Link 1: Three questions that are top of mind for many advisors

The year is in full swing. Attorneys, accountants, and financial advisors are asking clients to start gathering tax documents and related paperwork for 2023 tax returns and 2024 planning. Now is a good time for you to review a few basic tax principles related to charitable giving. Here are three questions that are top of mind for many advisors, along with answers that can help you serve your clients.

How important is it to high net-worth clients to get a tax deduction for gifts to charity?

Among clients who own investments of $5 million or more, 91% of those surveyed reported that charitable giving is a component of their estate and financial plans. In another study, most affluent investors cited reasons for giving well beyond the possibility of a tax deduction and would not automatically reduce their giving if the charitable income tax deduction went away. What this means for your practice is that it’s important to be aware of your clients’ non-tax motivations for giving, such as family traditions, personal experiences, compassion for particular causes, and involvement with specific charitable organizations. This also means it’s critical to talk about charitable giving with all of your clients because it’s likely that most consider it to be important.

Why do clients so often default to giving cash?

Many clients simply are not aware of the tax benefits of giving highly-appreciated assets to their donor-advised or other type of fund at the Community Foundation or other public charity. Even if they are aware, they forget or are in a hurry and end up writing checks and making donations with their credit cards. It’s really important for advisors to remind clients about the benefits of donating non-cash assets such as highly-appreciated stock, or even complex assets (e.g., closely-held business interests and real estate). When clients give highly-appreciated assets in lieu of cash, they often can reduce–significantly–capital gains tax exposure, and they can calculate the deduction based on the full fair market value of the gifted assets.

What are the basic deductibility rules for gifts to charities?

It’s important to know that the deductibility rules are different for your clients’ gifts to a public charity (such as a fund at the Community Foundation) on one hand, and their gifts to a private foundation on the other hand. Clients’ gifts to public charities are deductible up to 50% of AGI, versus 30% for gifts to private foundations. In addition, gifts to public charities of non-marketable assets such as real estate and closely-held stock typically are deductible at fair market value, while the same assets given to a private foundation are deductible at the client’s cost basis. This difference can be enormous in terms of dollars, so make sure you let your clients know about this if they are planning major gifts to charities.

So what’s the first step? Reach out to us! Make it a habit to mention charitable giving to your clients. From that moment on, whatever the clients’ charitable priorities, consider us to be your behind-the-scenes back office and support department to handle all of your clients’ charitable giving needs.

Link 2: Don’t forget about charitable gift annuities

Certain charitable clients may wish to structure a gift to charity so that the client retains a lifetime income stream. Keep in mind that a charitable gift annuity (“CGA) could be an attractive option for these clients. Plus, if the client is 70 ½ or older, the client can take advantage of the one-time Legacy IRA opportunity to give $53,000 to a qualified charity such as an unrestricted or field-of-interest fund at the Community Foundation.

A CGA, like any other annuity, is a contract. Your client agrees to make an irrevocable transfer of cash or assets to a charitable organization. In return, the charitable organization agrees to pay the client (or a designated beneficiary such as a spouse) a fixed payment for life. Your client is eligible for an immediate income tax deduction for the present value of the future amount passing to charity.

We can help you stay up-to-date on the latest CGA rate changes (including the rates that took effect at the beginning of this year). We’ll work with you to evaluate whether and when a CGA is a good planning move for your client.

Link 3: Tips for serving clients who want to support our Chattanooga region.

Your charitably-minded clients certainly have no shortage of options for their philanthropic dollars. Many clients use their donor-advised funds, for example, at the Community Foundation to support favorite charities, including faith-based institutions and alma maters both locally and across the country, organizations in the communities where they’ve lived in the past or have a second home, or charities in communities where their grown children are now living.

Many clients, though, are also deeply committed to our local community where they’re living now, where they’ve raised their children, and where they’ve built a business. That’s why it’s helpful to remind clients that they can reach out to us when they want to make sure their dollars are making the biggest difference possible, right here in our community. Indeed, local giving satisfies many clients’ commitment to support our neighbors.

For more than 60 years, the Community Foundation of Greater Chattanooga has partnered with donors to realize their philanthropic visions and transform generosity into impact throughout the region. We work hand-in-hand with you and your client to bring philanthropic dreams to life, creating a stronger, more prosperous and just city for all Chattanoogans, today and for generations to come.

We are always happy to provide insight into the challenges our community is facing right now, and which organizations are delivering services to alleviate those needs so that your clients can provide immediate support through their donor-advised funds.

In addition, an unrestricted fund may be a good fit for clients who want to improve lives, right here in this community, for generations to come, whatever challenges our region may face at any given point in time. An unrestricted fund may be particularly compelling for your clients who are 70 ½ or older. These clients may be eligible to make annual distributions of up to $105,000 per spouse from their IRAs directly to an unrestricted fund at the Community Foundation. This transfer, called a “Qualified Charitable Distribution” or “QCD” not only counts toward satisfying Required Minimum Distributions, but your client also avoids the income tax on those funds. Furthermore, those assets are no longer part of the client’s estate upon death, so the client can avoid estate taxes, too.  

Please reach out to us for more information on how your clients can support both current and future local needs, and also meet their own financial, tax, and generational legacy goals.

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