Fall is upon us, and philanthropy is on the minds of many. That’s not only because you and other attorneys, accountants and financial advisors frequently start year-end planning for your clients in September, but it’s also because charitable individuals and families are looking closely at their charitable giving goals and budgets for the year and setting in motion the gifts they want to make before 2023 winds up.

And of course, philanthropy will surely be on the minds of many during this year’s giving season because of the tremendous community needs in the wake of recent natural disasters.

San Diego Foundation (SDF) is here to assist you as you guide your clients in executing their philanthropy plans for the remainder of 2023. In that spirit, we’d love to draw your attention to three critical topics:

  1. Giving to relief efforts: Your clients might not realize that charitable giving support is not only needed immediately following a disaster such as a hurricane or fire, but also ongoing as communities rebuild over the long term. Lean on SDF to help you work with your clients to structure gifts to provide relief and support for the people of Maui affected by the fires and those impacted by Hurricane Idalia. Indeed, community foundations are a critical “first responder” to help ensure that charitable support is facilitated efficiently and effectively and is deployed as fast as possible to the people who need it most – and over time as rebuilding and recovery efforts persist for years.
  2. The power of appreciated stock: We can’t say this enough! Attorneys, accountants and financial advisors like you know the tremendous benefits your clients get when they give appreciated stock, instead of cash, to their donor-advised funds (DAFs) at SDF. Unfortunately, the message often does not get through to clients. A regular reminder from you is so vital to ensure that your clients are maximizing their charitable giving dollars to not only support their favorite causes but also to optimize their financial plans. Despite the rocky stock market, many stocks are way up in 2023.
  3. Business sale on the horizon: Your clients who own businesses might be eyeing some analysts’ predictions that mergers and acquisitions may pick back up in 2024. That’s good news for clients who are looking at possible exit strategies. If these clients are charitable, though, start talking about it now. Gifting shares of closely-held businesses to a fund at SDF is a brilliant strategy, but you must think way ahead to avoid running afoul of IRS rules. We can help.

As always, we appreciate the opportunity to work with you and your clients.

Smart Disaster Giving: Offering Predictability to the Unpredictable

Maui relief volunteers

Photo Credit: The Washington Post/Getty Images

Sadly, a month rarely goes by without the news of another disaster or humanitarian tragedy. Most recently, the Maui fires and Hurricane Idalia are making the headlines and generating widespread charitable support. Indeed, many of your clients undoubtedly support relief efforts through monetary donations.

Disasters are both unpredictable and, sadly, predictable. Multi-billion-dollar damage events occur annually, and, not surprisingly (and thankfully), natural disasters and humanitarian tragedies consistently attract much-needed philanthropic support.

Understandably, most charitable dollars following a disaster flow toward essential and immediate relief efforts. Your clients might be interested to know, however, that dollars for efforts related to rebuilding and future mitigation are also critically important. Affected communities need immediate philanthropic support for people affected by a disaster and long-term support to address ongoing ramifications. Ongoing support, for example, is needed not only for rebuilding after a fire or hurricane but also to fund preparedness to blunt the effects of the next fire, hurricane or pandemic.

Our team is happy to work with you and your charitable clients to explore ways to address future humanitarian disasters. Many people, for instance, use their DAFs at the San Diego Foundation to support disaster relief efforts. With rebuilds and recoveries often occurring long-term, a bunching strategy could help clients support disaster relief efforts through their donor-advised funds for several years. This allows clients to plan to provide support while being savvy about the tax advantages in the year of the transfer to their DAF.

Not limited to disaster responsiveness, SDF is an ideal partner for disaster preparedness. Encourage your clients to consider endowments, field-of-interest funds, designated funds, and other perpetual structures established through SDF to ensure that the community we love is protected for future generations. Field-of-interest or unrestricted funds can be especially attractive because, for people who’ve reached the age of 70 ½, these funds are eligible recipients of QCDs (Qualified Charitable Distributions) from IRAs. Creating a field-of-interest or unrestricted fund allows a client to make charitable gifts before disasters so that SDF can deploy resources immediately when urgent needs occur.

Keep Your Eye on Clients’ Appreciated Stock

Advisor on computer

Such a difference a year makes – maybe?

