Less can be more: Charitable giving helps parents pass wealth to children

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How much is too much? That’s a question many parents ask as they structure lifetime gifts and bequests to children in their financial and estate plans. Wealthy clients are sometimes concerned that leaving millions of dollars, or even hundreds of thousands, to their children could backfire and hinder their kids’ ability and motivation to achieve financial independence.

In addition to concerns about fostering entitlement and dependency, many parents are concerned that their children will miss out on the satisfaction of knowing they built wealth on their own. These parents believe that the challenges and struggles along the way will ultimately enrich their children’s lives with intangible benefits that are far greater than the obvious benefits that come with gifts or an inheritance of significant financial resources.

As you work with clients who feel this way, please reach out to The Community Foundation of Harrisonburg and Rockingham (TCFHR). Every day, our team works with families who are in this exact situation. We’ll help you evaluate strategies such as:

–Establishing philanthropic components of an estate plan so that children receive only the amount that can pass to them free of estate tax, with the rest passing to a charity, such as a donor-advised fund at the community foundation.

–Setting up a donor-advised fund at TCFHR to allow your clients to support favorite charities during their lifetimes, with the terms of the donor-advised fund providing that the children step in as successor advisors following the clients’ deaths. Minimum balances do apply.

–As successor advisors to the donor-advised fund, the children can work with the community foundation to recommend grants to favorite charities, support interest areas pre-selected by their parents, or both.

Many clients are attracted to this type of structure because not only could it avoid estate tax, but it also allows their children to stay involved with all of the family’s wealth, work together and keep sibling bonds strong, and get involved in the community.

We look forward to exploring strategies to help your clients meet their financial and tax goals, as well as honor their wishes for children to live happy and productive lives.

Gifts of real estate: Watch every step

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We’re hearing from more and more attorneys, accountants, and financial advisors that your clients are expressing interest in giving real estate to charity. This is wonderful news!

You’re certainly aware that gifts of real estate to a fund at the community foundation, just like gifts of other long-term capital assets, can be extremely tax-efficient. That’s because your client is typically eligible for a charitable deduction based on the fair market value of the property. Because the community foundation is a public charity, when it sells the donated property, the proceeds will flow into the fund free from capital gains tax.

To achieve the best tax outcome and overall charitable result, though, it’s critical to undertake a careful process along the general lines of the following (depending of course on the specific situation):

–First, you’ll need to determine that the real estate is a long-term capital asset (held for more than one year). That may sound obvious, but we’ve talked with advisors and their clients in the past about a potential gift of real estate and it turned out that the property was only recently purchased. The fair market value deduction (versus cost basis deduction) is available only for a long-term capital asset.

–Next, work with the team at the community foundation to structure a donor-advised or other type of fund to receive the asset, if your client does not already have a fund in place. The deductibility rules are different for real estate gifts to a public charity (such as a community foundation fund) versus a private foundation. Again, clients may not be aware of the pitfalls here. Sometimes we meet with advisors whose clients are very close to transferring real estate to a private foundation, which could be devastating in terms of missed tax savings.

–You’ll need to verify that the property is not subject to a mortgage or other debt. Transferring encumbered property triggers important considerations with potentially significant tax consequences. The lender might not even allow a transfer in the first place. If you’re dealing with commercial property, you’ll also need to check to be sure that the property is not subject to “recapture” if your client has previously taken depreciation deductions.

–You will need to determine whether the property produces income and discuss this with the community foundation. Income-producing real estate can potentially trigger Unrelated Business Income Tax (UBIT) for the community foundation. Although there are exceptions and strategies to minimize UBIT’s impact, it’s important that this issue be dealt with up front.

–Work with the community foundation to determine whether an environmental audit is required for the property.

–Verify that the client has not entered into any discussions about an imminent sale of the property. Even if the community foundation will sell the property shortly after receipt (so that the proceeds can flow into the donor-advised or other fund to support the client’s favorite causes), your client cannot have pre-arranged this sale. Doing so could trigger the IRS’s step transaction doctrine and wipe out the tax deduction.

–A qualified appraisal to determine the fair market value of the property must be signed and dated no earlier than 60 days of the date of the gift. This is critical to obtain a tax deduction, and the appraised value must be reported to the IRS on a Form 8283 in strict compliance with the IRS’s rules.

–Finally, after approval from the foundation for acceptance of the gift, transfer the property with the appropriate legal documents, including a deed.

