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Valuable conversations: Why it’s smart to talk with your clients about charitable giving

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Valuable conversations: Why it’s smart to talk with your clients about charitable giving

January is a good time to start helping your clients plan for their annual giving. With the year-end flurry of donations still fresh in many clients’ minds, you may discover that clients will welcome your suggestion to make 2023 the year to get organized early, particularly as economic headwinds make planning especially important.

A conversation that benefits everyone

Among the many benefits of discussing charitable giving with your clients is that your clients will see you as an expert about local community needs and nonprofits, especially when you have a close working relationship with TCFHR team. Your philanthropic clients want to learn how they can make a difference through their charitable activities, and they are expecting their advisors to be ready to help them structure and plan their giving. Indeed, for years, research has shown that a proactive advisor who offers options for incorporating philanthropy into financial and estate plans inspires client loyalty, even across client generations.

The Community Foundation advantage

Advisors frequently comment that they’re surprised to discover the many ways The Community Foundation can help their clients, especially compared with national donor-advised fund programs affiliated with brokerage houses or financial services firms.

Sometimes the greatest needs really are right here at home, and working with TCFHR is often the very best option for ensuring that your clients are informed and impactful philanthropists. The team at TCFHR works with local nonprofits every single day and thoroughly understands how organizations are meeting community needs.

In addition, TCFHR is unparalleled in its ability to be flexible and responsive, providing outstanding, personal service designed around your clients’ needs while always respecting your role as your client’s primary advisor.

Options for every client’s unique situation

Our team welcomes the opportunity to work with you and your clients to implement their charitable giving goals. Here are just a few of the ways we can work with you as you plan for 2023:

Wills and trusts

A client can establish a bequest to a fund at TCFHR through a will or trust or through a beneficiary designation on a qualified retirement plan or life insurance policy. TCFHR will provide proper bequest language.

Retirement plan beneficiary designations

Bequests of qualified retirement plans can be extremely tax efficient. Funds flowing directly to a client’s fund at TCFHR from a retirement plan after the client’s death will not be subject to income tax or estate tax.

Family philanthropy

Consider encouraging clients to involve their children and grandchildren in philanthropy, especially when the clients are working with TCFHR through a family donor-advised fund or other collaborative vehicle.

Income tax planning

Remind clients that they are eligible for an income tax deduction for lifetime charitable gifts, and the gifted assets are no longer subject to future estate taxes.

Complex giving

Consider more complex giving vehicles, including charitable remainder trusts, charitable gift annuities, and gifts of closely-held stock. TCFHR can work with you to establish these structures to help facilitate your clients’ charitable giving goals and meet the clients’ financial and tax goals at the same time.

We look forward to working with you in 2023! 540-432-3863

The team at TCFHR is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

It just keeps getting better: Why charitable gift annuities are having a moment

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It just keeps getting better: Why charitable gift annuities are having a moment

Charitable gift annuities (CGAs) are becoming more attractive to philanthropists, making this planned giving vehicle a good fit for your clients who like the idea of an up-front tax deduction, a steady lifetime income stream, and a remainder gift to charity.

If you are not already doing so, now is a good time to consider talking with clients about CGAs. A CGA, like any other annuity, is a contract. Your client agrees to make an irrevocable transfer of cash or assets to a charitable organization. In return, the charitable organization agrees to pay the client (or a designated beneficiary such as a spouse) a fixed payment for life. Your client is eligible for an immediate income tax deduction for the present value of the future amount passing to charity.

The popularity of CGAs is increasing for a few reasons.

Increase in payout rates

First, in late November 2022, the American Council on Gift Annuities voted to increase the rate of return assumption it uses in its suggestions for maximum payout rates for CGAs. Effective on January 1, 2023, the rate of return assumption moved from 4.50% to 5.25%. This increase translates to a significant boost in payout rates for annuity contracts and is therefore good news for a client’s income stream. The new rates are now available on the ACGA’s website.

New Legacy IRA opportunities

Second, with the December 2022 passage of the Legacy IRA enhancements to the Qualified Charitable Distribution (QCD) rules, CGAs could become even more attractive. This is because the new Legacy IRA rules allow for a once-in-a-lifetime, $50,000 QCD from an IRA to a split-interest vehicle. While the law allows a taxpayer to make a QCD to a charitable remainder trust, the $50,000 statutory maximum for a Legacy IRA gift may be a deterrent. This is because minimums for CRTs are usually at least $100,000; that is not the case, however, for CGAs, which typically can be set up at much lower minimums. Because of the difference in minimums, the CGA may be more attractive for taxpayers who want to take advantage of the one-time Legacy IRA gift as part of a QCD strategy.

Note that CGAs created to receive a QCD contribution are different from other CGAs in a few important respects under the new law. For example, annuity payments are taxable, and must be at least 5%. Although the 5% requirement is not an issue at the moment due to the new, higher payout rates, this stipulation could present a challenge in the future.

Tax planning with appreciated assets

Third, gifts of appreciated assets are always a strong planning technique, especially to a CGA. When a taxpayer contributes highly-appreciated stock in a public company, for example, to a CGA, the taxpayer typically is eligible for an income tax deduction at the stock’s fair market value on the date of the gift. When the recipient charity sells the stock, the charity pays no capital gains tax. Note that the taxpayer would have paid capital gains tax had the taxpayer sold the stock. Especially if the stock was paying low or no dividends, the CGA has enabled the taxpayer to unlock a low-income producing asset and convert it to a vehicle that pays an income stream. Plus, the taxpayer gets the benefit of the upfront tax deduction, presumably in a tax year where income is higher (and therefore taxed in higher brackets) than it will be when the taxpayer retires at a future date.

Call us at 540-432-3863 or email Revlan Hill at [email protected].

The team at TCFHR is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.