Unlock the unexpected power of regret to grow your charitable giving

Not surprisingly, financial regrets are common, with those related to personal finances among the most frequent. Of recently surveyed American retirees, 75% wish they’d started saving earlier, and 62% wished they’d saved more money for their golden years.

On the personal side of the equation, people frequently also regret failing to show kindness when someone was in need. These types of regrets can be uncovered in the flipside of the well-documented motivations for giving in the first place. In short, people want to help others and, upon reflection, they often regret not doing so.

The topic of regret is getting a lot of play. In his 2022 book, The Power of Regret: How Looking Backward Moves Us Forward, Daniel Pink describes the results of his years of research on human regret. Pink identifies different types of regret and offers readers the perspective that not all regrets need to act as negative forces if they inspire you to behave differently moving forward.

The experienced team at The Community Foundation can help you avoid charitable giving regrets, especially by making it easy for you to activate your charitable intentions in the most tax-effective ways possible to make an even bigger difference in the causes you care about.

For example:

Get organized with a donor-advised fund.

If you’ve already established a donor-advised fund at The Community Foundation (or if you are considering doing so!), you know that The Community Foundation handles all of the logistics, including providing 501(c)(3) status for your fund so that your contributions are tax deductible, facilitating your contributions to the fund in the form of cash or stock, processing disbursements to your favorite charities, and handling all of the necessary tax documentation. A donor-advised fund makes it so much easier to organize and maximize your charitable giving.

Grow your philanthropy through planned giving.

In many cases, The Community Foundation can help identify ways you can support your favorite charities at even higher levels than you thought possible by deploying planned giving techniques such as bequests and charitable remainder trusts. Designating your fund at The Community Foundation as the beneficiary of your IRA, for example, is especially powerful.

Rally other fund holders and donors.

If you’ve established a field-of-interest or designated fund at The Community Foundation, don’t forget that you can rally friends and family to join you in growing that fund. Philanthropic individuals and families are often open to new ideas about where to invest their charitable dollars. Many people look to The Community Foundation as a point of validation that the IRS’s boxes have been checked and for peace of mind knowing that the fund is benefiting from both the oversight and advocacy of a dedicated community institution. What’s more, it’s rewarding as a fund holder to get to know other fund holders and donors who are involved with The Community Foundation and who also want to explore ways they can support the various funds featured in The Community Foundation’s marketing materials and on our website.

If you’re wishing you’d been able to do more for your favorite causes earlier in your life, there’s no need to hold onto those regrets! The Community Foundation can help you build a charitable giving plan to reflect a lifetime of strong commitment to the organizations in our community. We look forward to working with you!

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

Bridging the gaps in multi-generational family philanthropy

Differing views within families is nothing new; differing views about nearly anything and everything is centuries old. For generations and generations, common topics of disagreement have included popular culture, politics, religion and parenting, just to name a few. Frequently outranking all is money—how it’s made, spent or saved—or not.

How benevolent families share money, whether agreeably or disagreeably, is a topic all its own. It’s perhaps never been more relevant than now given these realities: up to four generations living simultaneously; longer lifespans; more willingness to discuss family finances; differing social views; and the desire of older generations to set a good philanthropic example while retaining some control of assets built over many years.

And the “share” discussion will likely continue for decades.

According to figures cited in a May 2023 New York Times article (subscription required), total U.S. family wealth of $38 trillion in 1989 more than tripled to $140 trillion in 2022, with Baby Boomers and Generation X holding 90% of that. By 2045, older Americans will pass down a projected $84 trillion to Millennial and Gen X heirs, with $16 trillion transferring by 2033. With evermore wealth circulating, both ideas and conflicts about its use will likely result.

As an advisor, it is your responsibility to help your clients achieve their goals for their estate plans, financial plans, and charitable objectives. As you work with your multi-generational philanthropic clients, you have no doubt noticed that even a subject as uplifting as philanthropy can lead to lively discussions and sometimes even disagreements. To fulfill your role, you will need to lean on strategies to navigate conversations about charitable priorities when not everyone is on the same page.

