Every day, our team appreciates the opportunity to work with attorneys, accountants, financial advisors and other professionals helping clients achieve their charitable goals. We know your relationships with your clients are often very personal, and you take your responsibilities seriously.
Our team strives to do everything we can to help you structure charitable giving plans to meet your clients’ needs.
To help keep San Diego Foundation (SDF) 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 (DAFs). 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. SDF is on top of the issues, and our team is always ready to share the latest insights.
- 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 a fund at SDF. We’re happy to provide a list of the wide range of properties your clients can deploy to meet both their tax and 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.
We appreciate so many of you reaching out with questions and insights from your practice and referrals of your clients, for which we are so grateful.
Need-to-Know: Proposed DAF Regulations
SDF 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 (DAFs) and the rules governing these vehicles are topics more frequently in financial and mainstream media. Our team is closely watching these regulatory developments.
As background, in November 2023, the Internal Revenue Service (IRS) 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 created quite a buzz.
In February, SDF submitted testimony to the Treasury and IRS on the proposed regulations. You can read the letter here.
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 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 DAF is just one of many types of funds your clients can establish at San Diego Foundation. 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 at SDF can be just as effective as a DAF, 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 San Diego that can’t be predicted and can only be addressed through our perpetual structure and mission to serve the region as a whole.
- 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 have reached age 70 ½.
Celebrate Variety: Many Assets Make Great Gifts to Charity
When your client is getting ready to contribute to a fund at San Diego Foundation or another charity, 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 SDF 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 simplify the process.
As is the case with a cash gift, SDF 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 San Diego 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 SDF; 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 your client might give shares of a closely-held business to a fund. 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 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 the Qualified Charitable Distribution (“QCD”) is a very smart way to support charitable causes. If your client is over the age of 70 ½, the client 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 SDF.
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 SDF can receive a tax-deductible gift of real estate, such as farmland or commercial property, in a variety of ways. The Charitable Real Estate Foundation (CREF) is a supporting organization of SDF that simplifies real estate donations for clients and nonprofits.
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 SDF 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 SDF to cover the premiums.
What’s Caught Our Attention
Charitable Giving in an Election Year
While charitable giving historically has been resilient amid elections, it’s worth noting that some sources predict that political donations will eat into your clients’ budgets for charitable gifts. As you talk with clients about their philanthropy plans for 2024, you might pass along these trends so your clients can factor into their target gift amounts the potentially greater demand for funding community organizations.
This is also a good time to remind clients that political donations are not tax deductible. This may seem elementary, but it still trips up some people who don’t track the rules closely.
Rounding Up at the Register
Although most of your clients’ charitable giving is likely strategic, there are exceptions in any household. One of those exceptions for many of your clients may be a form of giving called “checkout charity.” The spare change adds up – to the tune of $749 million nationwide in 2022 alone!
Legal Pitfalls for Nonprofits
As you counsel your clients who are on the boards of nonprofit organizations, or perhaps even lead them, be aware of a handful of legal issues that are surfacing as areas of concern, including the always-relevant topics of employees versus independent contractors and unrelated business activities, as well as emerging issues related to artificial intelligence.
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.
