Three skimmable insights, what’s next for tax laws, and multiple strategies for ultra high net worth clients

Hello from the Morton Community Foundation! 

Thank you for the opportunity to work together as you serve your philanthropic clients. We are grateful for the many ways our team collaborates with attorneys, CPAs, and financial advisors. 

As always, we’re committed to staying on top of legal developments and curating that content to save you time. We’re covering three topics in this issue that have risen to the top of our research:

• If you only have 60 seconds to get up to speed, check out our insights and tips for hurricane relief, how your clients define “wealthy” and why it matters for their philanthropy, and important year-end giving reminders about ways the Morton Community Foundation can help.

• You and other financial and tax advisors are on pins and needles about what might happen with the tax laws and especially the estate tax exemption. The Morton Community Foundation offers factors to consider as you advise your clients … and as you continue to watch and wait. 

• Your client base is more and more likely to include ultra-high net worth families. It’s important to understand how multiple charitable giving vehicles, including a donor-advised fund at the Morton Community Foundation as well as possibly a private foundation, play a role in a client’s overall philanthropy strategy.

Whether we are working together to structure a family’s donor-advised fund, a gift of real estate, endowed support for a favorite nonprofit, or a Qualified Charitable Distribution to a field-of-interest fund at the Morton Community Foundation, our team enjoys and appreciates every minute. We love serving as your first stop for all things philanthropy.

Be aware that GivingTuesday is the Tuesday following Thanksgiving, Tue, Dec 3.  Make sure your clients know this, especially if they are Caterpillar employees or retirees.  Why? 

In support of Giving Tuesday, the Caterpillar Foundation will provide a limited-time 2:1 match through their Matching Gifts Program for global employee and U.S. retiree gifts made December 2-6, 2024 (or once the match total reaches $2M USD).  This includes donations to any of the 100+ individual endowment funds with the MCF.  Since the total dollars available for the 2:1 match are limited to $2M USD, you’ll want to get your donations made as early as possible, preferably Monday, Dec 2.  Employees/retirees may donate up to a total of $500 in increments of no less than $25.  Example:  A donation to their favorite MCF fund of $500, will trigger a $1,000 donation to that same fund by the Caterpillar Foundation, for a total gift of $1,500.

Wishing you and your family all the best for the Thanksgiving holiday.

The Morton Community Foundation Staff
Scott Witzig, Executive Director
Darcy Riddle, Administrative Manager

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Three insights worth a quick peek

You’re busy as 2024 draws to a close! The Morton Community Foundation is committed to researching, curating, and keeping you up-to-date on the latest trends and developments that could impact your clients’ charitable giving strategies. If you only have 60 seconds, we recommend scanning these three quick updates. 

Best practices for donating to hurricane relief efforts 

As your clients continue to support hurricane relief efforts, keep in mind that even in disaster response situations, tax rules still come into play. Make sure you’re aware of how the IRS addresses “qualified disaster relief” related to both donors and recipient charitable organizations. Please reach out to the team at the Morton Community Foundation anytime to learn more about how your clients can ensure that their hurricane relief dollars are making the biggest difference possible. When disaster strikes our region, we help facilitate charitable giving to legitimate efforts that make a real impact. And when disaster strikes elsewhere, we help support our community foundation partners across the country.  

Charitable giving can help bridge generations’ definitions of “wealthy”

The recently-released Bank of America Private Bank Study of Wealthy Americans is a must-read (or at least a must-skim) report because it offers insights into shifting views on wealth, and it also highlights a disconnect in inheritance expectations. Notably, younger individuals tend to rally around a definition of “wealthy” in terms of having the means to live a life of purpose and make a difference. Older generations are more likely to define “wealth” in financial terms. Important for charitable planning is the finding that older generations may not be planning to leave the inheritance that their children and grandchildren expect. Working with the Morton Community Foundation to help clients establish a multi-generational charitable giving plan makes it easier to get expectations out in the open and keep the entire family meaningfully involved in the family’s wealth over the long term. 

Must-know tips for clients’ year-end giving 

We know you’ve got a lot on your plate as the end of the year approaches. Even if charitable giving does not appear on the surface to be a burning issue in client meetings, it’s still crucial that you keep in mind a few essential charitable giving techniques because your clients do care. Please scan these three important techniques, and please reach out to the Morton Community Foundation on any matter related to charitable giving. 

• Encourage clients to consider giving highly-appreciated stock, not cash, to their funds at the Morton Community Foundation, thereby maximizing tax benefits.