Gifts of real estate can be a wonderful tool for both your client and the charities they want to support through their fund at the community foundation. Our team can help you through the process, every step of the way. We have professionals in house, as well as on-call experts with whom we work regularly, to ensure that your client’s real estate gift is handled without a hitch, opening the door to bring their charitable goals to life.

Charitable planning can help ease client procrastination

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“Nothing is so fatiguing as the eternal hanging on of an uncompleted task.”

–William James

Procrastination is a drain in ways that go far deeper than the incomplete task itself. We know this intellectually, but it can be so hard to break the procrastination habit. It seems that the more daunting the task, the harder it is to tackle. This surely is a major reason some of your clients routinely put off important planning discussions. And of course, many of those discussions are tax-sensitive, which means year-end can get very hectic and stressful for clients who wait until the last minute.

As the year begins to wind down, consider tapping into your clients’ philanthropic interests as a catalyst to motivate them to start addressing year-end planning items right now rather than waiting until November or December. You may discover that the uplifting topic of philanthropy makes it easier to at least start a conversation. Then, the conversation can evolve to include not only charitable giving topics, but also other tax planning topics that need attention.

Here’s how this could work with a client:

–Review the charitable components of the client’s estate and financial plans, including provisions in wills and trusts, beneficiary designations, donor-advised funds, prior years’ tax deductions, and historical gifts to favorite charities.

–Reach out to the client to suggest that you meet–or at least jump on a call–to check in on 2024 charitable giving plans and other items.

–Open the conversation by briefly recapping the charitable planning components already in place and the client’s history of giving. Then ask the client about their plans for 2024.

–As you talk with the client about charitable intentions, bring up various charitable giving tools and opportunities that match those intentions. In each case, use the charitable discussion as a springboard for general tax planning items that need to be addressed before year-end.

–For example, if a client who is over 70 ½ mentions wanting to support a particular need or organization in the community, you can suggest that you loop in the community foundation team to potentially establish a field-of-interest or designated fund, which can then receive distributions from the client’s IRA up to $105,000 annually per spouse. This, in turn, opens the door to discuss Required Minimum Distributions and other elements of retirement planning in general.

–If the client mentions that they are already dreading gathering tax receipts for 2024 charitable donations, suggest that the client consider setting up a donor-advised fund at the community foundation to serve as a convenient and rewarding “hub” for charitable giving. Going forward, the client can conduct the bulk of their giving using the donor-advised fund and avoid the mad scramble for receipts. If the client already has a donor-advised fund, make sure they know how to use it most effectively, and reach out to the community foundation team for help. What’s more, discussing charitable donation receipts presents a nice opening to remind a client about other paperwork that may need to be gathered or completed to meet overall estate and financial planning goals.

–When your client talks about charities they plan to support before year-end, remind your client not to automatically reach for the checkbook. Most of the time, highly-appreciated marketable securities (or other highly-appreciated, long-term assets) are ideal gifts to a client’s fund at the community foundation or other public charity because the client is eligible for a tax deduction at the assets’ fair market value, and the proceeds from the sale of the assets will flow into the client’s fund at the community foundation free from capital gains tax. That means more funds are available to support the client’s favorite causes. Conveniently, the conversation about highly-appreciated stock can segue naturally into a conversation about overall stock positions.

–Philanthropy topics can naturally lead into even more topics that are sensitive to year-end timing, such as annual exclusion gifts, estimated tax planning, and updating wills and trusts before the extended family gathers for the holiday or travels together overseas.

The community foundation team is here to help you serve your charitable clients. We understand that late-December transactions are often unavoidable. The net-net is that we’re happy to work with you according to your clients’ schedules, whether that means getting a jump on a new year and processing stock gifts in February, helping you plan in September for year-end, or preparing fund agreements in December.

Donor-advised fund fees decrease

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Donor-advised fund fees at The Community Foundation of Harrisonburg and Rockingham County have been lowered to 1 percent, fulfilling a promise to donors made in 2013.

That was the year that fees were increased – to 1.25 percent – to accommodate for necessary investments in technology, cybersecurity, and staffing.

That change nearly 11 years ago was made with great reluctance, says Executive Director Revlan Hill. “At the same time as we were experiencing growth with our donors, we also had challenges in the market and with major rising operational costs. The problem was actually one a growing foundation wants to have. We raised the fees with the promise that we would return it to the lower rate as soon as possible.”

The lower fee of 1% allows for “more dollars to support nonprofit organizations as recommended by the donor,” Hill said.

It’s also a sign that the foundation is carrying more assets, building on a solid financial footing, and continuing to grow at a healthy rate.

