It’s October, and the fourth quarter is upon us.
The team at San Diego Foundation (SDF) is especially looking forward to talking with many of you about incorporating charitable giving into your clients’ estate plans in honor of National Estate Planning Awareness Week from October 16 to 22. In that spirit, we’ve compiled a collection of articles this month that might help guide your discussions with clients. Here’s what’s on tap:
- What’s deductible and what’s not? As you talk with clients about supporting their favorite charities in their estate plans, it’s a great time to brush up on the rules for deductibility. This is the time of year when nonprofit solicitations are landing in clients’ inboxes and mailboxes nearly every day. Clients might not always realize that “nonprofit” does not necessarily mean “charitable” in the eyes of the IRS. Our brief summary of the rules provides a handy primer for you and your clients.
- Moving from a commercial fund to a community foundation. Clients are reading about donor-advised funds (DAFs) everywhere these days! Some of your clients might even have established a DAF at a “commercial gift fund” without you even knowing it. As you work with clients on their estate and financial plans, ask whether they have a donor-advised fund. In many, many cases, moving the DAF to a community foundation like SDF from a national financial institution provider is not only easy but also is a far better fit for your clients.
- Charitable planning and female clients. The dynamics are different when you’re working with women on their estate and financial plans. Make sure you approach these conversations with a solid awareness of the often unique perspectives women bring to the table when deciding how to structure their wills or trusts and which vehicles they will use to support charities. Your women clients will appreciate your awareness of what’s happening in the marketplace. We’re offering tips for your conversations.
We hope you enjoy the updates, and, as always, we look forward to hearing your comments and suggestions about topics and resources that would be useful to you as you serve your philanthropic clients.
Thank you for all you do to improve San Diego by assisting your clients with charitable planning.
Clients Want to Know: What’s Deductible, What’s Not?
Whether you are an estate planning attorney, financial advisor, or accountant, you’ve probably seen an uptick in client questions about tax deductions – and tax rules in general – over the last few years. Tax law changes at the end of 2017 have caused much ongoing taxpayer confusion.
To be sure, your clients will be asking about charitable tax deductions as year-end rolls around. As an advisor, you’re already working with clients on financial and tax planning all year, but fall is when many clients buckle down. Whether it’s the change in the weather or the imminent end of the calendar or tax year, autumn is a time to reassess things like tax loss harvesting and charitable giving. These are just two of many types of transactions that result in deductions when tax returns are filed in the spring.
Charitable giving may be especially high on the planning radar because of the many national fundraising initiatives that kick into gear this time of year. You (and your clients) have probably noticed that many different causes are celebrated monthly. Ensure your clients know that there are specific parameters around tax deductibility before they respond to requests from organizations and even their friends and family members who support these organizations.
Your clients are relying on you as an advisor to stay on top of the rules, including:
- Section 501(c) of the Internal Revenue Code outlines the requirements for organizations to be considered tax-exempt – a status for which an organization must seek IRS approval.
- Tax exemptions apply to certain types of nonprofit organizations, but status as a nonprofit (which is a state law construct) does not necessarily mean that the organization will be exempt from Federal income taxes.
- Furthermore, even under Section 501(c), the IRS recognizes different types of nonprofits as tax-exempt.
- To qualify under the Internal Revenue Code Section 170 charitable deduction for gifts to Section 501(c)(3) organizations, for example, the recipient must be organized and operated exclusively for “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.” “Charitable,” according to the IRS, has a very narrow definition.
- No doubt, many of your clients not only support 501(c)(3) charities but also social welfare groups organized under Section 501(c)(4). Examples of social welfare groups include neighborhood associations, veterans organizations, volunteer fire departments, and other civic groups whose net earnings are used to promote the common good. Donations to social welfare groups are tax deductible in only certain instances (e.g., gifts to volunteer fire departments and veterans organizations).
- Chambers of Commerce and other business leagues fall under Section 501(c)(6); donations to these entities are not tax deductible.
If you have any questions about the tax deductibility of your clients’ contributions to various organizations, please reach out to us. We are immersed in the world of Section 501(c) every single day and are happy to help you navigate the rules.
Moving DAFs From a Commercial Fund to SDF
Although a donor-advised fund (DAF), which is becoming a more and more popular charitable planning tool, can be established through a national financial institution, community foundations like SDF offer donor-advised fund holders much broader services, more personal attention and deeper connections to the nonprofits whose work is essential to effecting positive change in our community. Unfortunately, many attorneys, accountants, and financial advisors are unaware that a DAF established at the community foundation is, in most cases, a far better fit for their clients than one set up at a “commercial gift fund.”
