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Tax topic: Valuation of charitable gifts is always on the radar
Avoiding danger: Be wary of overstating the value of charitable tax deductions
In 2016, in Estate of Dieringer v. Commissioner, the Tax Court issued an opinion reducing the charitable deduction in a decedent’s estate when the stock was redeemed only shortly after the decedent’s death. On appeal, the Ninth Circuit referenced Ahmanson Foundation v. United States, relying on the principle that an estate tax deduction is allowed only for what is actually received by the charity. This longstanding “actually received” rule should always be top of mind for practitioners as they advise their clients on charitable giving tools and techniques. Read the full text of the court’s opinion.
Substantiation requirements: Still relevant
In mid-2018, the Department of Treasury released its final regulations for substantiation and reporting of deductions for charitable contributions. As 2019 draws to a close, now is a good time to refresh your recollection about the requirements as your clients plan their year-end charitable giving activities. Gift substantiation remains a hot tax topic during giving season, especially in these areas:
Definition of a qualified appraiser (provision took effect in 2019)
Requirements for gifts of partial interests
Appraisal requirements for charitable remainder trusts, even if the trust holds marketable securities
Requirement to attach an appraisal for gifts of real estate valued over $500,000
Check out the full text of the regulations.
Making a Difference: Working with Philanthropic Families
Be aware of questions on disaster relief giving
Catastrophic weather events may leave your clients wondering how best to help people who’ve been affected. Americans give a total of more than $10 billion to disaster relief efforts annually. But only 25% feel “very clear” about how that money is spent. Clients want to know things like when to give, how to be sure the gifts have an impact, and which organizations to support.
HOW WE CAN HELP
As you talk with your clients about how to support people in need after disasters, consider calling the community foundation for insights. Whether people affected are in our region or not, our experts will be able to guide you and your clients through a decision-making and evaluation process about how dollars can be best deployed.
Insight: Philanthropy and its role in family connectedness
Attorneys, financial planners, and accountants frequently observe that their clients who participate in philanthropic endeavors seem happier and more connected to their families. That’s actually more than just an observation. Several studies over the years show that engaging in “prosocial behavior” helps build strong relationships. According to a study in Mindfulness, for example, 85% of people help someone else once a week, which fosters overall mental health and positive interpersonal connections. As you work with your clients and their families across generations, keep in mind the power of philanthropy to keep families connected.
HOW WE CAN HELP
The community foundation’s experience working with families across generations can help you build a legacy of giving for your client families. For example, consider working with the community foundation to help grandparents to establish donor-advised funds for each child or grandchild. Or, consider working with your clients and the community foundation to set up a fund to support a specific cause that the whole family loves.
Bread-and-Butter Planning Tips
Worth repeating: Bundling gifts
The timing of charitable gifts is something that can’t fall off the radar, so it’s worth a regular reminder about bunching, or “bundling,” gifts to charities. The ripple effects of tax reform have meant that just 10% of taxpayers now itemize deductions, down from 30%. A smart strategy for your charitable clients who want to maximize deductions under the new tax laws can benefit is to make two or more years’ worth of charitable contributions in a single year. This can push taxpayers over the itemizing threshold to reap the benefit of deducting the full value of their donations.
Checklist: Types of funds at community foundations
The community foundation offers a variety of funds to meet your clients’ needs. Keep this checklist handy as you meet with philanthropic families.
Donor-advised Funds
A donor-advised fund enables your client to establish a specific account for charitable giving. Clients make tax-deductible contributions of cash or other assets to the fund, and then are able to recommend grants to favorite charities.
Unrestricted Fund
The community foundation has its finger on the pulse of the community’s most pressing issues. An unrestricted fund give your clients the 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.
Field of Interest Fund
Clients who want to target giving to specific areas of community need (such as education, health, environment, or the arts) can establish a field of interest fund to establish parameters for grant making under the ongoing guidance and expertise of the community foundation’s staff.
Designated Fund
A designated fund allows a client to direct giving to a specific agency or purpose. Over time, the community foundation staff manages the annual distributions from the fund according to the terms established by the client.
Scholarship Fund
Your clients can set up funds to support students’ educational pursuits based on parameters and application requirements they select with guidance from the experts at the community foundation.