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July 2024
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We’re giving you fair warning that the team at the Community Foundation is not going to stay quiet when it comes to emphasizing the importance of understanding at least the basics of the estate tax exemption sunset. Yes, we will be that broken record!
As a reminder, the estate tax exemption is the total amount a taxpayer can leave to family and other individuals during life and at death before the hefty federal gift and estate tax kicks in. This exemption is scheduled to drop big time after December 25, 2025. For 2024, the estate tax exemption is $13.61 million per individual, or $27.22 million per married couple. (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, this would total roughly $7 million per person. Of course, no one will know for sure that the estate tax exemption is sunsetting until it actually sunsets. Certainly the upcoming election could impact the likelihood that Congress will intervene and extend the tax cuts from 2017 that increased the estate tax exemption in the first place. In any event, it is essential that you and your team understand what’s going on here so that you can be prepared to encourage your donors to discuss planning options with their advisors over the coming months while the issue is in limbo. You want your donors to know that you are on top of it! The net-net here is that a lot more people – including many of your donors – could be subject to estate tax in the not-too-distant future. This, in turn, means that your endowment fundraising strategies could get a shot in the arm as your donors work with their advisors to plan gifts and bequests to decrease their taxable estates through the charitable deduction. At the very least, the estate tax exemption is a fantastic conversation piece for your donor meetings, regardless of whether the sunset actually occurs at the end of next year. Potential tax increases tend to get donors’ attention, and you want to be right there in the mix to ensure that gifts to your endowment fund are on the radar. Please reach out to the Community Foundation team! We’d love to help you seize this opportunity. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 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 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. The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. The team at the Community Foundation is committed to keeping an eye out for trends and developments that impact charitable giving and your ability to raise funds for your organization’s mission.
Here are three developments you'll want to track:
Thank you, as always, for the opportunity to work together! It is our honor to be your partner in philanthropy and community impact. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 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:
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. The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. As you and your team build momentum implementing your 2024 fundraising plan, keep in mind that many individual donors look at the same criteria used by foundations to determine whether to support a charitable organization. You may not even be aware that a prospective donor is conducting due diligence. Especially when a donor is considering making a large gift or setting up a bequest, gaining the donor’s confidence is key.
The team at the Community Foundation is always happy to serve as a sounding board as you strive to continuously improve your organization’s governance and operational documentation. Here are 3 items you might consider reviewing as you do a little spring cleaning. Governing Documents Make sure your articles of incorporation are up-to-date and reflective of your current mission. Donors who are considering a large gift will want to see that your legal documents are in ship shape, especially with respect to the language required to achieve Section 501(c)(3) status. If you’re in doubt, consult the IRS’s suggested language. You’ll also want to review your bylaws. Bylaws can become outdated, in some cases due to technology. For example, you’ll want your bylaws to include permission to use up-to-date mechanisms to gain board approval, such as through an online poll in lieu of an in-person meeting. Tax Returns You’re no doubt on top of the need to file the annual Form 990 tax return. Make it a point, though, to check for consistency between your Form 990 and the Form 1023 you filed (likely years ago) to secure the IRS Determination Letter granting charitable status. Make sure your organization’s charitable purpose is still stated correctly. Consistency across key documents is important to a lot of large donors. Indeed, many donors review the Form 990 carefully before they decide to make a gift. Make sure yours is accurate and compelling. Gift Acceptance Policy Make sure you’ve recently reviewed your policies for how your organization handles the acceptance of certain gifts, especially if they fall in the category of “Non-Standard Contributions” as defined by the IRS. Gifts of hard-to-value assets should not be undertaken lightly. We encourage you to reach out to the Community Foundation to assist in establishing a gift acceptance policy that will protect your organization and empower your fundraisers to engage in successful conversations with donors. To that end, the Community Foundation offers nonprofit organizations the opportunity to establish endowments and reserve funds to benefit from the Community Foundation’s governance and oversight, especially related to accepting complex gifts, as well as relying on the Community Foundation for all of the policies and administration associated with an endowment or reserve. 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. 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:
We look forward to helping you serve your charitable clients regardless of where the proposed regulations ultimately land. And we’ll keep you posted! The team at the community foundation 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. In our last newsletter, we shared that our team is closely tracking the IRS’s proposed regulations concerning donor-advised funds, issued in November 2023. Certainly these regulations are just “proposed”; it is unclear whether and to what extent they will become final.
