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Life insurance: A key charitable planning tool for certain clients

Life insurance: A key charitable planning tool for certain clients

As an advisor, you often talk with your clients about life insurance–how much is enough and which policies are best suited for a client’s particular situation. As you counsel your clients about risk management and the role of life insurance in their estate plans, don’t forget that life insurance can be an effective charitable giving tool in some situations.

Many advisors overlook the ease of naming a charity as the beneficiary of a life insurance policy. Certainly, qualified plans and IRAs are a more tax-effective vehicle to leave to a charity via a beneficiary designation, but some clients might want to do even more than that. For instance, “second-to-die” life insurance policies are a common hedge or shield against anticipated estate taxes. These policies may become more popular as the estate tax exemption drops back down at the end of 2025.

Some clients may not be fully aware of how important beneficiary designations really are. Of course, many policyholders will first want to provide for family members in either specified dollar amounts or percentages. What some clients may not realize is that they can also designate insurance proceeds to support the causes they care about, whether by naming a charity directly or naming a fund at The Community Foundation to carry out their charitable wishes.

Increasing the coverage under an existing policy may present an additional charitable giving opportunity for some clients. Because policy premiums generally do not rise proportionately to benefit amounts, expanding the benefits can be cost efficient. For example, if a client would like each of four family-member beneficiaries to receive $250,000 from a million-dollar life insurance policy, adding $250,000 of benefit will typically not increase the premium by 25%. In fact, the benefit-to-premium ratio may improve. In a case like this, the client can name the four family-member beneficiaries and the charity to each receive ⅕ of the policy benefits. Depending on the client’s overall financial and estate planning picture, a technique like this might truly deliver bang for the buck.

And although deploying life insurance as a charitable planning technique may not be a fit for every client, it’s certainly worth considering in edge cases. Indeed, the global market for term insurance is growing—from $850 billion in 2021 to an expected $1.3 trillion by 2028. Many people buy term insurance with its relatively low fixed-rate premiums for 20 – 30 years as a hedge for potentially lost income during high-expense times in life, such as children’s college years, or to pay off a mortgage. But if those years pass uneventfully (fingers crossed!), and amid an improved personal financial position, it’s an opportune time to reassess and even continue the policy.

Past term insurance policy premiums can then be viewed as sunk or unrecoverable costs, and future premiums can be seen as a relatively moderate “investment” relative to the benefit. Of course, all of your clients want to outlive their policies. But as long as a policy is in effect, the policy offers many potential opportunities, including for charitable giving. Reach out to The Community Foundation to explore this further. We’d love to talk!

 

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

Tips for clients’ year-end giving

Tips for clients’ year-end giving

Year-end giving makes up a significant portion of total revenue for most charitable organizations. Research even shows that a whopping 25% of online giving occurs in December! What this means is that there’s a pretty good chance your clients are already considering end-of-year gifts to support causes they care about, are being asked by at least one nonprofit for an end-of-year gift, or both. That’s why it’s important for you to talk with clients well in advance of the year-end giving rush.

Here are six tips to help jumpstart your client conversations over the next few weeks. Please give us a call if you’d like to dive deeper! We are here for you.

Check in on goals. By discussing your clients’ overall charitable goals, you can ascertain which causes your clients are passionate about and why they care, how much they’d like to contribute in the short term and over time, the impact they’d like to see, and whether they intend to provide for their favorite charities in their estate plan. Against this backdrop, year-end giving strategies become easier to develop.

Explore a wide variety of fund types. Donor-advised funds are very popular vehicles, and community foundations are ideal providers of donor-advised funds for clients who want to keep their philanthropy local and benefit from The Community Foundation’s focus, expertise, and mission-driven 501(c)(3) status. But donor-advised funds are not the only types of funds that The Community Foundation offers. Your clients can also establish field-of-interest funds, designated funds, unrestricted funds, or scholarship funds. Our team will help you evaluate what type of fund (or funds) is best suited for a particular client. For example, a client considering a Qualified Charitable Distribution from an IRA is a great candidate to establish a field-of-interest or designated fund.

