Greetings from the San Antonio Area Foundation!
Every day, our team appreciates the opportunity to work with attorneys, accountants, financial advisors, and other professionals who are helping clients achieve their charitable goals. We know your relationships with your clients are in many cases very personal, and you take your responsibilities seriously. We respect that, and our team strives to do everything we can to help you structure charitable giving plans to meet your clients’ needs.
To help keep our resources at your fingertips, we’re covering three topics that have been the subject of many advisors’ inquiries over the last few weeks:
- Last November, the Treasury released proposed regulations related to donor-advised funds. Although these proposed regulations are just that –proposed and not final–nevertheless, in recent weeks the media coverage has gained momentum, especially now that Ways and Means members have weighed in.
- Following every tax season, many advisors share with our team that they wish they’d been aware of the many asset types that make great gifts to one of our funds. We’re happy to provide a list of the wide range of property that your clients can deploy to meet both their tax goals and their charitable goals.
- Election-year dynamics are on your clients’ minds, and we’re sharing a few items of recommended reading to provide perspective on political contributions’ impact on charitable giving, as well as articles that you and your clients might find useful related to “check out charity” trends and legal issues that may confront clients who serve on charities’ boards of directors.
Thank you for the opportunity to work together! We appreciate you reaching out with questions and insights from your practice, as well as referrals of your clients for which we –and the community– are so grateful.
Key DAF fund regulation update
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.
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.”
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 with us. 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 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.
- 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 are 70 ½ years of age or older.
Assets make great gifts
When your client is getting ready to contribute to one of our funds, 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. Our 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 we sell 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
Our 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 Qualified Charitable Distribution (“QCD”) is a very smart way to support charitable causes. Clients over 70 ½ 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
We’re 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! Reach out to us at 210-775-1782 or givenow@saafdn.org at any time to set up a meeting.
Our Development and Donor Services 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 newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.
