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FAQs: A snapshot of clients’ tax-time charitable giving questions

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FAQs: A snapshot of clients’ tax-time charitable giving questions

The year is in full swing. Attorneys, accountants, and financial advisors are asking clients to start gathering tax documents and related paperwork for 2023 tax returns and 2024 planning. Now is a good time for advisors to review a few basic tax principles related to charitable giving. Here are three questions that are top of mind for many advisors, along with answers that can help you serve your clients.

How important is it to high net-worth clients to get a tax deduction for gifts to charity?

Among clients who own investments of $5 million or more, 91% of those surveyed reported that charitable giving is a component of their estate and financial plans. In another study, most affluent investors cited reasons for giving well beyond the possibility of a tax deduction and would not automatically reduce their giving if the charitable income tax deduction went away. What this means for your practice is that it’s important to be aware of your clients’ non-tax motivations for giving, such as family traditions, personal experiences, compassion for particular causes, and involvement with specific charitable organizations. This also means it’s critical to talk about charitable giving with all of your clients because it’s likely that most consider it to be important.

Why do clients so often default to giving cash?

Many clients simply are not aware of the tax benefits of giving highly-appreciated assets to their donor-advised or other type of fund at The Community Foundation or other public charity. Even if they are aware, they forget or are in a hurry and end up writing checks and making donations with their credit cards. It’s really important for advisors to remind clients about the benefits of donating non-cash assets such as highly-appreciated stock, or even complex assets (e.g., closely-held business interests and real estate). When clients give highly-appreciated assets in lieu of cash, they often can reduce–significantly–capital gains tax exposure, and they can calculate the deduction based on the full fair market value of the gifted assets.

What are the basic deductibility rules for gifts to charities?

It’s important to know that the deductibility rules are different for your clients’ gifts to a public charity (such as a fund at The Community Foundation) on one hand, and their gifts to a private foundation on the other hand. Clients’ gifts to public charities are deductible up to 50% of AGI, versus 30% for gifts to private foundations. In addition, gifts to public charities of non-marketable assets such as real estate and closely-held stock typically are deductible at fair market value, while the same assets given to a private foundation are deductible at the client’s cost basis. This difference can be enormous in terms of dollars, so make sure you let your clients know about this if they are planning major gifts to charities.

So what’s the first step? Reach out to the team at The Community Foundation! We really mean it. Make it a habit to mention charitable giving to your clients. From that moment on, whatever the clients’ charitable priorities, consider our team to be your behind-the-scenes back office and support department to handle all of your clients’ charitable giving needs.

 

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

What happens when I leave a bequest to my fund at The Community Foundation?

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What happens when I leave a bequest to my fund at The Community Foundation?

Many donors and fund holders at The Community Foundation have updated their estate plans to leave a bequest to their donor-advised or other type of fund.

Some bequests take the form of a “specific bequest,” which means that the fund at The Community Foundation receives a specific amount of money from the donor’s probate estate or trust. For example, for a specific bequest, your advisor might include a provision in your will as follows:

I bequeath $15,000 to The Community Foundation (taxpayer ID number and/or mailing address), a tax exempt organization under Internal Revenue Code Section 501(c)(3), to be added to the [Name of Your Fund], a component fund of The Community Foundation, and I direct that this bequest become part of the Fund.

In these situations The Community Foundation will be ready to receive your bequest, typically as soon as the estate is settled.

In other situations, you may want to leave a bequest of a portion of the remainder of your estate after all specific bequests, expenses, and taxes have been paid. These types of bequests are called “residuary” bequests. The language can look something like this:

I leave all the rest and residue of my property, both real and personal, of whatever nature and wherever situated, and assets, including all real and personal property, tangible or intangible, to The Community Foundation (taxpayer ID number and/or mailing address), a tax exempt organization under Internal Revenue Code Section 501(c)(3), to be added to the [Name of Your Fund], a component fund of The Community Foundation, and I direct that this bequest become part of the Fund.

Because the amount of a residuary bequest cannot be determined until all of the assets in an estate have been identified and valued, and all expenses and taxes have been paid, the designated charity (in this example, your fund at The Community Foundation) will not receive the full amount of a residuary bequest until the estate is completely settled. Typically, however, the estate’s personal representative or trustee will make what is known as a “partial distribution” to the residuary beneficiary (or beneficiaries as the case may be), as soon as the personal representative has enough information about the assets and liabilities to confidently do so.

