Six for the summer: Mid-year reminders about charitable giving

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Six for the summer: Mid-year reminders about charitable giving

Welcome to summer! We’ve put together six tips to keep in mind as you plan your charitable giving for the coming months, years, and even decades. As always, the team at The Community Foundation is happy to be a resource!

 

Donate appreciated stock to your fund at The Community Foundation.

Yes, yes, we absolutely understand how easy it is to write a check when you want to boost your donor-advised or other type of fund at The Community Foundation. If you can remember to pause before you pull out your pen, though, it really does pay off to consider whether appreciated stock would be a better way to add to your charitable giving account. When you give shares of long-term appreciated stock, you can be eligible for a charitable tax deduction at the fair market value of the shares. Then, when The Community Foundation sells the shares and adds the proceeds to your fund, the fund–a 501(c)(3) charity–is not hit with capital gains tax. By contrast, if you were to sell those shares and give to your fund from the proceeds, you’d have a lot less cash to work with. Please reach out to The Community Foundation anytime, 540-432-3863, to learn more about how easy it is to take advantage of this tax-savvy giving technique.

 

Plan ahead for your business exit.

If you own all or part of a private business, keep in mind that charitable giving can factor into your eventual exit strategy. You could be sitting on substantial unrealized capital gains if the business has grown a lot over time. Upon a sale, capital gains tax will be triggered, reducing the proceeds you get to keep. No capital gains tax will apply, however, to the sale of the portion of the business owned by your donor-advised or other type of fund at The Community Foundation. Plus, you can be eligible for a charitable income tax deduction in the year of the transfer based on the fair market value of the shares–not the cost basis, as would be the case if you’d transferred the shares to a private foundation. Keep in mind that a strategy like this only works with careful planning, so be sure to contact The Community Foundation team well in advance of setting a plan in motion. We are happy to work with you and your advisors to help achieve your charitable and financial goals.

 

Start paying attention now to the estate tax exemption sunset. 

The estate tax exemption–the total amount a taxpayer can leave to family and other individuals during their life and at death before the hefty federal gift and estate tax kicks in–is scheduled to drop, rather precipitously, after December 25, 2025. For 2024, the estate tax exemption is $13.61 million per individual, or $27.22 million per married couple, an increase over 2023 thanks to adjustments for inflation. Later this year, the IRS will issue inflation adjustments for 2025. For 2026, without legislation to prevent it, the exemption is scheduled to fall back to 2017 levels, adjusted for inflation, which would roughly total $7 million per person. That is quite a drop! This means a lot more people–maybe including you–could be subject to estate tax in the not-too-distant future. The team at The Community Foundation is happy to work with you and your advisors to explore how charitable giving techniques can help you avoid estate tax and leave a legacy for the community, especially if you start planning now.

 

If you can take advantage of the QCD, do it.

A Qualified Charitable Distribution (“QCD”) is a very smart way to support charitable causes. If you are over the age of 70 ½, you can direct up to $105,000 from your IRA to certain charities, including a field-of-interest, designated, unrestricted, or scholarship fund at The Community Foundation. If you’re subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. Through a QCD, you avoid income tax on the funds distributed to charity. Our team can work with you and your advisors to go over the rules for QCDs and evaluate whether the QCD is a good fit for you.

 

Review your IRA beneficiary designations. 

As you review your assets and how they are titled, perhaps in connection with an annual financial and estate plan review, 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 or 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 and 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. That’s why non-retirement fund assets may be better-suited to pass to children and grandchildren.

 

Embrace a holistic approach to philanthropy.

When you work with The Community Foundation, charitable giving is easy, flexible, and rewarding. As the hub of your charitable giving, The Community Foundation offers a wide range of fund types, services, and ways for you and your family to get involved with the community you love. Many of our fund holders use a donor-advised fund to organize annual giving to charities. We can also help you establish a designated or field-of-interest fund to complement the function of your donor-advised fund. A designated fund allows you to support a specific charity over the long term, while a field-of-interest fund focuses your support on a particular area of community need by leveraging The Community Foundation’s expertise. We’d also be honored to work with you and your advisors to structure a bequest to The Community Foundation in your estate plan to support important causes, as well as The Community Foundation’s work, beyond your lifetime. We are here to help you make the most of your philanthropic intentions, and it is an honor to work together.

