As attorneys, CPAs, and financial advisors, you’re very aware of potentially significant upcoming changes to the tax laws that could impact your high net-worth clients. Whether or not a post-election Congress takes action to prevent the estate tax exemption sunset at the end of 2025 will potentially affect the way you design your clients’ wealth transfer strategies. 

During this phase of uncertainty, it may be useful to reflect on historical estate tax changes to see how similar situations have been resolved in the past, while at the same time taking a practical approach and advising clients that, while commentators may speculate, it is still impossible to accurately predict what might happen. Estate taxes certainly will continue to be on the minds of leaders in the charitable sector for many months to come. 

As you and other tax planning professionals watch and wait, it is important to keep charitable planning high on your list of strategies that could help blunt the impact of a lower estate tax exemption if the sunset were to occur. That’s because gifts to charities are deductible from a client’s taxable estate. Even during this era of uncertainty, be sure to keep in mind an important planning technique for your charitably-inclined clients that delivers multiple tax benefits and offers some degree of flexibility: Naming a charity, such as a fund at the community foundation, as the beneficiary of an IRA or other qualified retirement plan. 

 Here’s why this is such a powerful technique, especially now:

Income tax savings. When your client designates a fund at the community foundation as the beneficiary of an IRA, the fund receives the assets without having to pay income taxes. This is because charities are tax-exempt entities, allowing them to receive funds from qualified retirement accounts tax-free after your client’s death. This is not the case with qualified retirement plans flowing to heirs; the income tax hit can be significant.

Estate tax deduction: Naming a charity as a beneficiary of a retirement plan results in an estate tax charitable deduction, which reduces any applicable federal estate taxes. This means that the full value of the IRA can flow into your client’s fund at the community foundation free from the estate tax burden.

Flexibility. Clients can revise IRA beneficiary designations anytime during their lifetimes. So, as the end of 2025 draws closer, a client can update an IRA beneficiary designation to name a fund at the community foundation, which would protect against a drop in the estate tax exemption. If the sunset does not occur, the client could of course revise the beneficiary designation to leave a greater portion of retirement plan assets to heirs. Remember, though, that the income tax hit will still apply to proceeds flowing to heirs. That’s why many of your charitable clients will choose to leave IRAs to their funds at the community foundation even if the estate tax exemption does not sunset. And, of course, many clients truly want to leave a legacy and would love to incorporate charitable giving into their estate plans regardless of what happens with the tax laws. As tax and estate planning advisor, it is your responsibility–and opportunity–to help clients achieve their philanthropic wishes.   

Please reach out to the team at the Community Foundation to dive deeper into the ways you can help your clients fulfill their charitable goals, especially during this time when future tax laws are up in the air. We are here to help! 

Attorneys, CPAs, and financial advisors certainly are not strangers to tough questions. Indeed, the mix of money, family, and mortality is a potent combination that almost always creates an emotional planning environment, whether the matter at hand is tax planning, updating wills and trusts, or structuring retirement portfolios.

Why, then, are so many advisors reluctant to bring up charitable giving during client meetings when the topic itself is so uplifting? In some cases, you may feel like you don’t know enough about the technical tax planning aspects of charitable giving to be able to offer sound advice. In other cases, you may be concerned about taking the planning process off course into areas where the client doesn’t want you involved. Or maybe you don’t feel you have a good enough grasp of the client’s big picture to truly recognize opportunities for charitable planning that are a win-win for the client’s favorite causes and the client’s tax and financial plan.

Guess what? There is no need to worry! The community foundation has you covered. Consider the following:

Clients are expecting you to bring up charitable giving; studies reveal a disconnect between what clients and advisors assume and perceive. So if you think to yourself, “Oh, I asked about that,” think again because the client may disagree. Did you approach the question with sincere interest, or were you just checking a box?

What’s important here is that the community foundation team is your technical back up! You absolutely do not need to know the ins and outs of the charitable deduction rules, the details of Qualified Charitable Distributions, or how a donor-advised fund or charitable remainder trust operates. If you’ve built an expertise around charitable giving in your practice, that’s terrific, but it is not necessary. Our team is just an email or a phone call away. Please reach out the moment a client expresses interest in charitable planning. We’re happy to support you and be part of the team to meet the client’s objectives.

And this does not need to be hard.

While plenty of resources offer excellent suggestions for how to bring up charitable giving in conversations, many advisors tell us that they have to keep it even more simple. We understand that you don’t have time to ask a briefcase full of questions. That does not mean, however, that you can’t have a meaningful conversation. Even just two minutes is plenty if you show genuine interest in the client’s intentions and connect the client to the community foundation.

For example, the charitable planning part of a client meeting could be as simple as this:

“Okay! Now that we’ve taken a look at your retirement projections, beneficiary designations, and portfolio allocation, let’s check in on charitable giving. Bring me up to speed on your involvement with community organizations.”

Then, let them talk. If they’re not involved in any community organizations, they’ll tell you. And if they are, they’ll tell you that, too.

If the client is indeed involved in community organizations, let them know that you are happy to connect them to the team at the community foundation, or, better yet, tell the client that you’d be happy to invite a professional from the community foundation to your next meeting. Your priority as their advisor is to bring professionals to the table to help achieve their charitable giving goals.

