that transfers to a charity must be “fixed in fact and capable of being stated in definite terms of money.”
Unfortunately, the list of potential pitfalls goes on and on. We encourage you to call the team at the community foundation anytime you are working on complex charitable planning with a donor. We are happy to serve as a sounding board, and often we can offer a solution to ensure that both your organization and the donor stay on the right side of the IRS.
Staying tax-savvy on donor giving from IRAs
The charitable giving world is paying close attention to rumblings in the Senate as SECURE 2.0 legislation moves forward. This legislation is interesting in part because of the proposed inflation adjustment of the annual $100,000 Qualified Charitable Distribution (“QCD”), as well as a proposed one-time $50,000 QCD allowance to a charitable remainder trust or other split-interest gift.
Regardless of whether the legislation is enacted into law, the QCD is an extremely powerful planning tool for your donors who have reached the age of 70 1/2.
Not only is the QCD an excellent planning tool to facilitate direct donations to your organization, but the QCD also works well when a donor wants to support your organization and stay involved in the timing and amount of distributions. A designated fund at the community foundation is eligible to receive your donors’ QCDs, and the structure of the fund helps secure your organization’s financial future even in the face of challenges. That’s because the designated fund allows your donor to decide on the timing of the distributions from the fund, such as during your organization’s capital campaign or to support a specific program or initiative.
Please reach out for more details about how your donors can support your organization through a QCD and a designated fund. We’d love to hear from you!
This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.