 

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

Donor-advised fund do’s and don’ts

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Donor-advised fund do’s and don’ts

A donor-advised fund is one of many types of funds you can establish at The Community Foundation. Field-of-interest funds, designated funds, unrestricted funds, and scholarship funds are also popular and can make a big difference in the community while also fulfilling your goals for tax and charitable planning.

If you’ve established a donor-advised fund at The Community Foundation, you know it’s useful because it allows you to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, you can recommend donations from the fund to your favorite charities to meet community needs as they emerge.

Your gifts to your donor-advised fund are tax deductible transfers to The Community Foundation, which is a charitable organization recognized under Internal Revenue Code Section 501(c)(3). The Community Foundation follows the Internal Revenue Service’s requirements that disbursements from your donor-advised fund meet certain important qualifications to preserve that charitable tax status–for everyone’s benefit. It’s a good idea to periodically review a few types of disbursements that don’t meet the IRS’s rules and therefore are not permissible donations from your donor-advised fund. For example:

–A donor-advised fund cannot be used explicitly to satisfy a personal pledge to a charitable organization, such as to a capital campaign. The team at The Community Foundation is happy to work with you to develop ways you can achieve your intentions to support your favorite organization’s fundraising goals. Please reach out if you are in this situation.

–Because donor-advised funds at The Community Foundation fall under a different (and more favorable) set of IRS rules than private foundations, a donor-advised fund is restricted from supporting a private family foundation. Please reach out to The Community Foundation team to learn more about this requirement. We’d love to explore how your donor-advised fund and your private family foundation can work together to achieve your charitable goals. Some fund holders even decide to close their private foundation and consolidate their giving with The Community Foundation to achieve greater impact, save on expenses, and achieve better tax results.

–A donor-advised fund can’t be used to buy tickets to fundraising events, such as galas and golf tournaments, where the cost of the ticket is not fully tax deductible. The reason for this is that the IRS views the taxpayer as receiving benefits from the event (food, drinks, swag), and this “private benefit” muddies the waters of tax deductibility. Even if a portion of the ticket is deductible according to the charity, it’s still not a permissible distribution from a donor-advised fund. Please reach out to the team at The Community Foundation if you’re asked to sponsor a charity’s fundraiser. We are happy to discuss solutions to achieve both your charitable goals and goals for getting involved with the event.

We look forward to hearing from you! As always, The Community Foundation team is honored to be your first call when you encounter a question about your donor-advised fund or any other charitable giving opportunity.

 

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

What’s bubbling up: Need-to-know updates on the proposed donor-advised fund regulations

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What’s bubbling up: Need-to-know updates on the proposed donor-advised fund regulations

The Community Foundation is committed to providing timely updates on legal and policy developments to help you and other professionals who advise philanthropic clients stay on top of best practices in charitable planning. In that spirit, donor-advised funds and the rules governing these vehicles are topics that are popping up more frequently in financial and even mainstream media. Our team is closely watching these regulatory developments.

As background, in November 2023, the Internal Revenue Service issued proposed regulations that would change the way donor-advised funds are defined and how they operate. Especially leading up to the May 6, 2024 public hearings, the proposed regulations have created quite a buzz. If you’d not yet heard about the proposed regulations, the April 19, 2024 letter to Treasury Secretary Janet Yellen, signed by 33 members of Ways and Means, might have grabbed your attention. The letter lays out concerns that “these regulations could have the unintended consequence of impeding charitable giving in our communities, particularly at our local community foundations.” You’ll hear from us when (and if) the proposed regulations, or some version thereof, go into effect and what to do about it.

As you track the issue, however, it’s important to remember that a donor-advised fund is just one of many types of funds your clients can establish at The Community Foundation. Consider:

–Certainly the donor-advised fund is popular because it allows your client to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, the client can recommend gifts to favorite charities from the fund to meet community needs as they emerge.

–Other types of funds at The Community Foundation can be just as effective as a donor-advised fund depending on the client’s objectives. In some situations, these other fund types are even more effective than a donor-advised fund to achieve a client’s goals.

