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Welcome to the SoCalCGP Newsletter. The newsletter provides links to this page. Please see below for the items that appeared in the August 2024 issue.
Register Today for the September General Meeting! Thursday, September 19, 2024 @ Braille Institute SESSION 1 | 9:00 AM - 10:00 AM SESSION 2 | 10:15 AM - 11:15 AM Say Yes to the Gift: 5 Resources That Can Help Your Nonprofit Accept More Planned Gifts by Lynn M. Gaumer, J.D., CAP, Senior Gift Planning Consultant, The Stelter Company Have you ever had to tell a supporter that your organization could not accept a noncash or illiquid asset? Or that they could not create a charitable gift annuity because your organization is not registered in a certain state or does not have the capacity to administer them? Perhaps these limitations come from your staff’s lack of time or expertise. Maybe your board of directors does not want to accept the potential risks. In my role as senior gift planning consultant, I often hear these challenges…but I have good news: There are ways to say yes to a gift! Here are five resources you can turn to for assistance when presented with a potential gift of noncash or complex assets. Community Foundations These are grantmaking public charities dedicated to improving the lives of people in a defined local geographic area. And they often share your vision. There are more than 900 of these trusted partners nationwide, so there is likely one near you or your donor that you can turn to for guidance. If you need further assistance, you can use a Community Foundation Locator that lists those in the United States. They can often accept gifts that your organization cannot, such as closely held business interests, tangible personal property or real estate. Donor Advised Funds Donating noncash assets to a DAF can be a win for everyone. Here’s how it works:
Many sponsoring organizations can accept a variety of noncash assets, such as business interests, tangible personal property, cryptocurrency and real estate. According to the Fidelity 2024 Giving Report (pdf download) about two-thirds of DAF contributions were made in noncash assets. Last year alone, donors contributed $1.4 billion in non-publicly traded assets. Donors contributed 25% more cryptocurrency assets to Fidelity Charitable in 2023 than they did in 2022. Charitable Solutions, LLC Gifts of complex assets, such as business interests or cryptocurrency, are not an issue for Charitable Solutions, LLC, a planned giving risk management consulting firm. It offers a wide range of services including noncash asset acceptance and disposition, life insurance appraisals and risk management for charitable gift annuity programs. Bryan Clontz, PhD, CFP®, CLU®, ChFC®, CAP®, AEP®, RICP®, CBP, ChSNC®, is the founder and CEO. He has a wealth of experience and is also a dynamic speaker. Realty Gift Fund Real estate is America’s largest asset class, yet many organizations either do not accept real estate or have limited discretion when accepting it. Realty Gift Fund, an invaluable resource, is a qualified 501(c)(3) organization that exclusively accepts gifts of real estate through outright gifts and bargain sales. The proceeds (less costs and fees) from the sale of the real estate can be directed to your organization. Your nonprofit never assumes any title or financial risk, therefore eliminating any liability. National Gift Annuity Foundation Your CEO, CFO and board may be opposed to offering charitable gift annuities due to the financial liability risk and administrative headaches. Your organization may also be concerned about being registered in the states your donors live or having enough time and resources to dedicate to the process. You are not alone. Many organizations turn to third parties to ease these concerns. In fact, according to a recent American Council on Gift Annuities survey, the number of nonprofits that now outsource their gift annuity administration has increased dramatically to 58%. Only 31% use their business office alone or partner with the development office. The National Gift Annuity Foundation is one outsourcing option. It offers a turnkey solution for nonprofits of all sizes, in all states and in all phases of planned giving. Its program eliminates the administrative details and hassles. Several Stelter clients use its services with great success. So, before you say no, explore the wealth of resources available to you so you can say “yes” to the gift. SoCalCGP Member Profile: Meet Adrienne Gibson Senior Director of Planned Giving at City of Hope Adrienne Gibson is in her third year as front-line fundraiser on the legendary City of Hope team. In addition to her donor-facing work, she has enjoyed focusing on building relationships with professional advisors in allied fields to help them better serve clients by understanding the benefits of philanthropic planning. Adrienne’s 19-year career in philanthropy and her relationship with SoCalCGP began at Scripps College. Since 2012, she has enthusiastically attended nearly every Western Regional Conference and kept her