As you meet with your clients about year-end planning, ask whether they’ve established a donor-advised fund and, if so, where it’s housed. If a client’s DAF is not at a community foundation but was established through a national provider, please call us. We would be happy to talk with you and your client about the ease and benefits of moving the donor-advised fund to the community foundation.
SDF offers fundholders the same tax and administrative benefits as a commercial gift fund, including:
- Online access to the donor-advised fund to view balances, contributions, and grants
- Simple process for requesting grants to favorite charities
- Streamlined tax reporting, often represented by just one letter to provide to an accountant at tax time, even when the DAF is used to support dozens of individual charities throughout the year
- All back-office administration, tax receipts, recordkeeping, and other requirements for the donor-advised fund’s 501(c)(3) status
- Favorable tax deductibility of contributions to the fund
Unlike standard commercial gift funds, though, SDF’s Donor Services team offers high-level, customized services to our donors, including:
- Concierge-level service by knowledgeable staff to structure estate gifts to charities and accept gifts of appreciated stock or complex assets such as real estate or closely-held stock
- In-house experts who have a finger on the pulse of San Diego’s most critical needs, the strengths of specific nonprofits, and how to structure grantmaking for the highest possible benefit
- Opportunities to collaborate with other donors who care about similar issues and forums to tap into local and national subject matter experts
- Opportunities to go deep into specific issue areas, both through education and hands-on involvement
- Assistance with structuring and measuring the impact of grants
- Family philanthropy and corporate giving services to foster a well-rounded, holistic approach to philanthropy
- Administrative fees that are reinvested into the community to help support operations, grow our mission, and help more donors support the causes they care about
- Hands-on assistance from local experts who understand both local needs and welcome the opportunity to research and identify causes aligned with donors’ goals and priorities
- Staff members who live in the community they serve and often personally know the leaders and staff of grantee organizations and regularly hear about their needs first-hand
Keep an eye out for clients’ DAFs at commercial gift funds. You’ll be doing a tremendous service for your client and helping the local community.
You will also be fulfilling your own professional responsibilities by exploring the opportunity for a client to move a donor-advised fund to SDF. At our community foundation, hard-earned assets receive the attention they deserve as your clients strive to make a difference in the causes they care about the most.
Charitable Planning and Female Clients: Three Case Studies
Women’s spending power has been in the news over the last several weeks as Taylor Swift’s and Beyonce’s tours continue to break records and the Barbie movie still looms large. As you’ve worked with female clients over the years, you’ve likely noticed a few trends:
- Women frequently take on caregiving roles within a family, including caring for both their parents and their own children, and often while also working full-time or owning businesses.
- Women often take the lead on charitable giving decisions.
- Women often find themselves living alone at some point in their lives, including because of a spouse’s death or because of divorce.
- Women often have a hard time putting themselves first.
At SDF, we are always up-to-date on the trends in philanthropy that affect women as they build charitable components of their estate and financial plans. Our team is happy to provide helpful resources if you’d like to learn more about how philanthropy plays a role in your female clients’ lives.
Here are three examples of cases where we can help:
- Family philanthropy vehicle funded with tax-efficient assets
We can work with you and your client to establish a DAF that includes your client and her children as advisors so that they can learn together about nonprofit organizations in our San Diego and jointly decide on grant recipients, tapping the knowledge and connections of the SDF team. We can help you identify the most optimal assets for your client to transfer to the donor-advised fund, including highly-appreciated stock, real estate, or even an interest in a closely-held business. - Funds dedicated to a specific area of interest funded with IRAs
Our team can provide deep research and expertise on a client’s specific areas of interest, whether that’s children and families, climate, education, workforce development or another cause that is important to your client. Then, we can work with your client to establish a field-of-interest fund at SDF to receive Qualified Charitable Distributions (QCDs) from your client’s IRAs. Your client can also name the field-of-interest fund as the beneficiary of the IRA to receive the remaining assets at her death. Your client will enjoy the confidence of knowing that her charitable priorities will continue to be supported for years to come, even beyond her lifetime. - Organization-specific support formally incorporated in estate plan
For a client who has dedicated many years of her life to supporting a particular charitable organization, including perhaps even serving on the organization’s board of directors, our team can work with you to help the client understand what that organization needs to be successful for many generations. Then, we can work with your client to help fill those gaps. For example, grants from the client’s DAF could provide the money needed to hire a new staff person or purchase new technology that will improve the charity’s ability to deliver on its mission. Your client could even leave a bequest in her will or trust to establish a designated fund at SDF that provides supplemental income each year to the organization’s operating budget.
We look forward to working together as you help your female clients achieve both their financial and charitable goals.
Learn More
For nearly 50 years, we have partnered with an extensive 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.
If you want to learn how we can help meet your clients’ financial planning and charitable giving goals in 2023, contact me at (858) 245-1508 or jrogers@sdfoundation.org.