–Field-of-interest funds and designated funds, for example, allow your client to support a charitable cause or organization they love. Unrestricted funds help your clients support future needs in the community that can’t be predicted and can only be addressed through The Community Foundation’s perpetual structure and mission to serve the community as a whole.

–A major advantage of field-of-interest funds, designated funds, and unrestricted funds is that they are eligible recipients of the popular and tax-savvy planning tool called the Qualified Charitable Distribution, or “QCD,” available to your clients who have reached age 70 ½.

We look forward to helping you serve your charitable clients regardless of where the proposed regulations ultimately land. And we’ll keep you posted!

 

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

Celebrate variety: Many assets make great gifts to charity

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Celebrate variety: Many assets make great gifts to charity

When your client is getting ready to make a contribution to a fund at The Community Foundation or other charity, remind them not to automatically reach for the checkbook! Here are other (and typically more tax-savvy) options to consider.

Marketable securities

Gifts of long-term appreciated stock to a donor-advised or other type of fund at The Community Foundation is always one of the most tax-savvy ways to support favorite charitable causes because capital gains tax can be avoided. Gifts of publicly-traded stock, for example, are easy to transfer to a fund. The Community Foundation team can provide you and your clients with transfer instructions to make the process simple.

As is the case with a cash gift, The Community Foundation will provide a receipt for tax purposes, and the gift of stock will be valued at the shares’ fair market value on the date of transfer. When The Community Foundation sells the shares, the proceeds flow into the client’s fund without any reduction for capital gains taxes. This is because The Community Foundation is a 501(c)(3) charitable organization and therefore does not pay income tax. That would not have been the case, however, if the client had sold the stock first and then transferred the proceeds to a fund at The Community Foundation; the client would owe capital gains tax on the sale. Especially in cases where the client has held the stock a long time and it’s gone up significantly in value, the capital gains hit can be big.

Closely-held business interests

The Community Foundation team is happy to work with you and your client to explore how the client might give shares of a closely-held business to a fund at The Community Foundation. Not only will transfers be eligible for a charitable deduction during the year of transfer (and at fair market value if the shares are held for more than one year), but also these gifts could potentially reduce income tax burdens triggered upon a future sale of the business. Be sure to talk with our team well before any potential sale is in the works; otherwise, you could lose out on tax benefits. Gifts of closely-held business interests are powerful but can be tricky to administer.

QCDs from IRAs

As always, keep in mind that the Qualified Charitable Distribution (“QCD”) is a very smart way to support charitable causes. If your client is over the age of 70 ½, the client can direct up to $105,000 (in 2024) from an IRA to certain charities, including a field-of-interest, designated, unrestricted, or scholarship fund at The Community Foundation. If your client is subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. That means your client avoids income tax on the funds distributed to charity. Our team can work with you and your client to go over the rules for QCDs and evaluate whether the QCD is a good fit.

Real estate

Your client’s fund at The Community Foundation can receive a tax-deductible gift of real estate, such as farmland or commercial property, in a variety of ways. An outright gift is always an option; lifetime gifts of real estate held by the client for more than one year are deductible for income tax purposes at 100% of the fair market value of the property on the date of the gift, which also avoids capital gains tax and reduces the value of your client’s taxable estate. Other ways to give real estate include a bargain sale or a transfer to a charitable remainder trust which produces lifetime income for the client and the client’s family.

Life insurance

Don’t overlook life insurance as an effective charitable giving tool, whether by naming a client’s fund at The Community Foundation as the beneficiary or, in the case of whole life policies, naming the fund as beneficiary and transferring the policy itself. If your client transfers a policy, the client may be able to make annual, tax-deductible contributions to The Community Foundation to cover the premiums.

Other “alternative” assets

The Community Foundation is happy to work with you and your clients to explore options for giving other non-cash assets to funds at The Community Foundation, including:

  • Oil and gas interests
  • Negotiable instruments
  • Cryptocurrency
  • Artwork
  • Collectibles

We look forward to working with you to explore all the options!

 

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

In the business of giving

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In the business of giving

If you’re a business owner, odds are you already give back to your community. Like many charitably-minded people, your business likely sponsors events, makes in-kind donations, and donates cash to favorite organizations.