• Help clients evaluate a “bundling” or “bunching” technique to make gifts to donor-advised funds, exceeding the currently high standard deduction to be able to itemize. Then, donor-advised fund assets can be used over the next few years to support clients’ favorite charities.

• Help clients who are 70 ½ and older make Qualified Charitable Distributions (“QCDs”) directly from IRAs to designated or field-of-interest funds (donor-advised funds are ineligible recipients) at the Morton Community Foundation–up to $105,000 per spouse. Plus, QCDs satisfy RMDs! 

Reach out to the Morton Community Foundation today! November is the time to set things in motion so you don’t get caught up in the year-end rush. We are here for you. 

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What now? Why the elections won’t immediately change tax laws

Many eyes are on the election aftermath seeking clues about what might happen to the tax laws. Of particular interest is the much-analyzed sunset of the higher estate tax exemption, scheduled for the end of 2025 absent intervening legislation. “Absent intervening legislation” is the key, of course. The November 2024 elections will not immediately change estate tax laws, and it’s a long road from here to there.

For starters, the new Congress will not be sworn in until January 2025, and only after the session begins will Congress initiate the budget reconciliation process which is ultimately required to make tax law changes. The budget reconciliation process typically starts with the President submitting a budget to Congress. Then, both chambers of Congress pass budget resolutions with reconciliation instructions. Then, committees draft legislation to meet the budget targets, and the budget committees consolidate the bills into a single omnibus bill. Then, each chamber votes on its respective omnibus bill.

What all of this means is that the status of the estate tax exemption is still very much up in the air. And this means that financial, tax, and estate planning is going to be difficult for many more months. With the estate tax exemption set to drop from $13.61 million per person in 2024 to approximately $7 million per individual on January 1, 2026, a lot is at stake. Should a high-net worth taxpayer start making aggressive gifts now to family members and a donor-advised or other type of fund at the Morton Community Foundation, anticipating that the sunset will indeed occur? Or take a “wait and see” approach? 

Planning is further complicated by the dangers of waiting until the last minute. Not only is it tough to pull off a complex estate plan or business succession plan quickly, but it’s also dicey because the IRS likely will be on the lookout for situations to invoke the step transaction and reciprocal trust doctrines. 

So what can you do? First and foremost, if you are working with charitably-inclined families who would be impacted by the estate tax exemption sunset, please reach out to the Morton Community Foundation right away to start looking at options. And if you aren’t sure whether a client is charitably inclined, you absolutely must ask them. It’s always important to talk about charitable giving, and especially right now when the stakes are so high. 

We look forward to many conversations with you and your clients as estate tax developments unfold! 

Navigating multiple charitable strategies for ultra high net worth families

Charitable giving is always an important strategy to discuss with your clients. Many high-net-worth individuals are philanthropic, of course, and charitable gifts reduce taxable income and avoid estate taxes. Charitable giving strategies are particularly relevant as you and your clients address the possibility of increases in income and capital gains taxes for high earners as well as increased estate taxes due to the looming exemption sunset.

What’s also notable is research indicating that the number of “ultra high net worth" families (over $30 million) has increased dramatically over the last two decades. Globally, 157,000 individuals represented $14.2 trillion in 2004 and by 2024, 426,000 individuals represented $49.2 trillion of wealth. Fast forward to 2027, and this group is expected to grow to over 500,000. America alone is home to 756 billionaires and many of the world’s millionaires–nearly 22 million people. 

So why does this matter to you? It matters because wealthy families will rely increasingly on their attorneys, CPAs, and financial advisors to help them navigate savvy tax planning strategies, including charitable giving. And many of these families are very generous, so don’t underestimate your clients’ desire to get involved in charitable giving. 

Indeed, you may already be working with families who use private foundations to fulfill their charitable giving goals. In many instances, these private foundations were established by previous generations before donor-advised funds became widely available. As donor-advised funds become more popular, for lots of good reasons, please reach out to the Morton Community Foundation to explore a parallel strategy where your clients can carry out their charitable intentions using both a donor-advised fund and a private foundation.   

In some cases, your clients may want to consider closing a private foundation and transferring the assets to a donor-advised fund because of the many administrative and tax benefits. The MCF can help walk through the steps for shutting down the private foundation, which include securing board approval, making sure final expenses will be covered, transferring the assets to a donor-advised fund, filing the appropriate dissolution documents with the state, and submitting the private foundation’s final tax return reporting its dissolution and transfer of assets. 

Whether your client pursues philanthropic goals through a private foundation, donor-advised fund, or combination of both, we are here to help! Please reach out to our team to discuss the ways your clients can support causes that align with their values and passions, create a lasting legacy that extends beyond their lifetime, involve multiple generations in philanthropic efforts, and foster an overall sense of family unity and shared purpose.

