Community Connection
Professional Advisors Edition - December 2021
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A personal note to our advisor colleagues |
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What a year it has been!
Last December, we heard from some advisors that clients were hoping to maximize the charitable giving tax breaks included in the coronavirus legislation. We've also heard that clients had expressed curiosity about how tax laws might change in the coming months, and at the same time clients were increasingly interested in involving their extended families in charitable giving. Here we are, twelve months later, and we’re hearing from you that these topics are still top of mind.
With some of the mystery now eliminated regarding potential tax reforms, we know your clients are looking at how to move forward creatively with specific charitable planning techniques, especially donor-advised funds, as these vehicles have become increasingly more popular in the news. Family philanthropy has also been brought up more often. Now, the conversation is turning toward how to make family philanthropy fun and rewarding for everyone, especially during the holiday season.
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The buzzword is “billionaire”: How tax reform discussions have pulled complex charitable planning strategies into the spotlight |
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Forbes reports that the latest headcount of American billionaires checks in at 724. That number surprises some people, and for different reasons. Many are surprised to learn that the number is so low, when the word “billionaire” has been used so frequently lately in discussions about changes to the tax laws. Others are amazed at the vast wealth created by not just dozens, but hundreds, of individuals.
Both reactions have sparked interest in how billionaires and other ultra high-net worth people structure their estate plans and support their favorite charities. Even if your client base doesn’t include one of the 724 American billionaires, it is still well worth your time to spend a few minutes getting familiar with this topic so you can carry on a conversation with curious clients.
Here’s how to get up to speed:
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Forbes compiles a list of the 25 most philanthropic billionaires. Scan it so that you’re generally aware of how this group conducts its charitable giving activities.
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Know the basics of grantor retained annuity trusts and charitable lead trusts, especially because both vehicles have been the subject of conversation in the ongoing tax reform dialogue.
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Understand the core mechanics of ultra high-net worth wealth transfer strategies. You might be surprised that what you learn helps you structure your own clients’ estate plans.
- Internalize the old saying “No one gives away a dollar to save 50 cents.” In other words, no matter how aggressive the planning strategy and the resulting tax savings, your clients almost certainly would have more money for themselves and their families if they didn’t give money to charities.
- It flows naturally from item 4 that your clients probably don’t take their charitable giving lightly. Clients intend for their charitable dollars to make a difference in the causes they care about. The Community Foundation of Central Illinois has its finger on the pulse of the needs in our region and which organizations are helping and how. Put us on speed dial!
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The ever-popular, handy-dandy, year-end charitable giving checklist |
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We’ve heard that many of you appreciate a quick checklist for charitable giving reminders each December. We know you receive this type of information from many sources, and frequently in great detail. It is our goal to break things down into a few simple points (below are three). To dive deeper, we encourage you to reach out to us. We’ll jump in to help!
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First, in the midst of recent flurry surrounding the Build Back Better legislation, clients won’t want to forget about the charitable giving provisions from 2020 COVID-19 relief legislation that carried over to 2021, notably the $300 “universal deduction” even for non-itemizers. Helpful to itemizers is the allowance for cash contributions to charities to be deducted up to 100% of adjusted gross income. This allowance creates an ideal opportunity for your clients to “bundle” or “bunch” their charitable gifts this year, taking full advantage of the limited-time ability to offset significant levels of income. Donor-advised funds are not eligible recipients of these cash contributions; however, designated funds and field-of-interest funds at CFCI can qualify and are very useful philanthropy planning tools.
- Second, never assume that your clients will remember the benefits of donating highly-appreciated securities to a charitable organization or fund at CFCI. It seems obvious to those of us in the business, so to speak, but clients do not live and breathe the tax laws like we do. Remind clients that the best way to fund their charitable giving is through highly-appreciated assets.
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Third, let your clients know that charitable giving is still an important priority and most people who give to charity still plan to do so, even this year after the wild ride of the pandemic. Indeed, clients might appreciate seeing the data, including a study recently released by Classy showing that 84% of donors planned to give to charities at the same or higher level this year as they gave in 2020.