You can also lean on The Community Foundation–and we encourage you to do so! Community foundations occupy a unique position in the midst of the unprecedented wealth transfer now underway: that of arbiter, guide and even peacemaker among benevolent multi-generation families. In addition to understanding the needs of the community, the nonprofits and programs that are addressing those needs, and the ins and outs of the tax vehicles best suited for your clients to help meet those needs, our team is also deeply experienced in facilitating productive dialogue among people who bring valuable, diverse viewpoints to the table.

As a secure, convenient, and trusted partner to help a family invest wealth in charitable causes, The Community Foundation can help you work with your philanthropic clients in a variety of ways:

–The Community Foundation team focuses on listening to understand the cross-generational and intra-generational values of a family.

–We ask a lot of questions about what causes matter to your clients and the origins of those preferences, both historically and now.

–Our team seeks to understand a family’s values, and then we research and suggest potential grantee organizations or causes if the family is seeking input. We can also deeply research organizations that the family is already supporting.

–The Community Foundation offers to educate the various generations about the tactical opportunities including donor-advised funds, field-of-interest funds, unrestricted funds, designated funds, and anonymous giving, among others.

–Our team is happy to develop options for multi-cause allocations that peacefully meet the needs of all involved.

–For geographically dispersed generations, our team offers to meet at agreeable intervals, even digitally, to understand a family’s current and changing views.

We are here for you and the philanthropic families you serve. As the needs, capabilities and opinions around wealth expand, The Community Foundation can be a facilitator of conversations, connection, and contributions among well-intended but independently-minded families and help you carry out your professional responsibilities. Call us anytime on Monday through Friday at 540-432-3863 or learn more at our website: www.tcfhr.org.

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

Have your cake and eat it too: A dual approach to charitable giving

The change of seasons is often an opportunity to catch our breath and reassess. We’re done with taxes, really done with cold weather (hopefully), and feel a sense of renewal as our attention turns to gardening and other growth-oriented, warm weather pursuits. And, many of us are wondering how in the world it can already be May. Wasn’t 2022 just five minutes ago?

Soon enough, the seasons will change yet again. Just as springtime is limited, so is the time any of us has to build a legacy for our families and communities and make a difference through charitable giving. Planning–and acting–with a sense of urgency is helpful, given life’s unpredictability and the many good causes many of us want to support.

At The Community Foundation, we’re frequently struck by the number of fund holders and donors who enthusiastically embrace strategies for both lifetime gifts and bequests. Indeed, planning techniques for each frequently work hand in hand. We’re inspired by champions of the ”do it now” approach to charitable giving; sadly, many people never have the opportunity to watch their money in action. We’re equally inspired by the longstanding commitment to estate giving that has been a part of the culture of philanthropy in our country for decades.

So, how can you take action now to ensure that you will experience both the joy of seeing first hand the difference you’re making, as well as the joy of knowing that you’re leaving a legacy to further the community priorities you’ve supported your whole life? A donor-advised fund with a bequest provision, established at The Community Foundation, is a great solution for many donors.

Here’s how this works:

• Donor-advised funds continue to be popular tools to help charitably-minded individuals organize their giving and support their favorite causes.
• Because of The Community Foundation’s deep knowledge of our region’s needs and the organizations addressing critical issues, a donor-advised fund established at The Community Foundation is an especially useful vehicle.
• If you are a current fund holder at The Community Foundation, or if you are considering establishing a fund, you already know that a donor-advised fund is easy to start and easy to use.
• You’re also likely aware of the donor-advised fund’s tax benefits, in that you are eligible for a tax deduction in the year of the gift and then you can work with The Community Foundation to use the funds to support your favorite 501(c)(3) organizations over the long term.
• What you might not know, though, is that The Community Foundation can work with you to include provisions in your donor-advised fund document to name your children or other family members as successor advisors to make recommendations following your death and you can provide that certain organizations or causes receive a portion of the grants each year after you’re gone.
• In this way, a donor-advised fund is not only a convenient giving vehicle during your lifetime, but it is also flexible enough to accommodate your wishes for leaving a legacy after your death.
• You can even name The Community Foundation itself to receive all or a portion of your donor-advised fund following your death.
• Bequests to The Community Foundation help keep our institution strong to grow the philanthropy required for our area’s nonprofits to serve the community for generations to come and respond to the most critical needs at any given time–needs that are impossible to predict.

