PROFESSIONAL ADVISOR CONNECTION
JULY 2020
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Donor Advised Funds: Working Hard for Our Community
Donor advised funds are a popular charitable giving tool. And right now is a perfect time to evaluate this planning strategy for your clients.
In recent years,
donor-advised funds have been one of the fastest-growing philanthropic planning tools in the marketplace. Donor advised funds are popular because they allow an individual or family to make a tax-deductible transfer that qualifies as a charitable contribution, and then recommend grants to favorite charities from the fund when the time is right. A donor advised fund operates a lot like a checking account for charity, and it’s established according to IRS guidelines that provide tax advantages for the donor as well as administrative efficiencies.
In the midst of the COVID-19 pandemic, giving from donor-advised funds at community foundations is accelerating. This is creating a significant boost for nonprofits and people in need. Indeed, the global healthcare crisis is precisely the reason that many donors established donor-advised funds in the first place: To be ready to give when needs are the highest.
According to a recent
survey
conducted by the Community Foundation Public Awareness Initiative, grants from donor-advised funds among the 64 community foundations surveyed increased nearly 60% in March and Apri 2020 compared with March and April 2019.
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Eyebrow-Raising IRS Relief for Required Minimum Distributions
In the CARES Act, passed on March 27, 2020, Congress eliminated this year’s Required Minimum Distributions from IRAs, 401(k)s, and 457(b) and 403(b) plans. The end of March, however, was too late for people who had already taken Required Minimum Distributions for 2020.
To remedy this situation, the IRS issued Notice 2020-51 on June 25, which allows taxpayers to replace Required Minimum Distributions taken year-to-date. Taxpayers now have until August 31 to replace the funds, and this includes replacing funds from an inherited IRA. Furthermore, taxpayers can replace multiple distributions because the “one rollover per year” provision does not apply for 2020.
Why does this matter to you and your philanthropic clients?
First, the ruling itself is unusual, in that the IRS
seems to have engaged
in what could be construed as lawmaking. We’re keeping an eye on rulings like this to gain an understanding of the reach of the IRS during times of crisis.
Second, for your clients over 70 ½ who were already planning to give their Required Minimum Distributions to charity this year, nothing has changed about their ability to do so. Be sure to take a careful look at each client's 2020 tax situation. It could still be most advantageous for a client to make a Qualified Charitable Distribution instead of forgoing the Required Minimum Distribution or replacing the funds through the special rollover provisions now in place for 2020.
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Fundraising Events Look Different, but the Tax Rules Are Still Sticky
For many charities that rely on events to achieve annual fundraising goals, the
cancellation
of 2020’s Met Gala (which raised an estimated $15 million in 2019) came as a blow, signaling that live galas and auctions might not be back anytime soon.
Still, many organizations are moving forward with virtual fundraisers. What should you keep in mind as you advise clients who routinely support charities through events?
The rules for charitable deductions still apply, meaning that the IRS only allows a tax deduction for the portion of the ticket price for which your client received nothing of tangible value in return. So, when the charity sends a receipt for the gift, your client will see that the charity has subtracted the fair market value of the perks - food, beverage, entertainment, T-shirts, and other goodies - from the full amount of the contribution. But, in the case of virtual events, the charity may skip “tickets” and perks altogether, which means your client's contribution is entirely a donation to the charity itself, with no benefit back to the client.
Regardless, it is still important to consider carefully the implications for your clients who want to purchase event tickets using their donor-advised funds. While straightforward gifts to charities from donor-advised funds are perfectly fine (and indeed, one of the primary purposes of donor-advised funds), it’s problematic for a client to buy an event ticket using donor-advised fund dollars. So problematic, in fact, that the IRS has issued
proposed regulations
which, if enacted, will confirm its position that a donor-advised fund is prohibited from paying for event tickets on behalf of an advisor to the fund. The regulations would make it clear that the donor-advised fund cannot even pay for the charitable portion of the ticket (the ticket price minus the fair market value of perks flowing back to the donor advisor).
It’s important for your philanthropic clients to pay attention to this. The proposed regulation includes fines for violations that can be imposed on your client as well as on the community foundation or other donor-advised fund sponsoring organization.
To be on the safe side, even in the case of virtual events, be sure to advise your clients that they should not attempt to use money in their donor-advised funds to purchase event tickets of any kind.
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Lowcountry Community COVID-19 Response Fund
When COVID-19 hit, we did what we always do when our community is facing difficulties - we rose to the challenge by creating the Lowcountry Community COVID-19 Response Fund.
The pandemic has created struggles for many of our neighbors, including job loss, food and housing insecurity, reduced access to critical services like child care and abuse support, and medical and mental health issues. Community Foundation of the Lowcountry has met this crisis head on. Our Lowcountry Community COVID-19 Response Fund has been rapidly deploying funds to frontline, community-based nonprofits in Beaufort, Colleton, Hampton and Jasper Counties that are addressing the needs resulting from the coronavirus pandemic.
To date, our fund has raised $538,000 (which includes $200,000 in matching dollars from the Community Foundation) and has distributed more than $475,000 in grants to 35 nonprofits in our four-county area.
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Community Response
The Lowcountry community has been incredibly generous in supporting this fund, with many groups, families and organizations joining in to assist in fundraising efforts. One of the most popular events associated with our COVID-19 response fund was a virtual benefit concert performed by the Lowcountry's own Deas-Guyz! The event raised over $15,000!
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The Need Continues
As increases in coronavirus illnesses and closures continue, so does the need in our community. This fund is a great way for your clients to contribute to an immediate need that's impacting our community in ways we've never seen before.
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A lot has been going on at the Community Foundation since our last Professional Advisor Connection. Here are some of the highlights:
- After 12 weeks of working from home, our staff returned to the office - but we're still closed to the public for the foreseeable future. To speak with us or to make an appointment with one of our staff members, call us at 843.681.9100.
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Jim Allhusen
Chair
Sandra Benson
Geoff Block
Yvonne Curl
Arno Dimmling
Linda Fiore
Doug Fletcher
John Levy
Sheila Mahony
Michael J. Marks
Paul Moeri
Al Panu
Shirley Peterson
David Rosenblum
Allen Ward
David Wetmore
Michelle Wycoff
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Interim President and CEO
VP for Community Investment
VP for Finance and Administration
Program Associate
VP for Marketing and Communications
Donor Services Associate
Finance Associate
Communications Specialist
VP for Development and Donor Services
Administrative Assistant
Donor Services Associate
Program Associate
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