industry knowledge and network strong by attending general meetings. Volunteer roles for SoCalCGP include: session monitor, mentor, co-presenter for the 2023 summer academy and Western Regional 2024. Leaving Money on the Table: And Getting It Back from the IRS by Shelley Hurwitz, Partner, Holland & Knight Cultivating gifts is hard! Your organization deserves to receive the maximum possible benefit from your efforts, and you deserve the utmost credit for your perseverance. Maximizing your bequest revenue does not end when the notary stamps the gift instrument or when your donor dies. Honoring donor intent and being a good steward of your donor’s funds means ensuring that the full gift ends up with your organization, and not somewhere else due to excessive fees, fraud, mistakes and delay. A well-rounded gift planning program must invest resources into administration, because if you are not finding errors in 10% of your files, you are simply not finding them. One of the most common errors made by lay and professional fiduciaries alike are unnecessary taxes. A big one is the (incorrect) belief that during the years that the Trust or Estate holds the assets, taxes must be paid on income. For some reason, fiduciaries double down on that belief when the income is from capital gains. But that’s not right. The Actual Rule: A current deduction can be taken for amounts “permanently set-aside” for a charitable purpose, even if the funds will not be paid to the charity until sometime in the future. I.R.C. § 642(c)(2) The deduction can be taken to offset any type of income: ordinary, interest, business, capital gains, redemption of bonds, etc. This is true for both Federal and California income taxes. The deduction is unlimited. “Permanently set-aside” means that: (1) the charitable contribution must be an amount from the estate's gross income; (2) the governing instrument's terms made the charitable contribution; and (3) the charitable contribution was permanently set-aside for a charitable purpose. Generally, if your organization is named in the gift instrument and no litigation is pending, you should examine whether a deduction could have been taken for the amounts that will ultimately be distributed to your organization. This deduction is always available to an Estate. An I.R.C. § 645 election must be made with the Trust’s first Income Tax Return in order to preserve the right to take the deduction. The Trust must have been formerly revocable, i.e., not irrevocable when created. The Most Common Situation Your charitable organization is named as the sole residuary beneficiary of an Estate. No litigation has been filed and administration has been relatively “normal”. You review the Accounting, and notice two line items from last year: 2022 Federal Taxes $150,000 2022 State Taxes $50,000 Red flag! What You Should Do
The situation described above is what I see most commonly in my practice: nothing crazy is going on and the Executor has simply made a mistake, unaware that amounts permanently set-aside for a charitable purpose can be deducted even though distributions will not be made until sometime in the future. Once pointed out and the Executor has had some time to discuss it with an embarrassed Accountant, an Amended Tax Return is filed and everyone is happy. A more difficult case arises when a decision must be made as to whether and when to take the deduction if there has been litigation during administration. Litigation of any type can eat into a charity’s share and, therefore, the IRS may consider the funds to not be “permanently set-aside” for the charity. But, the deduction may still be taken after the litigation is settled, as long as it is not anticipated that the proceedings in court will continue for years following the settlement or conclusion of the litigation. The IRS will expect the fiduciary to wait until the possibility that the amount set-aside will not be distributed to the charity “is so remote as to be negligible”. Runner-Up Another common situation is the same as above, except it is a Trust and no I.R.C. § 645 election was made with the filing of the Trust’s first Income Tax Return. Once the deadline to file the first Income Tax Return has passed, this election cannot be made and is lost forever. The best thing to do here, is avoidance: If you know your organization is a substantial beneficiary of a formerly revocable Trust, ask the Trustee to consider making an I.R.C. § 645 election before the return is filed. In my practice, we routinely ask Trustees to make this election upon receipt of the gift notice (and offer to help). In Conclusion: Part of being a good steward of your donor’s funds is putting resources into ensuring that the inevitable mistakes made by fiduciaries do not result in your donor’s funds needlessly ending up at the IRS, instead of where they belong – with you! When a fiduciary should have taken a charitable income tax deduction because funds were permanently set-aside for your organization, speak up and insist that he or she file an Amended Tax Return. |
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