When you leave a residuary bequest to your fund at The Community Foundation, our team will be involved at various steps during the administration of your estate until final distribution. For example, The Community Foundation will receive regular communications about the estate related to assets, expenses, taxes, and periodic accountings. The Community Foundation will execute documents, such as receipts, related to distributions and other estate transactions.

The team at The Community Foundation looks forward to working with you and your advisors to establish bequests to fulfill your charitable legacies.

 

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

Big or small, every gift matters

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Big or small, every gift matters

Simplicity, efficiency, and effectiveness have long been cornerstones of working with The Community Foundation to carry out charitable goals. Time and time again at The Community Foundation, we see how easily donors who’ve established a donor-advised or other type of fund are able to not only fulfill their big-picture charitable goals, but to act quickly to respond to critical needs in the community as they occur..

Indeed, the flexibility of working with The Community Foundation allows you to support the causes you love at a financial level that meets your charitable giving budget. Early in the year, many of our fund holders transfer highly-appreciated stock to their donor-advised fund, for example, at The Community Foundation so that they are prepared to activate their annual giving right away.

At every level of giving, philanthropy is a catalyst for improving quality of life. Indeed, anyone with a willingness to give can be a philanthropist. Whether you’re using your donor-advised fund to give $250 to a college or university, $2500 to a food bank, or $25,000 to an art museum’s endowment, you’re making a difference.

Consider that small donations from a large number of people can make a huge difference. This is especially true for responses to disasters and humanitarian tragedies. On the other end of the spectrum, very large donations to an organization can transform its ability to scale and serve a much greater population.

In so many ways, whether gifts are large or small or somewhere in between, philanthropy creates the margin of excellence that helps communities, families, and individuals thrive. The team at The Community Foundation is here to help you achieve satisfaction and impact with your giving at any level.

 

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

Estate planning: One of the best ways to show you care

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Estate planning: One of the best ways to show you care 

Money, mortality, and family relationships. Each of those topics alone can be tough for anyone to address head on, and when you combine them, it’s no wonder so many people put off setting up or updating their estate plans. Establishing a will, trust, and beneficiary designations forces a person to confront decisions about the ultimate division of their assets, and many people think estate planning is more expensive or more of a hassle than it really is.

But, getting your affairs in order–well before you need to due to age or illness–is truly a gift to your heirs. It’s extremely stressful for surviving spouses, children, and other loved ones to be faced with the emotional stress and workload of financial disorganization and uncertainty, on top of dealing with grief. Updating your estate plan also allows you to make arrangements for gifts upon your death to your favorite charities.

Many people choose to support their favorite charities in an estate plan through a beneficiary designation. As you work with your attorney and other advisors, be sure to review the beneficiary designations on your insurance policies and retirement plans. Pay close attention to tax-deferred retirement plans such as 401(k)s and IRAs. Typically, you’ll name your spouse as the primary beneficiary of these accounts to provide income following your death and to comply with legal requirements. But as you and your advisors evaluate whom to name as a secondary beneficiary of these tax-deferred accounts, don’t automatically default to naming your children or your revocable trust. You and your advisors may determine that naming a charity, such as your fund at The Community Foundation, is by far the most tax-efficient, streamlined way to make gifts to your favorite causes upon your death and establish a philanthropic legacy. A bequest like this avoids not only estate tax, but also income tax on the retirement plan distributions.

Please reach out to the team at The Community Foundation as you work with your advisors on your estate plan. We can:

–Review the many tax benefits of naming your fund at The Community Foundation as a beneficiary of your IRA or other tax-deferred retirement account

  • Provide bequest language for your will or trust, properly describing your fund using the correct legal terms
  • Provide language for a beneficiary designation, again properly describing your fund using the correct legal terms
  • Work with you to update the terms of your donor-advised fund so that your wishes are carried out following your death, whether that is naming specific charities to receive distributions or naming your children as successor advisors to your fund

We’ve all heard stories about the sad consequences of someone not having an estate plan, or even having out-of-date beneficiary designations. Estate planning documents, including wills, trusts, and beneficiary designations, often turn out to represent generous acts of clear distribution and conflict avoidance. An estate plan allows you to demonstrate how much you care about the people in your life as well as your charitable passions.

 

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

Clean slate: Tips for charitable giving in 2024

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Clean slate: Tips for charitable giving in 2024

A new year is such a great time to plan and reboot. Cliché as it may be to talk about resolutions this time of year, it’s tough to deny that January represents a clean slate for “to do” lists, goals, and your overall mindset.

As you think about your 2024 charitable giving goals and priorities, here are a few items to consider: 

You may have more capacity to give to charity.

