As the end of the year draws closer, we’re looking forward to working with so many of you to structure and fulfill your clients’ charitable giving goals for 2024. San Diego Foundation (SDF) is honored to be your very first call whenever the topic of charitable giving pops up during client conversations.
What’s really exciting is to hear from attorneys, CPAs, and financial advisors that you’re no longer waiting for the topic to pop up because you’re bringing it up yourself.
Here’s what’s trending this month:
- Our hearts go out to the millions of people affected by Hurricane Helene. Community foundations in the affected areas and across the country are making it as easy as possible to donate to relief efforts. Please contact our team to learn more about how you and your clients can help swiftly and most effectively. Or, visit our Emerging Needs web page for a list of vetted relief efforts to support.
- We’re excited about the first-ever DAF Day, a national campaign to encourage giving from donor-advised funds. SDF is honored to work with so many individuals, families, and businesses to establish donor-advised funds to organize their giving. A donor-advised fund can be a key component of a client’s overall philanthropy plan. Other components often include field-of-interest funds, designated funds, and unrestricted funds, as well as bequests in your clients’ estate plans through a will, trust or IRA beneficiary designation.
- Make a note on your calendar of other key dates that may be relevant to your clients, including National Estate Planning Awareness Week during October 21 – 27, National Philanthropy Day on November 14, and GivingTuesday on December 3. These well-publicized events make it even easier to discuss charitable planning during client conversations.
In this edition of our monthly newsletter, we’re diving deeper into three key topics:
- Election year dynamics make it even harder to predict potential changes to tax laws that could impact your clients’ charitable giving plans. SDF offers high-level observations about the major areas of tax policy that could be impacted by election results. As always, we’re committed to keeping you up to date, even in the absence of a crystal ball.
- Event season is ramping up, and that means your clients may have questions about the tax deductibility of buying tickets or purchasing a table. Indeed, supporting a charity event is not as straightforward as you might think. SDF is happy to help your clients support their favorite causes without running afoul of IRS rules.
- Clients expect you to ask them about charitable giving. “Oh I do that,” you might say to yourself. But don’t be so sure – clients may have a different impression. SDF offers simple tips and techniques to help you meet clients’ expectations for including philanthropy in the conversation.
We look forward to your emails and phone calls as 2024 winds down, and we’re excited about continuing our conversations in 2025 and beyond.
Into the Great Unknown
Humans crave certainty, and that is certainly not what we have right now during election season, especially when it comes to taxes.
Your clients who support charitable causes may be wondering how the election outcomes might impact their philanthropic plans. (You may be wondering that, too.)
Of course, no one has a crystal ball. It is impossible to predict tax law changes, and that will still be the case to some extent even after the elections. So much can change between a tax proposal and what is ultimately enacted into law. Still, you’d at least like to have a general idea.
In that spirit, let’s break down at a very high level where the proposals are trending and what might happen with charitable giving depending on the outcome of the November elections.
Capital Gains Tax
- Donald Trump has not yet formally proposed a new tax policy on capital gains.
- Kamala Harris has called for an increase in the top long-term capital gains tax rate to 28% for taxable income above $1 million. This change could translate into more incentive to give appreciated assets to funds at San Diego Foundation and other charities.
Income Tax
- Trump could make income tax cuts permanent. These cuts are currently subject to next year’s scheduled sunsetting of provisions in the 2017 Tax Cuts and Jobs Act. Note that in this scenario, the higher standard deduction under the act would presumably continue, reinforcing what many have observed as a chilling effect on charitable donations.
- Harris has proposed expanding several tax credits, but sources opine that it is still unclear whether the higher standard deduction would be allowed to sunset.
Estate Tax
- Trump has indicated that he will prevent the estate tax cuts (ie., higher estate tax exemption) from expiring.
- Harris appears to signal that she would increase estate taxes, perhaps leaning toward the policies laid out in President Biden’s Fiscal Year 2025 Budget Proposal, which modeled tightening the estate tax. If the estate tax exemption were to drop according to the sunset provisions under current law, or if other changes were to increase the estate tax, high net-worth taxpayers would have a greater tax incentive to make large charitable gifts and bequests.
Remember that tax changes will be impacted by more than just the presidential election. The makeup of Congress also affects the passage of actual laws.
Event Tickets: Beware of the Split
Many of your philanthropy-minded clients certainly enjoy attending fundraising events for their favorite charities. Especially as community events start ramping up this fall, you’ll want to be aware of a little wrinkle in the IRS rules that may surprise your clients so much that they ask you about it.
Here’s how this might go.
- Client: “We wanted to buy a table at the fall gala through our donor-advised fund, but the team at SDF said that’s not possible and they suggested alternate ways of meeting our goals. What’s up with that?”
- You: “Ummmm ….”
And no one could blame you for that response. The rules behind this are obscure and confusing, even by IRS standards.
Here’s what’s going on: The IRS frowns on donor-advised funds paying for any part of an event ticket to a charitable fundraiser–even if a portion of the ticket is tax-deductible.