Many local business owners work with The Community Foundation to give back to the community where they built their businesses and developed lasting relationships with employees and customers.

The Community Foundation offers a variety of tools to help you build and grow your corporate philanthropy program, including:

Corporate foundation. Establishing a corporate donor-advised fund helps you organize your company’s giving in a convenient, 501(c)(3)-qualified structure.

Executive donor-advised fund. Offering this elevated employee benefit to your executive team can help activate your senior management’s community involvement.

Matching gifts. The Community Foundation can help guide your team in creating and administering a program that matches employees’ volunteer time and dollars.

Grant making administration and strategy. You and your colleagues likely receive dozens of requests each month from community organizations requesting sponsorships and monetary donations. The team at The Community Foundation can help you create and implement a strategy for responding to and evaluating those requests to align with your company’s goals for supporting and prioritizing causes.

Employee giving and disaster relief campaigns. The Community Foundation’s tools to receive and process donations can help you and your employees respond quickly and meaningfully to disasters and other urgent community needs.

The Community Foundation is glad to help you deepen your business’s impact and connection to your community, customers, and employees by creating a philanthropy plan that supports causes that align with the wide range of your objectives.

 

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

Getting creative: Three ways to support education

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Getting creative: Three ways to support education

It’s graduation season, and that means education may be on your mind! The Community Foundation can help you make a difference in the lives of young people by funding education. Certainly establishing a scholarship fund at The Community Foundation is one way to accomplish this goal. But that’s not the only way. Here are three ideas to consider as you explore ways to make an impact through education.

Establish a designated fund for educational institutions.

A designated fund provides support for specific organizations of your choice. So, for example, if you want to ensure that a particular college or university receives funding each year, you can set up a designated fund to accomplish this. For instance, if your family has supported the same local college for generations, you may want that support to continue. At the same time, you want to be sure that your funds are used effectively. This includes protecting your monetary support from the college’s creditors if the college finds itself in financial trouble. A designated fund at The Community Foundation could be the solution.

Establish a field-of-interest fund to support specific aspects of education.

Through a field-of-interest fund at The Community Foundation, you can establish parameters for grant making according to your wishes. If education is your priority, perhaps over the years you’ve supported a variety of local organizations that provide students with courses, tutoring, mentorship, and social services, ranging from grassroots charities to well-established trade schools and higher education institutions. Establishing a field-of-interest fund activates The Community Foundation’s expertise and research by delegating grant making decisions to The Community Foundation team. This helps donors like you ensure that their dollars will have the greatest impact.

Seek the advice of The Community Foundation for your donor-advised fund grant making.

If you have established a donor-advised fund at The Community Foundation, you’ve likely used it over the years to support your alma mater and perhaps other educational institutions. The Community Foundation team would welcome the opportunity to help you think broadly about education, beyond simply four-year institutions. Community colleges, trade schools, vocational programs, and out-of-the-box learning experiences may be a better fit for some students. The Community Foundation can also help you identify charities that support teachers, classrooms, and school districts, all of which need resources to deliver the best possible education to students.

We look forward to helping you support education as a major area of charitable interest! And if there’s a graduation in your family this year, congratulations!

 

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

Charitable planning: Keep your advisors informed

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Charitable planning: Keep your advisors informed

The team at The Community Foundation is honored to be your “go-to” resource for all components of your philanthropy. We enjoy talking regularly with individuals, families, and businesses about goals for charitable giving, tax strategies, ways to support favorite nonprofits, getting children and grandchildren involved in the community, leaving a legacy, and so much more. If you’ve already established a donor-advised fund, field-of-interest fund, designated fund or unrestricted fund at The Community Foundation, you know we’re always here to answer your questions.

What you might not know, though, is that The Community Foundation is also happy to help you keep your attorney, accountant, and financial advisor in the loop. We’d be happy to join you and your advisors at a meeting to discuss your charitable plans. We’re also happy to offer suggestions about which documents and information you’ll want to provide to your advisors.

For example, it’s important to provide your attorney with information about your fund–or funds–at The Community Foundation and also provide copies of fund agreements and other documentation. This will help your attorney determine whether and how your fund could be incorporated into your estate plan. Your attorney also needs to be aware of beneficiary designations on retirement plans and IRAs; these vehicles are critical components of an overall estate plan and also are an excellent way to leave a tax-savvy bequest to your fund at The Community Foundation or other charity.

