Banking sector unease may signal the need for an investment level-set
While arguably the recent collapse of Silicon Valley Bank sent its biggest shockwaves through the start up and banking sectors, nonprofit organizations are not immune from the ramifications. Charitable organizations’ concerns range from specific worries that the bank’s successors will reduce or stop lending and support for affordable housing and community programming initiatives, to wide-ranging uneasiness throughout the broader nonprofit sector about the safety of money held in banking institutions across the country.
Indeed, a nonprofit’s accounts at a bank are subject to the same FDIC rules as a for-profit company, with a few additional twists that could allow a nonprofit to diversify. Finance committee members on your board of directors certainly are aware of this and may be encouraging the rest of the board and staff leadership to review your organization’s reserve fund policies and even check in on your organization’s endowment practices.
If your organization has already established a reserve fund or endowment fund here at the community foundation, you know that the community foundation is committed to helping you meet the needs of the people you serve for the long term.
Here are a few reminders about how the community foundation team partners with you and your board of directors to keep your funds safe and supporting your mission:
–A fund at the community foundation is a cost-effective option for a nonprofit to access investment options that might not otherwise be available. Overseen by an independent board of directors made up of community leaders, the community foundation is built to provide the highest level of investment oversight.
–The community foundation can help your organization structure and accept gifts of real estate and other hard-to-value assets.
–By having a fund at the community foundation, our team can step in as your behind-the-scenes back office, giving your board and staff more time to focus on your programs and donors.
–The team at the community foundation is adept at navigating the specific accounting standards that are unique to complex fund accounting and gift planning.
–The community foundation team can help establish investment policies and gift acceptance policies, making it easier for you to engage in fundraising discussions and have the time to do it.
As always, the community foundation is here to help. Our tools and services make it easier for you to grow your reserve funds and endowments. We look forward to continuing to work together.
Proposed legislation could rescue charitable giving incentives
Recently-proposed federal legislation could help nonprofit organizations recoup some of the annual donations they might have lost when the standard deduction increased a few years ago, causing a wide swath of taxpayers to stop itemizing deductions and thereby erasing tax benefits for many charitable contributions. Known as the Charitable Act, the 2023 proposed legislation would allow non-itemizers to deduct up to one-third of the applicable standard deduction.
To be sure, the increased standard deduction included in the Tax Cuts and Jobs Act of 2017 was no minor tweak to the law. Tens of millions fewer households itemized their deductions in the years following the increased standard deduction. That’s a lot of people who suddenly lost part of the incentive to make charitable gifts. The Charitable Act would strive to alleviate some of the negative impact on charities.
In addition, the “universal charitable deduction” may be back on the table. In general, taxpayers like the idea of additional charitable deduction opportunities, with 42 million taxpayers taking advantage of the $300 "universal" charitable deduction offered in 2020, and 24% of those having gross income of less than $30,000. That opportunity was extended in 2021 but discontinued for 2022. Consistent with those findings, polls show strong support for restoring the universal charitable deduction.
The team at the community foundation is watching this legislation closely. We will keep you informed!
Donor-advised funds, unlocking charitable gifts, and the private foundation connection
Many nonprofit organizations are familiar with donor-advised funds, in part because donors frequently use their donor-advised funds to support the organization. In fact, you and your team are probably familiar with the checks that come from the community foundation via donors’ grant recommendations, which in turn trigger the community foundation to issue checks to you from these donors’ donor-advised funds.
Donor-advised funds have become increasingly popular and are frequently featured in the media. But donor-advised funds are not new. First deployed as a charitable giving technique in the 1930s, long before their popularity ascended in the 1990s, usage of these vehicles to organize charitable giving has recently reached record highs.
An individual or family often establishes a donor-advised fund at the community foundation as a tax-savvy, efficient alternative to a private foundation. A donor-advised fund at the community foundation, for example, can save donors the time and expense of administration and also allow the donors to contribute highly-appreciated assets, such as real estate and closely-held stock, to charitable causes and be eligible for deductibility at the assets’ fair market value. This is not the case with gifts of nonmarketable assets to private foundations, which typically are deductible at the donor’s cost basis.
One of the reasons donor-advised funds have been in the news lately is because proposed legislation aims to change the way contributions to donor-advised funds by private foundations are treated. Under current laws, private foundations can make contributions to donor-advised funds under the same rules that govern contributions to donor-advised funds by individuals, in that the funds are not subject to any particular timing requirements to be distributed to charities. (It is important to note that, despite the lack of a formal pay-out requirement, the 10-year average aggregate pay-out rate from all donor-advised funds is a whopping 22.2%, and the 2021 aggregate pay-out rate was a record 27.3%. Donor-advised fund donors tend to be very active in supporting their favorite organizations!)
By contrast, private foundations are subject to a 5% annual distribution rule. Under proposed legislation (see page 139 of the Treasury’s explanation document), while it would not affect contributions to donor-advised funds by individuals, contributions to donor-advised funds by private foundations would need to be distributed “by the end of the following taxable year,” and documented as such, to qualify for the 5% private foundation distribution requirement.
Time will tell whether these proposed changes make it into law.
Overall, donor-advised funds established at the community foundation can help donors organize their giving, making it easier for them to keep track of the support they give to your organization and their other favorite charities. In many cases, donors who establish a donor-advised fund are able to unlock long-term capital gains property and deploy it toward charitable purposes at much greater financial levels and with more administrative efficiency than would have been possible without going through a donor-advised fund.
We encourage you to reach out to the team at the community foundation with your questions about donor-advised funds and how your organization can gain a better understanding of how these vehicles help engage donors and grow philanthropy in our community. As always, we are here to help you achieve your mission, now and in the future!
This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.