Of course, this sample dialogue is over-simplified for illustration purposes. But truly, it does not need to be much more complicated than that. Next time you meet with a client, give this simple approach a try. You might be surprised at how easy it is, and how much the client appreciates your interest in areas of their lives that go beyond dollars-and-cents transactions and legal documents. It is the community foundation’s honor to work with you and your charitable clients.

Giving stock is an important strategy for any private business owner to explore. Not only can these gifts help implement a business succession plan that calls for transferring the business to the next generation if that is your client’s goal, but gifts of stock can also help your business owner client achieve charitable goals and avoid estate tax.

In light of recent legal developments and pending tax law changes, more and more financial and estate planning advisors are encouraging their clients to consider implementing gifts of closely-held stock to a fund at the community foundation or other public charity. Notably, two developments could have a big impact on your work with these clients:

• The estate tax exemption sunset set to occur at the end of next year continues to loom large. Without intervening legislation, a lot more of your clients will need to wrestle with the reality that their estates likely will be subject to a hefty tax, causing many clients to rethink both the timing and methods to transfer business interests. Making gifts of closely-held business interests to a fund at the community foundation is likely to become more attractive to a broader cross-section of your client base.
• Valuation has always been a critical factor in any type of tax or estate planning. This is certainly still the case with substantiating the value of closely-held business interests that your clients transfer to a charity, such as a fund at the community foundation. And now, the additional wrinkle presented by the Supreme Court’s decision in Connelly v. United States makes things even more interesting. The Connelly decision impacts the way business interests are valued for estate tax purposes. In Connelly, the Supreme Court held that life insurance proceeds indeed ought to be included in the valuation of a company without offsetting the redemption obligation. This could translate to higher taxable estates for your business owner clients, creating further incentive to leave a portion of closely-held stock to charity. The decision is also a reminder that careful planning can potentially avoid pitfalls.

Please reach out to the community foundation to learn more about how our team can help as you work with your business-owner clients to navigate legal and tax developments that could significantly impact future plans for their privately-held companies.

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

With so many of your charitably inclined clients holding large sums of money in 401(k)s and IRAs, here's a brief refresher on the benefits of deploying these accounts toward achieving clients’ philanthropic goals. When your client names a public charity, such as a donor-advised or other fund at the community foundation, as the beneficiary of a traditional IRA or qualified employer retirement plan, your client achieves extremely tax-efficient results.

Here’s why:

• The client achieved tax benefits over time as the client contributed money to a traditional IRA or to an employer-sponsored plan (considered “pre-tax” by the IRS). Your client does not pay income tax on the money used to make those contributions (subject to annual limits).
• Assets in IRAs and qualified retirement plans grow tax-free inside the plan and the client is not paying taxes on the income generated by those assets before distributions start in retirement years.
• When a client leaves a traditional IRA or qualified plan to a fund at the community foundation or upon death, there are no income taxes paid (or estate taxes) on those assets. By contrast, if the client were to name children as beneficiaries of an IRA, those IRA distributions to the children are subject to income tax (and potentially estate tax), and that tax can be hefty given the tax treatment of inherited IRAs.

If your client is deciding how to dispose of stock and an IRA in an estate plan and intends to leave one to children and the other to charity, leaving the IRA to charity and the stock to children is a no-brainer. Remember, the client’s stock owned outside of an IRA gets the “step-up in basis” when the client dies, which means that the children won’t pay capital gains taxes on the pre-death appreciation of that asset.

Speaking of savvy giving techniques using IRAs, a client who is 70 ½ or older can make tax-efficient gifts directly from an IRA to a qualified charity (including certain types of funds at the community foundation), up to $105,000 per year! This is known as a “Qualified Charitable Distribution.”

We are always happy to work with you to ensure that your clients are maximizing their assets to fulfill their charitable giving goals, both during their lives and through legacy gifts. We look forward to the conversation! 

Getting a jump on a future “to do” list is always such a good feeling. The team at the Community Foundation can help you with your clients’ long-term charitable giving plans by putting in place the structures to receive bequests decades from now.

Consider a case where you’re finalizing an estate plan for a client who would like to leave bequests to multiple charitable organizations, but the identity of those specific organizations may be a moving target over the years because of the client’s evolving level of engagement with various charities as a donor, volunteer, or board member. In other words, this client likely will want to make small changes to the estate plan’s provisions for charitable giving but leave everything else as is. For example, a client’s trust could be drafted to provide that a percentage of the remaining estate be divided equally among five charities, which of course could be listed in the trust document. But what if, a few years from now, the client wants to add another charity to that list? Even a small change like this would require an amendment, which can be time-consuming for both attorney and client.

Instead, the client’s trust document could name a fund at the Community Foundation as the beneficiary of 10% of the remaining estate. Then, the client can work with the Community Foundation to draft a fund agreement that lists the charities that will share the 10%. When the client wants to add new charities or switch out charities from the list, the client can reach out to the Community Foundation and execute simple documentation of the client’s updated intent for the fund. This process is fast and simple, and it allows clients to ensure that their bequests are in line with ever-changing needs in the community.

In some cases, the client may not intend to use the fund during their lifetime. That’s perfectly fine; the Community Foundation can set up a “shell fund,” established through a memorandum of understanding, to sit dormant and receive assets only after the client passes away. Your client can still name the fund whatever they’d like, and the shell fund agreement can be modified anytime before the client’s death.

Please contact the Community Foundation Charitable Impact Team to learn how shell funds and other planning tools can help your clients achieve their charitable goals both during their lifetimes and beyond.