Proposed Regulations, Assets that Make Great Charitable Gifts, & Election Year Updates | Advisor Newsletter (May ’24)

Happy Derby Week from the Community Foundation of Southern Indiana! 

Each 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 the community foundation’s 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. The community foundation 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 at the community foundation that they wish they’d been aware of the many asset types that make great gifts to a fund at the community foundation. 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.
  • Join CFSI, Harrison County Community Foundation, and Cave Hill Foundation on THURSDAY, JUNE 6 as our panelists discuss care, maintenance, and responsibility surrounding rural and family cemeteries in S. Indiana. The program will last from 9:30 – 11:30 a.m.
  • 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. 
  • Thanks to a $2-for-$1 matching grant, your clients can triple their charitable impact of any gift made to CFSI’s unrestricted Community Impact Fund – which supports the greatest needs of our community, now and forever.

Thank you for the opportunity to work together! We appreciate so many of 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.

What’s Bubbling Up: Need-to-Know Updates on the Proposed Donor-Advised Fund Regulations

The Community Foundation of Southern Indiana 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. Our team is closely watching these regulatory developments.  

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.” You’ll hear from us when (and if) the proposed regulations, or some version thereof, go into effect and what to do about it. 

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 at the community 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 the community foundation 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 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.  

We look forward to helping you serve your charitable clients regardless of where the proposed regulations ultimately land. And we’ll keep you posted!

Celebrate Variety: Many Assets Make Great Gifts to Charities

When your client is getting ready to make a contribution to a fund here at CFSI or any other 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 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 the Foundation sells 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

The CFSI 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 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 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

The Community Foundation of Southern Indiana is happy to work with you and your clients to explore options for giving other non-cash assets to funds here at the Foundation, including:

  • Oil and gas interests
  • Negotiable instruments
  • Cryptocurrency
  • Artwork
  • Collectibles

We look forward to working with you to explore all the options! 

You’re Invited! Planning for Rural & Family Cemetery Care Seminar

You’re invited to join us on Thursday, June 6 at Indiana University Southeast as the Community Foundation of Southern Indiana, the Harrison County Community Foundation, and the Cave Hill Memorial Foundation present a panel discussion on planning for rural and family cemetery care in Indiana.

Panelists include:

  • Linda Speed, Community Foundation of Southern Indiana (President & CEO)
  • J. Michael Higgs, Cave Hill Heritage Foundation (Manager)
  • Kim Harmon, Harrison County Community Foundation (Gift Planning)

Our three panelists, will address questions, such as:

  • Whose responsibility is it to care for the cemetery?
  • Can charitable donations cover maintenance for my plot?
  • When I’m gone, who will maintain the cemetery?

The program will begin at 9:30 a.m. and will be held in the Hoosier Room, which is located inside the University Center at Indiana University Southeast. The program will include information from our three panelists, a time for questions and answers, and will conclude by 11:30 a.m.

The event is FREE, but we require an RSVP to reserve a seat. Light refreshments will be available.

What Has Caught Our Attention in 2024 So Far…

Charitable giving in an election year

While charitable giving historically has been resilient in the midst of elections, it’s worth bearing in mind 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 the majority of your clients’ charitable giving is likely strategic, including giving through a donor-advised or other type of fund at the community foundation, there are definitely 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 really does add 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. 

TRIPLE Your Clients’ Charitable Giving Using a Qualified Charitable Distribution, Other Gift Options

Thanks to a generous opportunity from the Lilly Endowment, CFSI has been awarded $3,750,000 in funding to match contributions to its unrestricted Community Impact Fund as part of the Endowment’s Giving Indiana Funds for Tomorrow, Phase viii (GIFT VIII) initiative. The match is a $2-for-$1 matching grant, meaning the Foundation will need to raise $1,250,000 in contributions from our community to earn the entire match.

Each year from the Community Impact Fund, we award over $400,000 to organizations, projects, and programs that directly benefit Southern Indiana residents. By meeting our $5 million matching grant goal, the increased amount available to spend from the Community Impact Fund would allow for an estimated additional $200,000 in local grant awards – a 50% annual increase – each year. Forever.

This initiative presents an opportunity to award more grants annually – by a substantial margin. And your clients can TRIPLE their charitable impact to any gift made to CFSI’s unrestricted Community Impact Fund – which supports the greatest needs of our community, now and forever.

Gifts that can be matched include:

When you support your local Community Foundation, you’re not just giving to a single entity – you’re investing in the entirety of your community. Together, we have the power to address pressing challenges, unlock potential, and nurture the seeds of growth and prosperity for everyone in our community.

**If you would like a team member from the Community Foundation of Southern Indiana to make a presentation to your company or firm on the GIFT VIII match — and the tax-beneficial ways your clients can use it — please send us an email and we’d be happy to schedule a time to come out and speak with your team:

Disclaimer: The Community Foundation of Southern Indiana 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.  

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IT'S OFFICIAL: The Community Foundation of Southern Indiana has been awarded a $5 MILLION Matching Grant from the Lilly Endowment! Learn how you can help us award an estimated additional $200,000 in local grants - a 50% annual increase - each year. Forever.

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