The team at the Morton Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.

Tax laws and the great unknown, event tickets, and tips for client conversations

Greetings from the Morton Community Foundation! 

As the end of the year draws closer, we’re looking forward to working with so many of you to structure and fulfill your clients’ charitable giving goals for 2024. The Morton Community Foundation is honored to be your very first call whenever the topic of charitable giving pops up during client conversations. What’s really exciting is to hear from attorneys, CPAs, and financial advisors that you’re no longer waiting for the topic to pop up because you’re bringing it up yourself!

Here’s what’s trending this month:

• Our hearts go out to the millions of people affected by Hurricane Helene. Community foundations in the affected areas and across the country are making it as easy as possible to donate to relief efforts. Please contact the team at the Morton Community Foundation to learn more about how you and your clients can help swiftly and most effectively.  We can provide links to community foundations located in or near the affected areas that can ensure your gift is swiftly directed to the agencies working most closely with those in need.

• We’re excited about the first ever DAF Day, a national campaign to encourage giving from donor-advised funds. The Morton Community Foundation is honored to work with so many individuals, families, and businesses to establish donor-advised funds to organize their giving. A donor-advised fund can be a key component of a client’s overall philanthropy plan. Other components often include field-of-interest funds, designated funds, and unrestricted funds, as well as bequests in your clients’ estate plans through a will, trust, or IRA beneficiary designation.

• Make a note on your calendar of other key dates that may be relevant to your clients, including National Philanthropy Day on November 14, and GivingTuesday on December 3. These well-publicized events make it even easier to bring up charitable planning during client conversations.  

 In our latest articles, we’re diving deeper into three key topics:

• Election year dynamics make it even harder to predict potential changes to tax laws that could impact your clients’ charitable giving plans. The Morton Community Foundation offers high-level observations about the major areas of tax policy that could be impacted by election results. As always, we’re committed to keeping you up to date, even in the absence of a crystal ball.  READ MORE

• Event season is ramping up, and that means your clients may have questions about the tax deductibility of buying tickets or purchasing a table. Indeed, supporting a charity event is not as straightforward as you might think. The Morton Community Foundation is happy to help your clients support their favorite causes without running afoul of IRS rules. READ MORE

• Clients expect you to ask them about charitable giving. “Oh I do that,” you might say to yourself. But don’t be so sure! Clients may have a different impression. The Morton Community Foundation offers simple tips and techniques to help you meet clients’ expectations for including philanthropy in the conversation. READ MORE

Thank you so much for the opportunity to work with you and your charitable clients. It is our honor and pleasure! We look forward to your emails and phone calls as 2024 winds down, and we’re excited about continuing our conversations in 2025 and beyond. 

Thank you for the opportunity to work together! We are grateful.

The Morton Community Foundation Staff
Scott Witzig, Executive Director
Darcy Riddle, Administrative Manager

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Into the great unknown

Humans crave certainty, and that is certainly not what we have right now during election season, especially where taxes are concerned.

Your clients who support charitable causes may be wondering how the election outcomes might impact their philanthropic plans. You’re probably wondering that, too!

Of course, no one has a crystal ball. It is impossible to predict tax law changes, and that will still be the case to some extent even after the elections. So much can change between a tax proposal and what is ultimately enacted into law. Still, you’d at least like to have a general idea. In that spirit, let’s break down at a very high level where the proposals are trending and what might happen with charitable giving depending on the outcome of the November elections.

Capital gains tax 

• Donald Trump has not yet formally proposed a new tax policy on capital gains.

• Kamala Harris has called for an increase on the top long-term capital gains tax rate to 28% for taxable income above $1 million. This change could translate into more incentive to give appreciated assets to funds at the Morton Community Foundation and other charities. 

Income tax

• Trump could make income tax cuts permanent. These cuts are currently subject to next year’s scheduled sunsetting of provisions in the 2017 Tax Cuts and Jobs Act. Note that in this scenario, the higher standard deduction under the Act would presumably continue, reinforcing what many have observed as a chilling effect on charitable donations. 

• Harris has proposed expanding several tax credits, but sources opine that it is still unclear whether the higher standard deduction would be allowed to sunset.

Estate tax

• Trump has indicated that he will prevent the estate tax cuts (ie., higher estate tax exemption) from expiring. 

• Harris appears to signal that she would increase estate taxes, perhaps leaning toward the policies laid out in President Biden’s Fiscal Year 2025 Budget Proposal, which modeled tightening the estate tax. If the estate tax exemption were to drop according to the sunset provisions under current law, or if other changes were to increase the estate tax, high net-worth taxpayers would have a greater tax incentive to make large charitable gifts and bequests.