By August 2022, markets were down 12% for the year, and inflation was up 8.3% year-over-year. Perhaps consequently, but then unknown, annual charitable giving was on its way to a rare (fourth time in 40 years) year-over-year decline of some 4%, according to Giving USA. Certainly, this decline was due in part to donors not wanting to give stock at depressed values. You likely even discussed this with your clients.

Nearly 12 months later, as of July 2023, markets were up 7.28% year to date, and inflation was roughly half at 4.7% year–over–year. Even though the stock market still shows signs of volatility, hopefully, charitable giving will rebound.

No matter the times, and even in down markets, some stocks will still outperform. These holdings are excellent candidates for your clients to give to charity and avoid taxes on the capital gains. This year is no different, with stocks like Microsoft, Apple and Nvidia, among others, enjoying banner years. Indeed, Microsoft, Apple and Nvidia were up 38%, 36% and 228%, respectively, through mid-August.

For some of your clients, these gains have created concentrated stock positions where you, as an advisor, may believe that portfolio allocations have become imbalanced under the investment strategy you are pursuing. Your clients who support charities through their donor-advised funds at SDF can consider potentially alleviating this situation through charitable gifts of highly appreciated stock.

Your clients who give appreciated stock to a DAF can:

  • Enjoy the ease of the donor-advised fund as an account for current and future charitable giving.
  • Conveniently support the causes they and their families care most about.
  • Maintain a mix of assets in the DAF that are consistent with the client’s investment philosophies.
  • Benefit from an up-front income tax deduction, avoid capital gains on the assets’ sale within the fund, and grow the proceeds for future grantmaking.
  • Leave a legacy for children and grandchildren to continue their philanthropic commitments.
  • Reduce the value of their taxable estate, potentially reducing estate taxes.
  • Comply with IRS charitable gifting guidelines.
  • Enjoy supporting charities in the client’s name, the fund’s name, or anonymously.
  • Receive a single year-end tax document that summarizes all gifts for tax purposes.

By establishing a donor-advised fund at San Diego Foundation, your client is part of a community of giving and will have opportunities to collaborate with other donors who share their interests. In addition, your client is supported in strategic grantmaking, family philanthropy and opportunities to gain deep knowledge about local issues and nonprofits making a difference.

So, while it’s nice to see the market’s performance improve, a bonus opportunity lies in your clients’ transferring appreciated stock to donor-advised funds. We are here to help.

Clients Who May Sell a Business Should Think Charitably

Paperwork signing with advisor

Business owners who’ve enjoyed summertime’s more relaxed energy can deservedly daydream about the “extended vacation” that comes with selling the business.

While it all sounds good, business brokers will tell you that many business owners fail to optimize — and they sometimes even compromise — the value of their business’ proceeds by rushing the process, hastily determining an asking price, or not thoroughly assessing the value of their business to a potential buyer. In their haste, owners often miss strategies that can deliver an improved post-sale result and a true reward for their years of work.

SDF can be valuable as you guide a business owner client through a pre-sale preparation process. This is especially true for a business that has operated for many years and has accumulated significant unrealized capital gains in its valuation that are likely to be heavily taxed at the time of the sale.

Many closely held business owners and their advisors may not fully know the advantages of giving shares to a donor-advised fund before any external discussion about a potential business sale. With prudent planning, the gifted shares will be free of capital gains at sale time, allowing the proceeds to flow into the DAF, ready to be deployed to meet the business owner’s charitable goals. The business owner also benefits because they’ve reduced the value of their taxable estate. Given the anticipated reduction of the estate tax exemption slated for 2025, this can have huge repercussions.

Remember that it will be essential to secure a proper valuation of the business when the business owner makes a gift of shares to comply with IRS requirements for documenting the value of the charitable deduction.

Critically important to successfully executing this strategy is ensuring that your client avoids any preliminary discussions about the sale, let alone negotiations, before consulting with advisors, including looping in SDF early on. Otherwise, your client might get caught in the IRS’ step-transaction trap, a risk with any pre-sale gift to charity of real estate, closely-held stock, or other alternative assets. The devil is in the details!

By the way, if you routinely advise owners of closely-held businesses, and if you like to go deep into tax law, you might enjoy reviewing the issues related to the business supporting charitable causes, totally unrelated to its eventual sale.

Please get in touch with our team if a business owner client wants to explore potentially giving a portion of the business to a DAF or other type of fund at SDF. We can work alongside you and the client to help optimize the exit and maximize the resulting proceeds.

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.

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