Understand The Community Foundation’s donor-advised fund advantages. As you work with clients for whom a donor-advised fund is appropriate, be sure you understand why The Community Foundation is such a great fit for so many philanthropic individuals and families. Indeed, The Community Foundation is the truly local option for donor-advised funds. Large, national providers associated with financial institutions also offer donor-advised funds, but those vehicles are typically not a fit for clients who care about our community and want to support the region’s nonprofits in a meaningful way.

Know how a donor-advised fund works. It’s easy for a client to establish a donor-advised fund at The Community Foundation. After completing simple paperwork, your client will make a tax-deductible gift (of cash or, ideally, stock or other highly-appreciated asset) to The Community Foundation to fund the donor-advised fund. The funds can then be granted out to eligible charities at the client’s recommendation over time. Many clients find that a donor-advised fund operates almost identically to a private foundation, but without the sometimes hefty administrative overhead costs and burdensome restrictions. A donor-advised fund can be named after the client (e.g., Smith Family Fund) or named to reflect the purpose of the client’s giving (e.g., Fund for the Future of Anytown), or even structured to enable the client to give anonymously.

Supercharge both tax benefits and giving. Giving through a donor-advised fund at The Community Foundation may allow a client to tap a helpful technique called “bunching,” which maximizes the client’s itemized deductions for the tax year, while still ensuring that the client can give strategically over the next few years to achieve charitable goals and support favorite organizations when they need it the most.

Don’t default to cash. Many clients naturally think of cash as the source for their year-end giving. That’s a missed opportunity! Most of the time, highly-appreciated marketable securities (or other highly-appreciated, long-term assets) are a better gift to a client’s fund at The Community Foundation or other public charity because the client is eligible for a tax deduction at the assets’ fair market value, and the proceeds from the sale of the assets will flow into the client’s fund at The Community Foundation free from capital gains tax. That means more funds are available to support the client’s favorite causes.

Philanthropy is an important topic of conversation with your clients, not just at the end of the year, but always. Our team is here to help you ensure that your clients can meet their financial and charitable goals through year-end giving and beyond.

 

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

Spotting opportunity: Moving from a commercial fund to The Community Foundation

Spotting opportunity: Moving from a commercial fund to The Community Foundation

Although a donor-advised fund, which is becoming a more and more popular charitable planning tool, can be established through a national financial institution, The Community Foundation offers its donor-advised fund holders much broader services, more personal attention, and deeper connections to the nonprofits whose work is essential to effecting positive community change. Unfortunately, many attorneys, accountants, and financial advisors are simply not aware that a donor-advised fund established at The Community Foundation is in most cases a far better fit for their clients than a donor-advised fund set up at a “commercial gift fund.”

As you meet with your clients about year-end planning, be sure to ask whether they’ve established a donor-advised fund and if so, where it’s housed. If a client’s donor-advised fund is not at a community foundation, but instead was established through a national provider, please give us a call. We would be happy to talk with you and your client about the ease and benefits of moving the donor-advised fund to The Community Foundation.

The Community Foundation offers donor-advised fund holders the same tax and administrative benefits as a commercial gift fund, including:

  • Online access to the donor-advised fund to view balances, contributions, and grants
  • Simple process for requesting grants to favorite charities
  • Streamlined tax reporting, often represented by just one letter to provide to an accountant at tax time, even when the donor-advised fund is used to support dozens of individual charities throughout the year
  • All back-office administration, tax receipts, recordkeeping, and other requirements for the donor-advised fund’s 501(c)(3) status
  • Favorable tax-deductibility of contributions to the fund

Unlike standard commercial gift funds, though, The Community Foundation offers high-level, customized services to its donor-advised fund holders, including:

  • Concierge-level service by knowledgeable staff to structure estate gifts to charities and accept gifts of appreciated stock or complex assets such as real estate or closely-held stock
  • In-house experts who have a finger on the pulse of community needs, the strengths of specific nonprofits, and how to structure grant making for the highest possible community benefit
  • Opportunities to collaborate with other donors who care about similar issues and forums to tap into local and national subject matter experts
  • Opportunities to go deep into specific issue areas, both through education and hands-on involvement
  • Assistance with structuring and measuring the impact of grants
  • Family philanthropy and corporate giving services to foster a well-rounded, holistic approach to philanthropy
  • Administrative fees that are reinvested into The Community Foundation, itself a nonprofit, to help support operations, grow its mission, and help even more donors support the causes they care about
  • Hands-on assistance from local experts who understand both local and distant needs, and welcome the opportunity to research and identify causes aligned with donors’ goals and priorities
  • Staff members who live in the community they serve and often personally know the leaders and staff of grantee organizations and regularly hear about their needs first-hand

Keep an eye out for clients’ donor-advised funds at commercial gift funds. You’ll be doing a tremendous service for your client, and you’ll be helping the local community. You will also be fulfilling your own professional responsibilities by exploring the opportunity for a client to move a donor-advised fund to The Community Foundation. At The Community Foundation, hard-earned assets receive the attention they deserve as your clients strive to make a difference in the causes they care about the most.

 

 

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

Clients want to know: What’s deductible and what’s not?

Clients want to know: What’s deductible and what’s not?

Whether you are an estate planning attorney, financial advisor, or accountant, you’ve probably seen an uptick in client questions about tax deductions–and tax rules in general–over the last few years. Tax law changes at the end of 2017 have caused a lot of ongoing taxpayer confusion.

To be sure, your clients will be asking about charitable tax deductions as year-end rolls around. As an advisor, you’re already working with clients on financial and tax planning all year long, but fall is the time when many clients buckle down. Whether it’s the change in the weather or the imminent end of the calendar or tax year, autumn is a time to reassess things like tax loss harvesting and charitable giving. These are just two of many types of transactions that result in deductions when tax returns are filed in the spring.

Charitable giving may be especially high on the planning radar right now because of the many national fundraising initiatives that kick into gear this time of year. You (and your clients) have probably noticed that many different types of causes are celebrated each and every month. October, in health-related charities alone, is National ADHD Awareness Month, National Down Syndrome Awareness Month, Pregnancy and Infant Loss Awareness Month, Spina Bifida Awareness Month, National Physical Therapy Month, and likely many more.

Make sure your clients are aware that there are specific parameters around tax deductibility before they respond to requests from organizations and even their friends and family members who support these organizations. Your clients are relying on you as an advisor to stay on top of the rules, including:

–Section 501(c) of the Internal Revenue Code lays out the requirements for organizations to be considered tax-exempt–a status for which an organization must seek IRS approval.

–Tax exemptions apply to certain types of nonprofit organizations, but status as a nonprofit (which is a state law construct) does not necessarily mean that the organization will be exempt from Federal income taxes.

–Furthermore, even under Section 501(c), there are different types of nonprofits that are recognized by the IRS as tax-exempt.

–To qualify under the Internal Revenue Code Section 170 charitable deduction for gifts to Section 501(c)(3) organizations, for example, the recipient 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.” “Charitable,” according to the IRS, has a very narrow definition.

–No doubt, many of your clients not only support 501(c)(3) charities, but also social welfare groups organized under Section 501(c)(4). 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).

–Chambers of commerce and other business leagues fall under Section 501(c)(6); donations to these entities are not tax deductible.

If you have any questions about the tax deductibility of your clients’ contributions to various organizations, 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.

 

 

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

Do good, feel better: Philanthropy through the lens of well-being

Do good, feel better: Philanthropy through the lens of well-being

Philanthropy means “love of humanity”—and, according to some, “philanthropy” includes acts that benefit both the giver and the receiver. This is surprising to some people who have been taught “it’s better to give than to receive.”

Somehow we have popularized the idea that giving should “hurt.” But that is not what the research says. Consider just a few examples:

–Research on the connection between volunteering and hypertension revealed that four hours of volunteering a week reduced the risk of high blood pressure–by 40%–in adults over 50.

–Another study indicates that giving reduces cortisol levels.