If you routinely read financial publications, you may have seen articles about these proposed regulations and speculation about what they might mean for charitable planning. At this point, it is anyone’s guess! You can rest assured that the Community Foundation team is on top of the issues, and we will update all of our fund holders as more information becomes available. Indeed, you may have seen the news that the IRS has scheduled public hearings on the proposed donor-advised fund regulations, set for May 6, 2024, so it’s not likely we’ll hear anything definitive for several months. In the meantime, you might enjoy reading up on donor-advised funds and the many ways they can help grow philanthropy. The Donor Advised Fund Research Collaborative’s recently-released study of donor-advised funds is full of statistics and insights about the popularity of donor-advised funds and how they help grow philanthropy. We’ll keep you posted! This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. On an ongoing basis, the team at the Community Foundation tracks legislation, legal developments, trends, news, and innovative strategies for all types of charitable giving so that we can keep fund holders and their advisors up to date.
Recently, donor-advised funds have been the subject of conversation within financial and estate planning circles, as well as a trending topic in philanthropy, related to a set of proposed regulations issued by the IRS late last year. The IRS has scheduled public hearings on the proposed regulations, set for May 6, 2024. As just one of many types of funds your clients can establish at the Community Foundation, 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. Our team has compiled a list of articles we’d recommend if you’d like to dig deeper into the topic of donor-advised funds.
While these materials are useful to gain an understanding of the current situation, at this point, no one can predict what will happen with the proposed regulations--whether and how they will be revised or when they might become effective, if ever. As always, our team is staying on top of the issues. We’ll keep you posted! The team at the Community Foundation 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. Tax time has its silver linings! Going over a tax return with a client helps start a productive conversation about ways to plan gifts to charity more effectively. As you scan 2023’s charitable contributions, talk with the client about whether those charitable gifts were made with cash or with other assets and then steer the conversation toward discussing the most effective assets to give to charity during 2024 and beyond.
Here is a four-point checklist that can help you advise your clients about the range of charitable giving options.
Opening up the full range of charitable giving options for a client can help you structure a holistic estate and financial plan that meets the client’s objectives for family wealth, philanthropy, and tax effectiveness. Reach out anytime to the team at theCommunity Foundation to discuss techniques and strategies. The team at the Community Foundation 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. Your clients who own highly-appreciated works of art certainly can consider making gifts of this property to a charity. Use caution, though, when helping clients structure gifts of artwork. To be eligible for a charitable deduction at fair market value, the nonprofit recipient’s use of the donated artwork must meet certain qualifications, in that the artwork has to be used for its charitable purpose (think art museums). On top of that, be wary of techniques that recently have come under severe IRS scrutiny and have been determined to circumvent the rules for tax deductions.
This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. As you review your donor lists and plan 2024 cultivation activities, pay particular attention to donors you know are over the age of 70 ½. That’s because these donors are eligible to make what’s known as a “Qualified Charitable Distribution,” or “QCD,” to your organization’s endowment fund at the Community Foundation directly from the donor’s IRA.