The IRS issued inflation adjustments for important thresholds such as the standard deduction, Social Security cost-of-living adjustments, annual exclusion gifts, Required Minimum Distributions, Qualified Charitable Distributions, and levels of income for each tax bracket. Talk with your advisors about how these adjustments might impact your charitable giving goals–or even create opportunities for you to do more to support your favorite causes in 2024.

You may soon get a charitable deduction even if you do not itemize.

Many eyes are on the Charitable Act, which, if passed, would allow even non-itemizers to deduct certain charitable gifts on their income tax returns. This legislation has generated strong public support; 77% of Americans are reportedly in favor of the proposed “universal” charitable deduction.

You’ll likely still receive requests to fund disaster relief efforts.

Disaster giving is likely to remain high on the fundraising radar, meaning you will likely continue to get requests for donations to support disaster-related causes. As always, please reach out to The Community Foundation to strategize about effective deployment of your charitable dollars to help people who need it most in the wake of disasters and humanitarian crises. 

This is a good time to review your estate plan without being rushed.

The beginning of the year is an excellent time to be sure your estate plan is in order. Many people scramble at the end of the year to execute tax planning transactions, which is understandable, but this often leaves little time for a thoughtful, strategic evaluation of the various components that make up a comprehensive estate plan, including financial planning, retirement planning, tax planning, investments and wealth management, business succession planning, planning for disability, evaluating wills and trusts as children get older and needs change, and, of course, charitable planning. 

Reach out to the team at The Community Foundation as you and your advisors evaluate the steps you’d like to take in 2024. We’re here to help ensure that you achieve your charitable giving goals in the most tax-savvy and impact-minded way possible so that you can continue to help the causes you care about the most.

 

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

Providing guidance for loved ones about your charitable giving

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Providing guidance for loved ones about your charitable giving

Whatever their age or health status, most people are aware that they need to document important financial and personal information for loved ones, just in case the unexpected occurs. We’ve all heard stories about someone’s family member who passed away and left little, if any, information about where to find bank accounts, passwords, estate planning documents, life insurance policies, and other information. No one wants to leave their loved ones in the lurch with scant information, but it’s often hard to get motivated to write it all down in one place.

The start of a new year is an excellent time to get organized and provide your next of kin or key advisors with the information they’d need to take care of your affairs if something were to happen to you. The list of “must haves” includes the obvious: Will, trust, power of attorney, birth certificate and marriage license, titles to cars and boats, deeds to property, car keys, bank accounts, investments and advisor contact information, life insurance policies and contact information for the agent, funeral wishes, and, critically, passcodes and passwords to devices and accounts. 

What might not be obvious, though, is that you also ought to leave your loved ones with information about your charitable giving, including details about favorite charities you’ve supported over the years and information about your donor-advised or other type of fund (or funds) at The Community Foundation. In many instances, one member of a family has managed a family’s or a couple’s donor-advised fund, for example, while others have not been as involved in the mechanics. Be sure to include your funds at The Community Foundation on your list of key information, and include The Community Foundation’s contact information. You might also like to include a copy of your donor-advised fund agreement outlining successor advisors, as well as login credentials to The Community Foundation’s online fund portal. 

The team at The Community Foundation is happy to help you put together documentation about your donor-advised fund and charitable wishes to include with the information you provide to your loved ones so they are not completely lost as they navigate how to carry out your philanthropic wishes. Even better, we’re happy to work with you anytime to show your family members exactly how your donor-advised or other type of fund works so that they are involved and participating with you in your philanthropic pursuits during your lifetime.

Making it easy for you to share the joy of giving, and also helping ensure that family members have the information they need, are priorities at The Community Foundation. We are honored to work with you to help make your philanthropy easy, effective, and rewarding for everyone involved.

 

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

Planned giving pointers

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Planned giving pointers

As you’ve chatted over the years with the professionals working at your favorite nonprofits, you’ve likely heard the term “planned giving.” You may have even wondered what the term means–even if you have already structured so-called “planned gifts” to support your favorite charities!

Here are a few pointers to help break down the concept of planned giving, along with ways The Community Foundation can help you achieve your charitable goals.

It may help to think of “planned giving” in contrast to what’s sometimes called “current” or “annual” giving. For example, when you write a check (or, ideally, give highly-appreciated stock) to a charitable organization such as your fund at The Community Foundation, you’re transferring those funds right away in a relatively straightforward manner. You also may be making annual gifts to several charities, and from time to time you may also make gifts to a favorite charity’s endowment or reserve fund at The Community Foundation.