–Yet another study found a link between unselfishness and a lower risk of early death because “helping others” reduces stress-related mortality.

–Research has linked doing something good for someone else to an increase in endorphins.

–An altruistic attitude in the workplace makes you more productive and less likely to quit.

–Doing good and being grateful helps you sleep better at night.

–People who do just one good thing a week for someone else actually become happier over time.

 

When people were asked to reflect about all the ways they do good (giving to charity, volunteering, serving on boards, donating canned goods, purchasing products that support a cause, celebrating at community events, sharing with others, and so on), 92% reported that they felt better about themselves.

Even just thinking about what you’ve given others–and not only just being grateful for what you’ve received–is a huge motivator to do good things for others, over and over again.

The “do good feel good” benefits of philanthropy is just one of the many reasons that so many individuals and families work with The Community Foundation. If you’ve already established a donor-advised or other type of fund with The Community Foundation, we look forward to continuing to help you fulfill your charitable wishes to improve the lives of others. If you’ve not yet established a fund at The Community Foundation, we look forward to working with you to make a difference in the causes you care about.

 

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

Fourth quarter jitters: Charitable giving tips to reduce your stress

Fourth quarter jitters: Charitable giving tips to reduce your stress

You are not alone if you begin to feel a little anxious when October rolls around. Many people experience year-end stress, whether because of looming deadlines at work, tax-related estate planning cut-off dates, anticipating a busy holiday season of travel and social engagements, or simply the realization that another year is coming to a close and there’s not a lot of time left to check off items on the 2023 punch list.

To top it all off, many families do a lot of their charitable giving at year end, too. But that’s one area that does not need to be stressful. Your giving can be more easily accomplished than sending invitations, herding family members, guessing colors or sizes, and remembering who to include–or not!

Here are three tips for alleviating fourth-quarter stress and still be able to hit your charitable goals for 2023.

–Using your donor-advised fund at The Community Foundation makes giving very convenient. Through the foundation’s online portal, you can easily view a list of all of the organizations you’ve supported so far this year, make note of the ones you missed or want to add, and then finish the annual task.

–Your late-year timing could actually be useful for the organizations you care about, given the pronounced need for support during the gift-giving time of year, whether that’s to an organization seeking to achieve its own year-end goals or an organization that provides food or utility bill relief during the cold winter months. According to National Giving Month, 31% of charitable giving occurs in December; 12% of giving typically occurs between December 29 and 31; and 28% of nonprofits raise as much as 50% of their funding in December.

–Charitable needs are heightened during the fourth quarter because it is especially stressful for people experiencing financial challenges. For 52% of respondents surveyed in a 2023 study, money was the most cited factor that negatively affects their mental health, a level 25% higher than a year ago. The organizations supporting these people are in high gear during the fourth quarter and holiday season.

–By the end of the year, you will likely have a better idea of your financial situation, ideal target amount for charitable tax deductions, and the performance of stock in your portfolio. This will allow you to make gifts to your donor-advised fund of highly-appreciated stock, avoid capital gains, and reduce your taxable estate. And, of course, the proceeds of that stock will hit your donor-advised fund tax free, so the full amount of the sale price is available to support your charitable giving priorities.

Completing your 2023 charitable giving can reinforce philanthropy’s win-win value proposition: You can check a task off your list by supporting causes and organizations that are important to you and receive key tax benefits, and those in need will appreciate your generosity while feeling a greater sense of the season’s spirit.

 

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

Retirement strategies

Retirement strategies: Tax benefits and beyond

At The Community Foundation, we regularly talk with retirement-age donors and fund holders about the tax benefits of Qualified Charitable Distributions and leaving bequests of IRAs to a donor-advised fund at The Community Foundation. But getting involved in philanthropy can be so much more than that for retirees and people who are gearing up (or down!) for retirement. This is particularly relevant as some retirees consider returning to work and contemplate what that means for their charitable giving and volunteering plans.