You’ve likely heard a lot about QCDs because they are becoming a very popular financial and charitable planning tool. At the same time, QCDs are growing as the source of more and more confusion. Here are answers to the questions donors might ask you about QCDs so that your team can be prepared to answer them. As always, please do not hesitate to reach out to the Community Foundation for assistance. “Is an IRA (Individual Retirement Account) the only eligible source for Qualified Charitable Distributions?” Short answer: Almost. Long answer: An individual can make a Qualified Charitable Distribution directly to an eligible charity from a traditional IRA or an inherited IRA. If the individual’s employer is no longer contributing to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, the individual may use those accounts as well. In theory, a Roth IRA could be used to make a QCD, but it is rarely advantageous to do that because Roth IRA distributions are already tax-free. “What is the difference between a QCD and an RMD?” Short answer: Quite a bit! But a QCD can count toward an RMD. Long answer: Everyone must start taking Required Minimum Distributions (“RMDs”) from their qualified retirement plans, including IRAs, when they reach the age of 73. RMDs are taxable income. The Qualified Charitable Distribution, by contrast, is a distribution directly from certain types of qualified retirement plans (such as IRAs) to certain types of charities. When a taxpayer follows the rules, a QCD can count toward the taxpayer’s RMD for that year. And because the QCD goes directly to charity, the taxpayer is not taxed on that distribution. “Can a donor make a Qualified Charitable Distribution even if the donor is not yet required to take Required Minimum Distributions?” Short answer: Yes–within a very narrow age window. Long answer: RMDs and QCDs are both distributions that impact retirement-age taxpayers, and it would seem logical that the age thresholds would be the same. Under the SECURE Act, though, the required date for starting RMDs was shifted from 70 ½ to 72 and is now up to 73 (which is better for taxpayers who want to delay taxable income). A corresponding shift was not made to the eligible age for executing QCDs; that age is still 70 ½ (which benefits taxpayers who wish to access IRA funds to make charitable gifts even before they are required to take RMDs). The IRS’s rules for QCDs are captured in Internal Revenue Code Section 408 and summarized on pages 14 and 15 in Publication 590-B in its FAQs publication. “Can a donor direct a QCD to a fund at the Community Foundation?” Short answer: Yes, if it’s a qualifying fund. Long answer: While donor-advised funds are not eligible recipients of Qualified Charitable Distributions, other types of funds at the Community Foundation can receive QCDs. These funds include endowment funds established by nonprofit organizations. “How much can a donor give through a QCD?” Short answer: $105,000 per year. Long answer: A Qualified Charitable Distribution permits a donor (and a spouse from a spouse’s own IRA or IRAs) to transfer up to $105,000 each year from an IRA (or multiple IRAs) to a qualified charity. So, a married couple may be eligible to direct up to a total of $210,000 per year to charity from IRAs and avoid significant income tax liability. The Community Foundation is here to help you and your team tap into the potential of QCDs to grow your endowment fund. Please reach out! We’d love to talk about a QCD strategy for 2024 and beyond. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 2023 was a busy year! We understand that charitable giving topics may not always be at the top of your reading list. That’s why we're here! The team at the community foundation is committed to keeping you up-to-date on what you need to know. Here’s a recap of five key developments last year that are most certainly worth keeping an eye on in 2024
A new year ushers in a fresh batch of resolutions and goals. It’s also a time when new questions pop onto the radar. That’s certainly the case even in these early days of 2024. Here are a few of the top questions we’re already hearing from our nonprofit partners, along with answers to help you navigate the year ahead.
Keep these five tips in mind as you consider your year-end giving:
This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. The shorter days of fall and winter aren’t the only sunsets creeping up on people these days. If you’ve met with your estate planning attorney and tax advisors recently, you’re probably aware that the gift and estate tax exemption–the total amount you can leave to family and other beneficiaries during life and at death before the hefty federal gift and estate tax kicks in–is about to drop, rather precipitously.
Without legislation to prevent it, on January 1, 2026, the exemption will drop from $12,920,000 per person (that’s the 2023 exemption) to about half of that amount, depending on annual inflation increases. As the date gets closer, tax planning decisions get tougher. Make aggressive moves now to activate gifts to family members? Or hold out to see if legislation intervenes to prevent the sunset? |