Big picture, the IRS is likely striving for administrative simplicity to enforce the longstanding tax principle that a taxpayer cannot deduct value given to a charity that is effectively transferred back to the taxpayer. At a typical event, of course, your client receives food, drinks, entertainment, and even t-shirts and other fun swag. The IRS knows this.
The IRS’ commentary on this topic is not new; IRS Notice 2017-73 addresses a concept known as “bifurcated gifts,” meaning a portion of a gift is tax-deductible, and the other is not. The background here is that the IRS has taken the position that Internal Revenue Code Section 4967 prohibits donor-advised grants from conferring “more than incidental” benefits to donor-advised fundholders.
In its 2017 Notice, the IRS expresses its opinion that donor-advised fund grants that enable attendance or participation in a charity-sponsored event (such as buying tickets or a table) do indeed provide more than just an incidental benefit, even if the taxpayer pays out-of-pocket for the non-deductible portion of the ticket.
Ever since the notice was released, tax professionals have been watching it, and many predict that the IRS will eventually formalize its opinion by issuing new regulations. It’s wise to keep an eye on this because the penalties certainly are not negligible and include excise taxes imposed on the donor advisor and potential penalties for donor-advised fund programs that knowingly authorize such payments.
There is good news, though – our team is on it.
We understand the rules inside and out, and we are here to help your clients stay compliant and achieve their charitable goals.
In situations like this, we help your clients structure gifts from their donor-advised funds to support general event sponsorships if the client declines all benefits, or even recommend that the client pay the ticket portion from their personal funds and use donor-advised funds to give separate and additional amounts for general support unrelated to the event specifically. We can also talk with your client about how to participate in rallies for outright donations during a fundraising event and ensure that the client is not receiving any benefit in return.
Tips for Starting a Charitable Giving Conversation
Attorneys, CPAs, and financial advisors certainly are not strangers to tough questions. Indeed, the mix of money, family and mortality is a potent combination that almost always creates an emotionally-charged planning environment, whether the matter at hand is tax planning, updating wills and trusts, or structuring retirement portfolios.
Why, then, are so many advisors reluctant to bring up charitable giving during client meetings when the topic itself is so uplifting? Three primary reasons:
- In some cases, you may feel like you don’t know enough about the technical tax planning aspects of charitable giving to be able to offer sound advice.
- In other cases, you may be concerned about taking the planning process off course into areas where the client doesn’t want you involved.
- Or maybe you don’t feel you have a good enough grasp of the client’s big picture to truly recognize opportunities for charitable planning that are a win-win for the client’s favorite causes and the client’s tax and financial plan.
San Diego Foundation has you covered. Consider the following:
Clients are expecting you to bring up charitable giving; studies reveal a disconnect between what clients and advisors assume and perceive. So if you think to yourself, “Oh, I asked about that,” think again because the client may disagree. Did you approach the question with sincere interest, or were you just checking a box?
What’s important here is that SDF is your technical backup.
You absolutely do not need to know the ins and outs of the charitable deduction rules, the details of Qualified Charitable Distributions (QCDs), or how a donor-advised fund or charitable remainder trust operates. If you’ve built expertise around charitable giving in your practice, that’s terrific, but it is not necessary. Our team is just an email or a phone call away.
While plenty of resources offer excellent suggestions for how to bring up charitable giving in conversations, many advisors tell us that they have to keep it even more simple. We understand that you don’t have time to ask a briefcase full of questions. That does not mean, however, that you can’t have a meaningful conversation. Even just two minutes is plenty if you show genuine interest in the client’s intentions and connect the client to SDF.
For example, the charitable planning part of a client meeting could be as simple as this:
“Now that we’ve taken a look at your retirement projections, beneficiary designations, and portfolio allocation, let’s check in on charitable giving. Bring me up to speed on your involvement with community organizations.”
Then, let them talk. If they’re not involved in any community organizations, they’ll tell you. And if they are, they’ll tell you that, too.
If the client is indeed involved in community organizations, let them know that you are happy to connect them to the team at SDF, or, better yet, tell the client that you’d be happy to invite a professional from SDF to your next meeting. Your priority as their advisor is to bring professionals to the table to help achieve their charitable giving goals.
Of course, this sample dialogue is oversimplified for illustration purposes.
But truly, it does not need to be much more complicated than that. Next time you meet with a client, give this simple approach a try. You might be surprised at how easy it is, and how much the client appreciates your interest in areas of their lives that go beyond dollars-and-cents transactions and legal documents.
Learn More
For nearly 50 years, we have partnered with an extensive network of wealth advisors, estate planning attorneys, tax planners and other financial advisors to help high-net-worth clients and families achieve financial planning objectives and charitable giving goals while maximizing tax deductions.
If you want to learn how we can help meet your clients’ financial planning and charitable giving goals in 2024, contact me at (858) 245-1508 or jrogers@sdfoundation.org.