Remember, with the help of The Community Foundation, you can give publicly or anonymously. We can help you fulfill your giving instincts by acting as a secure, knowledgeable, and trustworthy facilitator. Our team personally knows–and regularly vets–hundreds of charities every year, and we can help you navigate the options for both local and international giving.

If you are a current fund holder at The Community Foundation, we look forward to working with you to include bequest provisions in your existing donor-advised fund documents. If you are not yet a fund holder, we’d love to work with you to achieve your goals for lifetime giving and leaving a legacy. Please reach out anytime at 540-432-3863.

 

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

Boiling down the alphabet soup: What actually are RMDs and how do they relate to QCDs?

If you get cross-eyed when you start reading about Required Minimum Distributions (RMDs) and Qualified Charitable Distributions (QCDs), you are not alone! And, given the December 2022 passage of SECURE 2.0 legislation, changes to RMD rules are especially important to understand if you are involved in charitable giving and have reached the age of 70 1/2.

What is an RMD in the first place?

A little history may help here. RMDs date back to 1974 when the Employee Retirement Income Security Act (ERISA) was enacted to provide for pension reform and to offer a retirement savings vehicle to non-pensioned workers through vehicles referred to as “qualified retirement plans” that are allowed to grow tax-free while assets are in the plan.

By requiring that a taxpayer start taking distributions from qualified retirement plans when the taxpayer reaches a certain age, the United States government is able to start collecting tax revenue on these “required minimum distributions” from assets that have grown tax-deferred for all those years and decades.

Now here is where we get into the weeds. The distributed amount of the RMD is reported by the plan administrator on IRS Form 1099-R (but–and here’s a nuance–not if the RMD was “satisfied” by a Qualified Charitable Contribution [QCD]—see below!). A taxpayer enters this amount on Line 4B of the Form 1040 Federal income tax return, and, of course, the amount is included as taxable income for the year it was distributed. So, the net-net here is that RMDs add to taxable income but not in the case of direct transfers to qualifying charitable organizations (the QCD).

 

What types of accounts require RMDs?

For 2023, account owners aged 73 and older who participate in qualified retirement plans such as these are subject to RMDs:

• Traditional IRA
• Simplified Employee Pension (SEP)
• SIMPLE IRA
• Employer-sponsored 401(k), 430(b) or 457

Once begun, RMDs occur annually, until account depletion or the owner’s death. (Note that distributions must also be taken from inherited IRA accounts, though under different rules.)

How is the RMD amount calculated?

A qualified retirement account’s entire balance is considered for calculating an RMD calculation, although of course only a fraction of the balance must be distributed each year. Unfortunately, the distribution amount is not easily or consistently determined. This contributes to some retirees’ confusion about RMDs and the requirements. Online RMD calculators can be found here or here, and your retirement account administrator can provide guidance.

When do the RMDs start?

That’s tricky, too! For years 2023 – 2032, the start date is your age-73 calendar year. For example, a 1955-born account owner would begin in 2028. Beginning in 2033, it’s your age-75 calendar year. Account holders born in 1960 enjoy a sort-of “two-year extension,” given that they would turn 73 in 2033. But since the age-75 provision begins January 1, 2033, their RMD begins in 2035.

For all account owners, the big benefit of the now-later RMDs comes from retaining account balances longer. You avoid adding unnecessarily to your taxable income and therefore reduce the risk of bumping to a higher tax bracket. Prior to SECURE Act increases passed in 2019 and 2022, RMDs began at age 70 ½ and age 72. So taxpayers can now enjoy a few more years of tax-free investment growth.  

How charitable taxpayers can check the RMD box with a QCD

Here’s where the QCD comes in (finally!) Now, armed with an understanding of how the RMD rules apply to your situation, you can begin to see how the QCD can provide a huge benefit if you own IRAs. QCDs are truly taxpayer and charity-friendly vehicles.