You’ve likely heard the statistic that 10,000 people in the United States are turning 65 every day. And while 65 may be the “traditional” retirement age in this country, the milestone appears to be anything but traditional nowadays. While Covid-19 did not impact retirement ages as much as some might have predicted, many of those who did retire actually now regret it. While many retirees are seeking work for financial reasons, two of the top six reasons to go back to work involve boredom or loneliness.

For people who’ve reached a theoretical retirement age, working or returning to work provides many opportunities that tie into philanthropy. For example:

–You can still contribute to your IRAs (which many people do not realize), and if there’s an employer-sponsored 401(k) plan, all the better.

–You can use your extra income to fund your donor-advised fund at The Community Foundation, making you eligible for an income tax deduction as well as removing assets from your taxable estate.

–As you take advantage of the opportunity to get more involved with causes you care about in your free time (which has perhaps increased because children have grown), you can update your estate plan to leave additional bequests to your donor-advised fund at The Community Foundation to support your favorite causes after you’re gone.

–And of course, if you are 70 ½ or older, you can take advantage of the Qualified Charitable Distribution (QCD) which allows you to direct up to $100,000 annually from your IRA to a qualified charity, and even more in future years as the $100,000 cap is indexed for inflation. Plus, if you’ve reached the age when you are required to take distributions from your IRAs, QCDs will offset those Required Minimum Distributions (RMDs).

For those who’ve retired for good, remember that many of the organizations you care about could likely use your help not only financially as a donor, but also as a volunteer, board member, or community advocate.

Please reach out to the team at The Community Foundation. We’d love to work with you on your charitable giving plans for retirement, un-retirement, or re-retirement, as the case may be! Your seasoned professional skills and civic commitment are truly valuable to improve the quality of life in our community.

 

 

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

For clients who may sell a business, the time to think charitably is right now

For clients who may sell a business, the time to think charitably is right now

Business owners who’ve enjoyed summertime’s more relaxed energy can deservedly daydream about the “extended vacation” that comes with selling the business!

While it all sounds good, business brokers will tell you that many business owners fail to optimize—and they sometimes even compromise—the value of their business’s proceeds by rushing the process, hastily determining an asking price, or not fully assessing the value of their business to a potential buyer. In their haste, owners often miss strategies that can deliver an improved post-sale result and a true reward for their years of work.

The Community Foundation can be a valuable resource as you guide a business owner client through a pre-sale preparation process. This is especially true for a business that has operated for many years and has accumulated significant unrealized capital gains in its valuation that are likely to be heavily taxed at the time of the sale.

Many closely-held business owners and their advisors may not be fully aware of the advantages of giving shares to a donor-advised fund at The Community Foundation well in advance of any external discussion about a potential sale of the business. With prudent planning, the gifted shares will be free of capital gains at sale time, allowing the proceeds to flow into the donor-advised fund, ready to be deployed to meet the business owner’s charitable goals. The business owner also benefits because they’ve reduced the value of their taxable estate. This can have huge repercussions given the anticipated reduction of the estate tax exemption slated for 2025.

Remember that it will be important to secure a proper valuation of the business at the time the business owner makes a gift of shares in order to comply with IRS requirements for documenting the value of the charitable deduction.

Critically important to successfully executing this strategy is to ensure that your client avoids even any preliminary discussions about sale, let alone negotiations, before consulting with advisors, including looping in The Community Foundation early on. Otherwise, your client might get caught in the IRS’s step-transaction trap, a risk with any pre-sale gift to charity of real estate, closely-held stock, or other alternative asset. Definitely, the devil is in the details!

By the way, if you routinely advise owners of closely-held businesses, and if you like to go deep into tax law, you might enjoy reviewing the issues related to the business itself supporting charitable causes, totally unrelated to its eventual sale.

Please reach out to The Community Foundation team if a business owner client would like to explore the idea of potentially giving a portion of the business to a donor-advised fund or other type of fund at The Community Foundation. We can work alongside you and the client to help optimize the exit and maximize the resulting proceeds.

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

Keep your eye on clients’ appreciated stock–always

Keep your eye on clients’ appreciated stock–always

Such a difference a year makes–maybe!?