Next, your accountant will appreciate knowing about your fund at The Community Foundation, especially as you work together to evaluate the most effective assets to give to charitable causes each year. Your accountant, for instance, may suggest that you give a certain dollar value of appreciated stock to your donor-advised fund in a particular calendar year to maximize itemized deductions and give you the ability to support your favorite charitable causes for several consecutive years at the high levels you intend.

Finally, it’s important that your financial advisor understand your charitable intentions and be aware of the vehicles you’ve already established. Your financial advisor can keep an eye out for stock positions that are highly-appreciated, making them ideal gifts to fund your charitable intentions. Your financial advisor will be a key member of the planning team if you were to establish a charitable remainder trust, for example, with The Community Foundation. Not only is it important to determine which assets to use to fund the trust (highly-appreciated real estate, for example), but your financial advisor also will want to weigh in on the projected lifetime income stream from the trust to develop retirement projections that are as accurate as possible.

One of the many benefits of being a fund holder at The Community Foundation is your access to a team of professionals who are dedicated to carrying out your charitable wishes. Think of our team as a group of specialists who deeply understand both the tax and mission-based aspects of charitable giving vehicles–and who are enthusiastic about working alongside your legal, tax, and investment advisors to create a philanthropy plan that meets all of your goals.

 

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

Estate planning: Your kids … and your community

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Estate planning: Your kids … and your community

As you contemplate your legacy and adjust your estate plan over the years, it’s natural to focus on your children and family as the primary beneficiaries in your will and trust. If you’re like an increasing number of charitably-minded individuals, though, you might find that your perspectives about what exactly it means to leave a legacy are expanding beyond your next of kin. Your community is on your mind and in your heart, and you’re interested in ways you can support and improve the quality of life for people in the region we call home.

If you’re intrigued, you are not alone! Indeed, many philanthropic individuals are broadening their estate plan beneficiaries to prominently include their community or favorite cause, right alongside children and grandchildren. The team at The Community Foundation would be honored to discuss the ways we can help. Here are three options for funds you can establish with The Community Foundation to benefit our community in your overall philanthropy and estate plan:

 

Unrestricted fund

Major advantages of The Community Foundation include its perpetual structure, community-based governance, and commitment to addressing needs as they change. An unrestricted fund allows you and your family to provide support that evolves over time as priorities in the region shift. The Community Foundation’s mission is to thoroughly understand the community and improve lives within it. The Community Foundation’s board and professional staff conduct ongoing, extensive research about the needs of the community and the nonprofit programs that are addressing those needs. Establishing an unrestricted fund means you are investing in The Community Foundation to support programs that are addressing the community’s most pressing needs as well as needs that can’t be identified until the future.

 

Field-of-interest fund

A field of interest fund is an ideal way to target your giving to specific areas of community need (such as education, health, environment, or the arts). Your field of interest fund at The Community Foundation establishes parameters for grant making according to your wishes. The Community Foundation’s staff follows these parameters and uses its research and expertise to make grants that align with your intentions. Your fund can continue beyond your lifetime and for multiple generations, consistently providing grants to support your area of interest according to the terms you established when you first created the fund.

 

Designated fund

A designated fund at The Community Foundation can help you secure your favorite organization’s financial future so that its mission continues, uninterrupted, even in the face of challenges. You can set up multiple designated funds if you’d like to support more than one organization. You can even set up a designated fund to support a governmental unit, such as the parks department. A designated fund allows you to decide on the timing of the distributions from the fund, such as during the organization’s capital campaign or to support a specific program or initiative. You can serve as an advisor to the fund to recommend the timing and amount of grants to the supported organization, or you can appoint the board of directors of The Community Foundation to carry out this function according to your wishes.

And here’s a bonus! If you plan to give to an unrestricted fund, designated fund, or field-of-interest fund at The Community Foundation during your lifetime, and you’re over the age of 70 1/2, you can direct up to $105,000 each year from your IRA to the fund. This is called a “Qualified Charitable Distribution,” or “QCD.” Not only do QCD transfers count toward satisfying your Required Minimum Distributions if you’ve reached that age threshold, but you also avoid the income tax on those funds. Furthermore, the assets distributed through a QCD are no longer part of your estate upon your death, so you can avoid estate taxes, too.