For starters, you can start making QCDs at age 70 ½–well before you’ve reached the age when you’re required to take RMDs. A QCD happens when you direct a distribution from an IRA of up to $100,000 annually (or $200,000 if you file tax returns jointly) to one or more qualifying charitable organizations, including a designated, field-of-interest, or unrestricted fund at The Community Foundation. While the QCD is itself not tax deductible per se, the overall effect of the QCD is to lower your taxes because the QCD counts toward your RMD but, unlike an RMD, it is not included in your taxable income.

The bottom line? If you have reached the age of 70 ½, own an IRA, care about charitable causes, and don’t need a full RMD income to cover your living expenses, reach out to The Community Foundation to learn how a QCD could work beautifully for you.

 

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

Private foundations and donor-advised funds: Debunking three myths

If you’ve been involved with charitable giving for a few years, you’ve no doubt become familiar with both private foundations and donor-advised funds and their popularity as charitable giving tools. As is often the case with tax and estate planning-related topics, the differences between private foundations and donor-advised funds are sometimes the subject of confusion and misunderstanding.

As you work with your advisors and the team at The Community Foundation to establish your immediate and long-term charitable giving plans, take a few minutes to check out how to debunk these three common myths.

Myth #1: Donor-advised funds are all the same and only private foundations can be customized

Private foundations will always differ from donor-advised funds in important ways not only because of their status as separate legal entities and the deductibility rules for gifts to these entities, but also because of the opportunities to customize governance. But it is a mistake to think that a donor-advised fund is a cookie cutter vehicle. Indeed, “donor-advised fund” is simply a term used to specify the structure of a fund and its relationship with a sponsoring organization such as a community foundation. The donor-advised fund vehicle itself is extremely flexible.

• 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 at The Community Foundation is frequently a more effective choice than a donor-advised fund offered through a brokerage firm. 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.
• The Community Foundation can work with you and your family on a charitable giving plan that extends for multiple future generations. That is because the team at The Community Foundation supports your family in strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference.

As you explore the many opportunities to deepen your work with The Community Foundation, consider the unique mix of flexibility and services available to you and your family when you establish a donor-advised fund.

Myth #2: Deciding whether to establish a donor-advised fund or a private foundation mostly depends on size

The size of a donor-advised fund, like the size of a private foundation, is unlimited. The United States’ largest private foundations are valued well into the billions of dollars. (Information about private foundations, ironically, is not so private. The Internal Revenue Service provides public access to private foundations’ Form 990 tax returns. That is not the case for individual donor-advised funds.)

Similarly, donor-advised funds are not subject to an upper limit. Although information on the asset size of individual donor-advised funds is not publicly available, anecdotal information indicates that some donor-advised funds’ assets may total in the billions of dollars.

Indeed, a donor-advised fund of any size can be an effective alternative to a private foundation, thanks to fewer expenses to establish and maintain, maximum tax benefits (higher deductibility limitations and fair market valuation for contributing hard-to-value assets), no excise taxes, and confidentiality (including the ability to grant anonymously to charities).

The net-net here is that the decision whether to establish a donor-advised fund or a private foundation–or both–is much less of a function of size than it is other factors that are more closely tied to the objectives a donor is trying to achieve.

Myth #3: Donor-advised funds and private foundations are mutually exclusive

Many philanthropists and their advisors are aware of the many benefits of using both a donor-advised fund and a private foundation to accomplish their charitable goals. For example:

• Donor-advised funds can help meet the need for anonymity in certain grants, which is typically difficult using a private foundation on its own.
• A donor-advised fund can receive a family’s gifts of highly-appreciated, nonmarketable assets such as closely-held stock and real estate, and benefit from favorable tax deduction rules not available for gifts to a private foundation.
• An integrated donor-advised fund and private foundation approach can help a family balance and diversify its investment and distribution strategies to ensure that giving to important causes remains steady even in market downturns.

Some private foundations are even considering transferring their assets to a donor-advised fund to carry on the foundation’s mission. Terminating a private foundation and consolidating giving through a donor-advised fund is sometimes the best alternative for a family when 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. In addition, some families find that 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. Finally, the administrative load of managing a private foundation sometimes becomes overwhelming, especially if the family members who handled these functions initially have retired, passed away, or simply become busy with other projects.

 

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