By contrast, a “planned gift” is more complex and forward-looking than current or annual support of your favorite charitable causes. Making structured future transfers to charity is often referred to as “planned giving” because, well, these gifts require planning. Here are examples of common “planned gifts”:

 

–A bequest in your will or trust allows you to name a charity, such as your fund at The Community Foundation, to receive a certain dollar amount, or a percentage of your estate, following your death. The team at The Community Foundation can work with you and your advisors to include a bequest in your estate plan using the proper bequest language.

 

–Beneficiary designations on life insurance policies, and especially on retirement plans, can be effective tools for making bequests. The team at The Community Foundation can work with you and your advisors to complete the paperwork required to properly designate your fund at The Community Foundation as the beneficiary of life insurance or IRA assets, including reviewing with you the many tax benefits of using retirement plans to fund your bequests.

 

–Setting up a charitable trust, such a charitable remainder trust, is often an effective way for you to ensure that money will flow from your estate to a charity, such as your fund at The Community Foundation, in a way that meets both your philanthropic intentions and your financial goals (including retaining an income stream and triggering an up-front charitable income tax deduction). A charitable gift annuity is another type of “split interest” arrangement, whereby you can retain an income stream and designate a charitable beneficiary to receive a future gift. Charitable trusts are complex, and we’re here to walk you and your advisors through the process every step of the way.

 

Please contact the team at The Community Foundation. We’d love to work with you to set up planned gifts to support your favorite causes, as well as work together to ensure that you’ll meet your charitable goals for current giving in 2024.

 

 

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

Tax law twists and turns: Five developments impacting charitable giving

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Tax law twists and turns: Five developments impacting charitable giving

2023 was a busy year! We understand that charitable giving topics may not always be at the top of your reading list. That’s why we’re here! The team at The Community Foundation is committed to keeping you up-to-date on what you need to know. Here’s a recap of five key developments last year that are most certainly worth keeping an eye on in 2024.

NIL Collectives

The IRS has had a lot to say lately about NIL collectives. In addition to offering insights for athlete recipients of NIL (name, image, and likeness) dollars, the IRS has also issued guidance pertaining to organizations that help develop NIL opportunities for athletes, suggesting that the activities of these entities, known as “collectives,” may not qualify as “charitable.” This development could be problematic for your clients who believe that their contributions to NIL collectives will qualify for a charitable tax deduction.

 

Donations of Cryptocurrency 

At least a few of your clients are likely still invested in cryptocurrency. You should know that in early 2023, the IRS published guidance confirming that a taxpayer cannot take a charitable deduction for a gift of cryptocurrency over $5,000 without submitting a qualified appraisal. Cryptocurrency, in the eyes of the IRS, is treated as property, not cash. And it is not a security, either. Note that the IRS also said that a price quotation from a cryptocurrency exchange (such as FTX!!) doesn’t count; a qualified appraisal is still required.

 

Charitable Act

Senate Bill 566, which is still pending, was introduced in early 2023 to address what is sometimes called the “universal charitable deduction,” meaning that even taxpayers who do not itemize their deductions would be able to claim a charitable deduction, potentially in an amount up to one-third of the taxpayer’s standard deduction. Keep an eye on this; the bill enjoys broad support and, if it becomes law, could be a real perk for both your clients and the charities they care about.

 

Exempt Purpose

It seems that at least once a year, the IRS issues guidance on what it means for an organization to be organized for an exempt purpose under Section 501(c)(3). In Private Letter Ruling 202349014, we are once again reminded that personal activities that have no direct public benefit simply will not be viewed by the IRS as exempt. While private letter rulings are of course not binding, they are nevertheless useful tools to provide to a client to show specific examples of what the IRS considers to be non-exempt. Estate planning attorneys and CPAs tell us that every few months, a client comes to them with an idea for starting a nonprofit, and it’s easier to tell a cautionary tale than it is to recite Internal Revenue Code sections!

 

Proposed Regulations

Proposed regulations issued by the IRS are not binding, and often they are revised–or even shelved or canceled entirely–before they go into effect. Still, the team at The Community Foundation is always keeping an eye out for these and other forms of IRS rulemaking that could potentially affect your work with your charitable clients. A recent example of this type of IRS activity is a set of proposed regulations concerning donor-advised funds, issued in November 2023. The public comment period ends in mid-January 2024, and then the IRS will take time to review the comments, so we won’t know anything definitive for quite some time. For those who are interested, there is detail provided in this podcast series on the topic. You can take a long winter walk and learn everything you want to know about what’s being proposed!