 

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

Four FAQs to help you establish an endowment

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Four FAQs to help you establish an endowment or Forever Fund

Many community-minded individuals have served on the boards of directors of charitable organizations in our region. If you’ve served on a charity’s board (or several!), you are no doubt familiar with the concept of an endowment. Many charities establish endowment funds and reserve funds at The Community Foundation to help ensure that their missions stay strong during economic downturns and periods of increased community need.

What you might be less familiar with, however, is an endowment fund established at The Community Foundation by an individual or family. Every year, the team at The Community Foundation works with people like you to establish endowment funds to support the needs of our region in perpetuity.

Here are answers to four frequently-asked questions about setting up an endowment fund.

 

Why does The Community Foundation offer endowment funds (Forever Funds) to individuals and families?

The Community Foundation serves as the hub of philanthropy for many families in our community. We connect donors like you to community needs you care about, and this includes offering the opportunity to make a charitable investment that supports a range of community needs now and in the decades ahead–needs that cannot be predicted. That’s the purpose of an endowment: to provide a steady stream of dollars, far into the future, to meet community needs as they arise.

 

How does an “endowment” work?

“Endowment” is the word often used to refer to a designated pool of assets that are invested by The Community Foundation and tracked separately such that a modest portion (usually based on a percentage) of the assets are distributed each year to charitable causes, and the rest of the assets remain invested to grow in perpetuity. This growth, in turn, helps the endowment provide even more support each year to the causes for which it was established. The Community Foundation team is experienced at managing the accounting, investment, and distribution aspects of endowment funds.

 

How can I stay involved with my endowment fund after it’s established?

First and foremost, you can name the endowment fund anything you want, such as the “Smith Family Endowment Fund,” or something more anonymous such as the “Endowment Fund for Our Future.” In addition, our team is happy to keep you informed about the positive change in the community that is occurring thanks to the distributions from the endowment fund you’ve established. We can continue to keep your children and grandchildren informed, too, beyond your lifetime. In this way, your legacy continues through the generations.

 

Who decides where the endowment distributions go each year?

The Community Foundation is itself a permanent institution. Our board and staff are committed to keeping a finger on the pulse of the region’s greatest needs and maintaining a deep knowledge of the charitable organizations that are meeting these needs every day. This is The Community Foundation’s mission in perpetuity. The Community Foundation’s team is made up of dedicated and knowledgeable professionals who understand our community and build ongoing personal relationships with the people working at the region’s charitable organizations. The Community Foundation team recommends distributions from your endowment, and our independent board of directors reviews and approves these distributions to ensure that they fulfill your charitable goals for establishing the endowment in the first place.

 

What does it take to establish an endowment fund?

Setting up an endowment or Forever fund is as easy as setting up any other type of fund at The Community Foundation. Our team will prepare simple paperwork capturing the name of the endowment fund and any areas of interest you’d like to support. Then, you can transfer cash—or, even better for tax purposes, you can transfer appreciated assets such as stock or real estate. You’ll be eligible for a charitable tax deduction in the year you make the transfer to establish the fund. You can make future transfers to your endowment fund each year, too, to achieve your tax and estate planning goals. Our team is also happy to work with you and your advisors to structure a bequest to your endowment fund following your death. We highly recommend considering a bequest in the form of a beneficiary designation on an IRA because of the multiple tax benefits. Related, if you are over 70 ½, making a “Qualified Charitable Distribution” from your IRA directly to your endowment fund is a very effective charitable planning tool to avoid income tax and also satisfy your Required Minimum Distribution if you’ve reached that age as well.

 

We look forward to working with you to support our community and your favorite charitable causes for generations to come!

 

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

Gifts of appreciated stock: Let the numbers do the talking

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Gifts of appreciated stock: Let the numbers do the talking

No matter how frequently you remind clients to pause before they automatically reach for the checkbook to make their charitable gifts, many clients still give cash! As an attorney, accountant, or financial advisor, you are well aware that giving long-term appreciated assets is often one of the most tax-savvy ways your clients can support their favorite charities. Nevertheless, it’s sometimes hard to convey that message to clients with words that stick. Next time, consider using illustrations to help clients see the benefits.