By August 2022, markets were down 12% for the year and inflation was up 8.3% year-over-year. Perhaps consequently, but then unknown, annual charitable giving was on its way to a rare (fourth time in 40 years) year-over year decline of some 4% according to Giving USA. Certainly this decline was due in part to donors not wanting to give stock at depressed values. You likely even discussed this with your clients!

Nearly 12 months later, as of July 2023, markets were up 7.28% year to date and inflation was roughly half at 4.7% year–over-year. Even though the stock market still shows signs of volatility, hopefully, charitable giving will rebound.

No matter the times, and even in down markets, some stocks will still out-perform. These holdings are of course excellent candidates for your clients to give to charity and avoid taxes on the capital gains. This year is no different, with stocks like Microsoft, Apple, Nvidia, among others, enjoying banner years. Indeed, Microsoft, Apple, and Nvidia were up 38%, 36% and 228%, respectively through mid-August. For some of your clients, these gains have created concentrated stock positions where you, as an advisor, may believe that portfolio allocations have become imbalanced under the investment strategy you are pursuing. Your clients who support charities through their donor-advised funds at The Community Foundation can consider potentially alleviating this situation through charitable gifts of highly-appreciated stock.

Your clients who give appreciated stock to a donor-advised fund can:

–Enjoy the ease of the donor-advised fund as an account for current and future charitable giving

–Conveniently support the causes they and their families care most about

–Maintain a mix of assets in the donor-advised fund account that are consistent with the client’s investment philosophies

–Benefit from an up-front income tax deduction, avoid capital gains on the assets’ sale within the fund, and grow the proceeds for future grantmaking

–Leave a legacy for children and grandchildren to continue their philanthropic commitments

–Reduce the value of their taxable estate, potentially reducing estate taxes

–Comply with IRS charitable gifting guidelines

–Enjoy supporting charities in the client’s name, the fund’s name, or anonymously

–Receive a single year-end tax document that summarizes all gifts for tax purposes

 

By establishing a donor-advised fund at The Community Foundation, your client is part of a community of giving and will have opportunities to collaborate with other donors who share their interests. In addition, your client is supported in strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference.

So while it’s nice to see the market’s performance improve, a bonus opportunity lies in your clients’ transferring appreciated stock to donor-advised funds at The Community Foundation. We are here to help!

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

Relief from catch-up requirements: More money for charitable giving?

Relief from catch-up requirements: More money for charitable giving?

Legislation known as SECURE 2.0 contained a dizzying array of changes to the laws governing retirement plans. Passed at the end of 2022, SECURE 2.0 is 130 pages long; overall, its purpose is to encourage more retirement savings through vehicles like employer-sponsored 401(k) plans.

Lately, the buzz around SECURE 2.0 has been focused on a very specific provision addressing what are known as 401(k) “catch up” contributions. A “catch up” contribution allows a worker aged 50 and older to pump more money (an extra $7500 in 2023) into their 401(k) plans, beyond the usual $22,500 statutory maximum for employee deferrals.

Normally, an employee’s contributions to a 401(k) are not included in adjusted gross income for tax purposes, which is a big perk. But under the provisions of SECURE 2.0, if you are at least 50 years old and earned $145,000 or more in the previous year, these catch-up contributions would be treated like Roth IRA contributions–meaning the money used to make those contributions is after tax. Essentially, you will be paying tax on the money you use to make the catch up contributions. Depending on your tax bracket, the extra tax could possibly tally into the thousands of dollars.

But! The IRS’s recent ruling has delayed the Roth treatment provision, so that it will not become effective until 2026. This means your catch-up contributions are still “pre-tax,” at least for the next couple of years.

What is the bottom line here? If this situation applies to you–if you are over 50, earn more than $145,000 a year, and want to make catch-up contributions to your employer-sponsored 401(k) plan–you now have an extra couple of years to enjoy the tax perks of these contributions. This relief, in turn, might allow you to make larger charitable gifts than you had originally planned when you budgeted for 2023’s charitable giving.

 

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