The current fee structure helps to cover administrative costs of the donation and grants processing, annual audits, preparation of tax returns, insurance and other operating expenses – all of which are required to exceptional services TCFHR donors have come to expect.

“Fulfilling this promise is a sign of our thriving and our commitment to excellent management,” Hill said. “We’re grateful to the generosity and trust of donors, the partnership of professional advisors, and the wisdom of staff and our board which made this possible.”

What happens when I leave a bequest to my fund at The Community Foundation?

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What happens when I leave a bequest to my fund at The Community Foundation?

Many donors and fund holders at The Community Foundation have updated their estate plans to leave a bequest to their donor-advised or other type of fund.

Some bequests take the form of a “specific bequest,” which means that the fund at The Community Foundation receives a specific amount of money from the donor’s probate estate or trust. For example, for a specific bequest, your advisor might include a provision in your will as follows:

I bequeath $15,000 to The Community Foundation (taxpayer ID number and/or mailing address), a tax exempt organization under Internal Revenue Code Section 501(c)(3), to be added to the [Name of Your Fund], a component fund of The Community Foundation, and I direct that this bequest become part of the Fund.

In these situations The Community Foundation will be ready to receive your bequest, typically as soon as the estate is settled.

In other situations, you may want to leave a bequest of a portion of the remainder of your estate after all specific bequests, expenses, and taxes have been paid. These types of bequests are called “residuary” bequests. The language can look something like this:

I leave all the rest and residue of my property, both real and personal, of whatever nature and wherever situated, and assets, including all real and personal property, tangible or intangible, to The Community Foundation (taxpayer ID number and/or mailing address), a tax exempt organization under Internal Revenue Code Section 501(c)(3), to be added to the [Name of Your Fund], a component fund of The Community Foundation, and I direct that this bequest become part of the Fund.

Because the amount of a residuary bequest cannot be determined until all of the assets in an estate have been identified and valued, and all expenses and taxes have been paid, the designated charity (in this example, your fund at The Community Foundation) will not receive the full amount of a residuary bequest until the estate is completely settled. Typically, however, the estate’s personal representative or trustee will make what is known as a “partial distribution” to the residuary beneficiary (or beneficiaries as the case may be), as soon as the personal representative has enough information about the assets and liabilities to confidently do so.

When you leave a residuary bequest to your fund at The Community Foundation, our team will be involved at various steps during the administration of your estate until final distribution. For example, The Community Foundation will receive regular communications about the estate related to assets, expenses, taxes, and periodic accountings. The Community Foundation will execute documents, such as receipts, related to distributions and other estate transactions.

The team at The Community Foundation looks forward to working with you and your advisors to establish bequests to fulfill your charitable legacies.

 

This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

Local Nonprofits Receive 2023 Funding from The Community Foundation

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Local Nonprofits Receive Funding from The Community Foundation

Harrisonburg, VA – Giving season is upon us and The Community Foundation of Harrisonburg and Rockingham County is celebrating. The Community Foundation reports a total of $159,518 will be granted to twelve organizations in their Fall 2023 grants cycle. Programs and projects like ‘Meals on Wheels’ by Valley Program for Aging Services and ‘Operation Free Pet Healthcare’ by Anicira are among the funded grantees. Over 60 organizations submitted applications. “Our grant funding process is difficult, especially because we receive so many wonderful applications each year. All are deserving of funding. We encourage nonprofits to apply for our grants next year as our grant awards will increase substantially.” – Ann Siciliano, Director of Program Services, TCFHR. Fall 2023 grant awards will be distributed to Harrisonburg-Rockingham nonprofit agencies by year end.

2023 TCFHR Competitive Grant Awards:

Fund Grantee Purpose/Project
Community Endowment Valley Program for Aging Services Meals on Wheels
Valley Arts & Culture Fund Oasis Fine Art & Craft Beyond Restaurant Mural
Valley Arts & Culture Fund Rockingham Ballet Theatre Costume Storage Improvement
Janet Sohn Endowed Fund The Salvation Army The Salvation Army Emergency Shelter
Mary Spitzer Etter Endowed Fund Arts Council of the Valley Development of New Arts Council of the Valley Website
Alvin J. Baird, Jr. Program Endowed Fund Blue Ridge Free Clinic, Inc. A Free Clinic Bridge to Health
Alvin J. Baird, Jr. Program Endowed Fund Cross Keys Equine Therapy Parent/Grandparent Caregiver Trauma Group
Earlynn J. Miller Fund for the Arts Arts Council of the Valley ACT ONE
Earlynn J. Miller Fund for the Arts OASIS Fine Art & Craft `Wild and Wonderful – Animals “Captured” in Paint!
Earlynn J. Miller Fund for the Arts Virginia Quilt Museum Creating a multi-purpose space for hands-on learning and programs
Earlynn J. Miller Fund for the Arts Harrisonburg Dance Cooperative Sprung Subfloor
Hildred Neff Memorial Fund Wildlife Center of Virginia Treatment of Sick, Injured, and Orphaned Wildlife from Harrisonburg and Rockingham County
Hildred Neff Memorial Fund Cat’s Cradle Pet Retention for Low-Income and Other Vulnerable Populations
Hildred Neff Memorial Fund Anicira Operation Free Pet Healthcare