 

Below are three simple examples* to help you show your clients the benefits of giving appreciated stock.

Sally and Bob Jones give $100,000

Sally and Bob Jones plan to give $100,000 to their donor-advised fund at The Community Foundation to organize all of their giving for the calendar year. Let’s assume Sally and Bob have a combined adjusted gross income of $600,000, which lands them in the 35% federal income tax bracket. If they gave $100,000 in cash to their donor-advised fund, they could realize an income tax savings, potentially, of $35,000.

What if instead of giving cash, Sally and Bob gave highly-appreciated, publicly-traded stock, valued currently at $100,000, to their donor-advised fund. Let’s assume they’ve been holding the stock for many years, and the shares have a cost basis of $20,000. Not only are Sally and Bob eligible for a potential income tax deduction that will save them up to $35,000, but they have also potentially avoided $12,000 of capital gains tax that they would have owed if they’d sold the stock (using a long-term capital gains tax rate of 15%). So, it’s easy to see why Sally and Bob should consider giving highly-appreciated stock instead of cash.

Jenny and Joe Smith give $1 million

Jenny and Joe Smith plan to give $1 million to community causes this year. They’ll do that by adding $500,000 to their donor-advised fund at The Community Foundation, which in turn they will use to support their favorite charities. They’ll also be making a $500,000 gift to an unrestricted fund at The Community Foundation to help address the region’s greatest needs for generations to come. Let’s assume that Jenny and Joe are in the highest federal income tax bracket because they earn multiple seven figures. If they were to give $1 million in cash, they could save, potentially, up to $370,000 in income tax. If they gave publicly-traded stock instead of cash, assuming a $200,000 cost basis in stock valued currently at $1 million, they would still potentially save up to $370,000 in income tax, and they would also potentially avoid $160,000 in capital gains tax (based on a long-term capital gains tax rate of 20%).

Tiffany and Brett Thomas give $5 million

Tiffany and Brett Thomas plan to give a target amount of $5 million to charity as the cornerstone of their overall philanthropy plan. They would like to use publicly-traded stock that they’ve held for many years, valued currently at $5 million. They would love to receive a lifetime income stream from these assets, so that the remaining assets will flow to their fund at The Community Foundation after their deaths. In this case, you’ll explore setting up a charitable remainder trust that pays out an income stream to Tiffany and Brett while they are both living and then to the survivor for the survivor’s lifetime.

Let’s assume that TIffany and Brett are both 55 years old. And let’s assume that the stock has a very low cost basis–just $500,000–because the Thomases have held it for so long. Depending on the IRS’s applicable rates, and assuming a 5% annual payout rate paid at the end of each quarter, here’s an approximate tax result if you worked with The Community Foundation to help Tiffany and Brett establish a charitable remainder trust:

–$1,042,550 approximate potential income tax deduction based on the present value of the gift of the remainder interest to charity

–$4,500,000 in capital gains that may not be subject to tax

–$250,000 in total payments during the first year

–Annual payments of 5% of the value of the assets in the trust, which means the income stream will fluctuate depending on the value of the assets

Following the death of the survivor of Tiffany and Brett, the remaining assets will flow to the Thomas Family Fund at The Community Foundation, which Tiffany and Brett have already established and which, upon their deaths, will split equally into two funds. The first fund will be a donor-advised fund for which their children will serve as advisors, and the second fund is an unrestricted endowment fund to support The Community Foundation’s priority initiatives in perpetuity.

Of course, no client’s circumstances will exactly match those of Sally and Bob, Jenny and Joe, or Tiffany and Brett. The net-net here, though, is that The Community Foundation is happy to discuss the various tax-savvy options for charitable giving in any client situation. Please reach out. We’re here for you! It is our honor to help you serve your charitable clients.

*These examples are for illustration purposes only. Every client’s situation is different, and therefore the tax strategy and tax impact will be different for each client. For example, these illustrations are based on federal income tax rates only, and you’ll need to evaluate, among many other factors, the impact of state taxes.

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