As you and other advisors emerge from a busy tax season, we know that legislative changes, charitable giving vehicles and even cautionary tales are topics that are likely to capture your interest.
As always, our team at The San Diego Foundation is here to help you and your clients navigate the various options for charitable giving.
QCDs: Good News & Important Reminders
Qualified Charitable Distributions, or “QCDs,” have been in the news a lot lately, especially in light of proposed SECURE Act 2.0 legislation that passed the House of Representatives in March and is now pending in the Senate.
Through a QCD, starting at age 70½, your client can instruct the administrator of an individual retirement account (IRA) to direct up to $100,000 per year to a qualified charity. This helps your client’s tax situation because the client does not need to report the amount of the QCD as taxable income.
Here are four important reminders about QCDs:
- Even though the SECURE Act changed the Required Minimum Distribution (RMD) age to 72 from 70 ½, the QCD age is still 70 ½.
- QCDs cannot be gifted to donor-advised funds, but your client give a QCD to a program fund at The San Diego Foundation or a field-of-interest or unrestricted fund.
- Under a version of the proposed SECURE Act 2.0 legislation, QCDs would be indexed for inflation. In addition, the proposed legislation would allow a client to make a one-time QCD of up to $50,000 to a charitable remainder trust or other split-interest entity.
- Finally, be sure to help your clients coordinate their QCDs with their RMDs. Proper planning well in advance of Q4 will help avoid troublesome tax pitfalls.
Please reach out to our team to learn more about QCDs for your clients.
Timing Income: A NIMCRUT Could Hold the Key
Clients who own closely-held businesses, real estate or even cryptocurrency may be good candidates for a particular type of charitable remainder trust known as a NIMCRUT, which is short for “Net Income with Makeup Charitable Remainder Unitrust.”
The way it works is that your client transfers a highly-appreciated asset to a trust. The trust terms provide for the payment of a fixed percentage (at least 5 percent) of the trust’s value, revalued annually, to your client or another beneficiary.
Here’s the key with the NIMCRUT: The terms of this type of trust also provide that if the trust’s income is less than the designated fixed percentage, the trust will only distribute the actual income. Later, upon the liquidation of the highly-appreciated asset, for example, the income distributions will be made up.
In this way, not only does the NIMCRUT keep the highly-appreciated asset growing under favorable tax conditions inside the trust until it is sold, but it also allows your client to receive the higher income in later years, such as retirement, when the client’s tax bracket is likely to be lower.
As with other types of charitable remainder trusts, when the term of the NIMCRUT expires, the remainder passes to charity.
Some NIMCRUTs deploy a “FlipCRUT” feature which removes the net income limitation upon a triggering event (such as the sale of an asset or a date). This creates even more flexibility in timing income for your client.
Note that it’s wise to consider naming a public charity, such as a donor-advised fund at The San Diego Foundation, versus a private foundation, as the charitable remainder beneficiary of a NIMCRUT or other charitable remainder trust. This optimizes the amount of your client’s up-front charitable deduction when the trust is funded.
Social Consciousness: Today’s Expectations of Advisors
Especially over the last few years as social consciousness has increased, many of your clients have no doubt become more interested in how they can make a difference through their philanthropic activities, whether those activities include giving to charities, volunteering, serving on boards of directors, purchasing products that support a cause or advancing sustainable environment.
As clients grow more in tune with social impact, they are expecting their advisors to be ready to help them structure and plan their charitable giving.
What’s more, clients who receive charitable planning advice from their advisors tend to be more loyal and more willing to recommend their advisor to others, especially when that advisor is proactive in bringing up options for incorporating philanthropy into financial and estate plans.
With that in mind, The San Diego Foundation is here to help you stay up to date with philanthropy so you can have the charitable conversations and deliver the services your clients are seeking.
To that end, for an insightful look into the inner workings and current state of the philanthropy industry, we suggest skimming the written testimony that the Council on Foundations recently provided to the Senate Finance Committee. The Council, a major voice and advocate for philanthropy domestically, notes that the current economic and legislative environment has created a “pivotal moment for nonprofits and their philanthropic partners.”
We are also here to help you avoid treacherous situations as you create philanthropic plans for your clients.
Sadly, as philanthropy and giving grow, periodic bad news is almost certain to bubble up. The unfortunate situation at St. Jude Children’s Research Hospital, for instance, involving legal fights with families is an example of how important it is to create a philanthropic plan and related legal documents that are rock solid on donor intent.
Learn More
For more than 46 years, we have partnered with a large network of wealth advisors, estate planning attorneys, tax planners and other advisors to help high-net-worth clients and families achieve financial planning objectives and charitable giving goals, while maximizing tax deductions.
From establishing donor-advised funds to building your clients’ legacies and providing them with grantmaking guidance on community needs, we act as your team’s charitable partner, supporting your clients through the giving process as you retain complete control of your relationships.
If you’re interested in learning how we can help meet your clients’ financial planning and charitable giving goals, contact me at (858) 245-1508 or jrogers@sdfoundation.org.