Grant distributions come from funds held at TCFHR and are determined by Grants committees. Nonprofit organizations awarded all participated in a competitive application process. Per TCFHR policy, grants are made without regard to factors of gender, race, religion, national origin, or sexual orientation. For more information, visit TCFHR’s website, www.tcfhr.org.

Contact: Ann Siciliano, 540-432-3863 or ann@tcfhr.org

Website: www.tcfhr.org

About The Community Foundation of Harrisonburg & Rockingham County (TCFHR) 

TCFHR makes charitable giving easy, acting in the best interest of our donors and partners to facilitate bold philanthropic initiatives for a stronger, healthier community.

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Spotting opportunity: Moving from a commercial fund to The Community Foundation

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Spotting opportunity: Moving from a commercial fund to The Community Foundation

Although a donor-advised fund, which is becoming a more and more popular charitable planning tool, can be established through a national financial institution, The Community Foundation offers its donor-advised fund holders much broader services, more personal attention, and deeper connections to the nonprofits whose work is essential to effecting positive community change. Unfortunately, many attorneys, accountants, and financial advisors are simply not aware that a donor-advised fund established at The Community Foundation is in most cases a far better fit for their clients than a donor-advised fund set up at a “commercial gift fund.”

As you meet with your clients about year-end planning, be sure to ask whether they’ve established a donor-advised fund and if so, where it’s housed. If a client’s donor-advised fund is not at a community foundation, but instead was established through a national provider, please give us a call. We would be happy to talk with you and your client about the ease and benefits of moving the donor-advised fund to The Community Foundation.

The Community Foundation offers donor-advised fund holders the same tax and administrative benefits as a commercial gift fund, including:

  • Online access to the donor-advised fund to view balances, contributions, and grants
  • Simple process for requesting grants to favorite charities
  • Streamlined tax reporting, often represented by just one letter to provide to an accountant at tax time, even when the donor-advised fund is used to support dozens of individual charities throughout the year
  • All back-office administration, tax receipts, recordkeeping, and other requirements for the donor-advised fund’s 501(c)(3) status
  • Favorable tax-deductibility of contributions to the fund

Unlike standard commercial gift funds, though, The Community Foundation offers high-level, customized services to its donor-advised fund holders, including:

  • Concierge-level service by knowledgeable staff to structure estate gifts to charities and accept gifts of appreciated stock or complex assets such as real estate or closely-held stock
  • In-house experts who have a finger on the pulse of community needs, the strengths of specific nonprofits, and how to structure grant making for the highest possible community benefit
  • Opportunities to collaborate with other donors who care about similar issues and forums to tap into local and national subject matter experts
  • Opportunities to go deep into specific issue areas, both through education and hands-on involvement
  • Assistance with structuring and measuring the impact of grants
  • Family philanthropy and corporate giving services to foster a well-rounded, holistic approach to philanthropy
  • Administrative fees that are reinvested into The Community Foundation, itself a nonprofit, to help support operations, grow its mission, and help even more donors support the causes they care about
  • Hands-on assistance from local experts who understand both local and distant needs, and welcome the opportunity to research and identify causes aligned with donors’ goals and priorities
  • Staff members who live in the community they serve and often personally know the leaders and staff of grantee organizations and regularly hear about their needs first-hand

Keep an eye out for clients’ donor-advised funds at commercial gift funds. You’ll be doing a tremendous service for your client, and you’ll be helping the local community. You will also be fulfilling your own professional responsibilities by exploring the opportunity for a client to move a donor-advised fund to The Community Foundation. At The Community Foundation, hard-earned assets receive the attention they deserve as your clients strive to make a difference in the causes they care about the most.

 

 

This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

2018 Annual Report

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Employment Opportunity at TCFHR

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The Community Foundation of Harrisonburg & Rockingham County is currently hiring. For more information review the recent job posting.