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And (not so) suddenly, it’s a thing: What’s up with donor-advised funds? |
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For nearly 90 years, charitably-minded individuals and families have established donor-advised funds to help carry out their philanthropic wishes. Popularity of the donor-advised fund steadily grew, especially beginning in the 1990s, eventually resulting in official recognition in the Internal Revenue Code under 2006 tax law updates. Today, over one million donor-advised fund accounts hold nearly $160 billion in charitable assets, according to the latest numbers.
The growth of the donor-advised fund as a useful charitable giving tool has made this vehicle something of a celebrity. You and your clients no doubt have begun to see articles about donor-advised funds pop up in mainstream financial publications, as well as in academic journals. A top priority for us is keeping up with proposed legislation and commentary about charitable giving, including particular vehicles such as donor-advised funds.
As you talk with your clients about options for their charitable giving plans, please feel free to reach out. We would be happy to share perspectives and ideas that take into consideration current trends and legislative developments.
To that end, you and your clients may find it helpful to review the types of funds available through the Community Foundation of Central Illinois, which include donor-advised funds and much more.
First, as you’re likely aware, a “donor-advised fund” enables a client to establish a specific account for charitable giving. Your client makes a tax-deductible contribution of cash or other assets to the fund, and then recommends grants to favorite charities during the current year and in future years depending on the client’s goals and plans.
Second, CFCI has its finger on the pulse of the community’s most pressing issues. An “unrestricted fund” provides your client with an opportunity to support community needs that can’t be identified until the future. One of the biggest benefits of a community foundation is its perpetual structure that allows support to nonprofits to evolve over time as priorities in the region shift.
Third, to target charitable giving to specific areas of community need (such as education, food insecurity, health or the arts), your client can set up a “field-of-interest fund” to establish parameters for grant making under the ongoing guidance and expertise of our staff. Plus, field-of-interest funds can be a wonderful alternative to a scholarship fund and accomplish a client’s charitable goals even more efficiently and effectively.
Fourth, a “designated fund” allows a client to focus charitable giving on a specific agency or purpose. Over time, the community foundation's staff manages the distributions from the fund according to the terms the client establishes.
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Helping families stay connected across the miles and generations: There’s a gift for that! |
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Your philanthropic clients will thank you for suggesting they consider giving the gift of giving in the form of a charitable fund instead of the more typical “I made a gift to my favorite charity in your honor.”
More and more parents and grandparents (and friends and colleagues) are giving a child, grandchild, friend, or co-worker a charitable fund, pre-established and pre-funded, in the name of the recipient. Frequently taking the form of a donor-advised fund, this gift allows the recipient to experience the benefits of working with CFCI to support important causes. This type of experience can also help family’s values stay intact across generations.
Also, never underestimate the power of philanthropy to help you build relationships with multiple client generations. We have the tools you need to inspire Baby Boomers, Gen X, Millennials, and Gen Z by creating meaningful and lasting connections to our community, charities, and causes. Although useful in some cases, a GoFundMe or Facebook fundraiser simply cannot deliver the engagement and loyalty that have long been hallmarks of our dedication to helping your clients of all ages make a lasting impact that is as meaningful to them as it is to the causes they support.
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CLOSED: Thursday & Friday, December 23-24
CLOSED: Thursday, December 30 at 12pm
CLOSED: Friday, December 31
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We're proud of our accreditation with National Standards for U.S. Community Foundations®. This accreditation, signified by this Seal, indicates that the Community Foundation of Central Illinois meets the highest standards for philanthropic excellence. The 26 national standards establish legal, ethical, effective practices for community foundations everywhere and indicates CFCI’s commitment to excellence and accountability. Learn more about the accreditation process at cfstandards.org.
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3625 North Sheridan Road
Peoria, IL 61604
309-674-8730
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