 

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

Unrestricted giving, the trust factor, and why it matters to your clients

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Unrestricted giving, the trust factor, and why it matters to your clients

The gifts Americans give to charity every year provide critical support for more than a million organizations that are helping sustain the quality of life in our communities. Philanthropy equates to 2% of GDP–that’s a little more than the home health care services sector! And, trust is growing as a must-have prerequisite before your clients decide to give to an organization, increasing from 63.9% to 69.9% between December 2021 and December 2022.

With trust in charitable organizations driving so many giving decisions, it’s important for you and your clients to be aware of The Community Foundation’s role and commitment to stewardship. Every day, the team at The Community Foundation works with members of our board of directors, civic leaders, and nonprofit organizations to deeply understand the areas where the people in our community need the most help. Today, the most pressing needs might be for emergency assistance in response to a disaster. Tomorrow, our community might need scholarships for Harrisonburg and Rockingham youth, or investments in research to improve access to healthcare for the underserved. Indeed, the needs of our community are ever-changing. The Community Foundation always has its finger on the pulse of the community’s top priorities and the best way to address them. Through its convening power, community knowledge, and perpetual mission, your Community Foundation is an unparalleled resource to make our community better for everyone.

 

As you talk with your clients about their philanthropic plans, keep in mind that many individuals and families establish multiple funds at The Community Foundation to meet all of their various charitable giving needs. For example, a family might establish a donor-advised fund to organize their regular annual giving, making it easy to track gifts of appreciated stock and support for a large number of individual charities. A member of this family might also set up a charitable remainder trust with The Community Foundation to accept a gift of highly-appreciated real estate and retain an income stream for life. And, this family might also establish an unrestricted fund or make gifts to existing funds that are specifically designated by The Community Foundation and its board of directors to address the most critical needs of our community. For example, your client may decide to:

–Contribute to an unrestricted fund at The Community Foundation to support the foundation’s long-term grant making.

–Donate to The Community Foundation’s operating fund to support the foundation’s mission for years to come.

–Support a special initiative fund to help people who need assistance right now to get back on their feet, relying on The Community Foundation’s network and expertise to invest the dollars where they’re needed most critically.

 

Whatever ways your clients choose to get involved, you’ll know that you and your clients can trust The Community Foundation to make a lasting difference in the community we all love.

 

 

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

Big gifts, bullish portfolios, and kids who move away

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Big gifts, bullish portfolios, and kids who move away

If you’re not talking about charitable giving with your high net-worth clients, 2024 is the year to start doing it! Recent studies show that 85.1% of affluent households give to charity. Certainly many of your clients are among them.

Take a few minutes this month to scan your client list for three common scenarios and related opportunities for charitable giving solutions.

Clients who made significant charitable gifts at year-end. 

You’re probably aware of at least a few clients who increased their charitable giving at the end of 2023. Perhaps you worked with a client to establish a donor-advised or other type of charitable fund at The Community Foundation, or maybe you helped a client structure a Qualified Charitable Distribution to a field-of-interest or designated fund at The Community Foundation. Now that the dust has settled on year-end planning activities, go back to these clients to find out more about their overall philanthropic plans. You may discover that a client would like to work with you to update their estate plan to include a bequest to their fund at The Community Foundation, set up a charitable remainder trust with highly-appreciated stock, or proactively plan their charitable gifts for 2024 to get a jump on tax strategies.

Clients whose stock portfolios have rallied.

2023 brought good news and record highs for the stock market. As always (and perhaps especially now!), giving appreciated, publicly-traded stock to charitable organizations is a highly effective tax strategy. This is because capital gains tax is avoided when your client transfers long-term, marketable securities to a fund at The Community Foundation or other public charity. The client is typically eligible for an income tax deduction at the fair market value of the securities, and when the charity sells the securities, the charity does not pay capital gains tax. This is a win-win for your client and the charity. Scan your client list for clients who are holding long-term stock positions that have appreciated substantially since they bought them, especially with the market’s latest rally.

Clients whose children have moved away. 

Children of affluent parents tend to move away. This means many of your clients may be seeking ways to stay in close communication with their children. Remember that while The Community Foundation can help your clients maximize the impact and tax benefits of their local giving, The Community Foundation’s tools are also very geographically flexible. This means, for example, that your clients can use their donor-advised fund to support 501(c)(3) organizations across the country, including in communities where their grown children are living. When you demonstrate your interest in your clients’ charitable giving priorities, you not only are strengthening your client relationships, but you’re also helping clients strengthen relationships with their children.

 

 

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