Remember that it’s not only the presidential election that will impact tax changes. Passing actual laws depends on the make-up of Congress, too.  

As always, the Morton Community Foundation stays on top of legal developments impacting techniques that are a good fit for your clients’ charitable planning. We’ll keep you posted during election season and throughout the year. 

Event tickets: Beware of the split

Many of your philanthropy-minded clients certainly enjoy attending fundraising events for their favorite charities. Especially as community events start ramping up this fall, you’ll want to be aware of a little wrinkle in the IRS rules that may surprise your clients so much that they ask you about it. 

Here’s how this might go.

Client: “We wanted to buy a table at the fall gala through our donor-advised fund, but the team at the Morton Community Foundation said that’s not possible and they suggested alternate ways of meeting our goals. What’s up with that?”

You: “Ummmm ….” 

And no one could blame you for that response! The rules behind this are obscure and confusing, even by IRS standards.

Here’s what’s going on: The IRS frowns on donor-advised funds paying for any part of an event ticket to a charitable fundraiser–even if a portion of the ticket is tax-deductible. 

Big picture, the IRS is likely striving for administrative simplicity to enforce the longstanding tax principle that a taxpayer cannot deduct value given to a charity that is effectively transferred back to the taxpayer. At a typical event, of course, your client receives food, drinks, entertainment, and even t-shirts and other fun swag. The IRS knows this!  

The IRS’s commentary on this topic is not new; IRS Notice 2017-73 addresses a concept known as “bifurcated gifts,” meaning a portion of a gift is tax deductible and the other is not. The background here is that the IRS has taken the position that Internal Revenue Code Section 4967 prohibits donor-advised grants from conferring “more than incidental” benefits to donor-advised fund holders. In its 2017 Notice, the IRS expresses its opinion that donor-advised fund grants that enable attendance or participation in a charity-sponsored event (such as buying tickets or a table) do indeed provide more than just an incidental benefit, even if the taxpayer pays out-of-pocket for the non-deductible portion of the ticket. 

Ever since the notice was released, it’s been on the radar of tax professionals, and many predict that the IRS will eventually formalize its opinion by issuing new regulations. It’s wise to keep an eye on this because the penalties certainly are not negligible and include excise taxes imposed on the donor advisor and potential penalties for donor-advised fund programs that knowingly authorize such payments.

There is good news, though! 

The Morton Community Foundation is on it! We understand the rules, and we are here to help your clients stay compliant and achieve their charitable goals. In situations like this, we help your clients structure gifts from their donor-advised funds to support general event sponsorships if the client declines all benefits, or even recommend that the client pay the ticket portion from their personal funds and use donor-advised funds to give separate and additional amounts for general support unrelated to the event specifically. We can also talk with your client about how to participate in rallies for outright donations during a fundraising event and ensure that the client is not receiving any benefit in return.

Please reach out anytime! We’re happy to help! 

At a loss for words? Tips for starting a charitable giving conversation

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 emotionally-charged 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 Morton 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 Morton Community Foundation 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 Morton 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 charitable community organizations, schools, and/or faith-based charities or church.” 

Then, let them talk. If they’re not involved in any charitable community organizations, schools, and/or faith-based charities or church, they’ll tell you. And if they are, they’ll tell you that, too. 

If the client is indeed involved in these charitable organizations, let them know that you are happy to connect them to the Morton Community Foundation, or, better yet, tell the client that you’d be happy to invite a professional from the Morton 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 Morton Community Foundation’s honor to work with you and your charitable clients.

Morton Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Breaking through client procrastination, what's new with closely-held stock gifts, and tips to stay current

Greetings from the Morton Community Foundation! 

The days are getting shorter, and that means it’s time to get a jump on year-end charitable planning for your clients! 

In the spirit of staying ahead of the curve, we’re covering three topics this month that can help you as you begin to talk with clients about the remaining “must do” items for 2024, including charitable giving.

1. Procrastination is a very common human reaction to tasks that seem daunting. Estate planning, tax planning, and financial planning can sometimes fall into this category. Unfortunately, clients who put things off for too long often find themselves missing out on opportunities to further their goals. The Morton Community Foundation offers tips for using charitable giving as a “gateway” topic for bigger conversations about essential year-end planning.

2. Your clients who are business owners and who are also philanthropic will appreciate your suggestions about incorporating charitable giving into their succession plans. This is a good time to have that conversation in light of legal developments and upcoming tax law changes. The MCF can help! 

3. As always, the Morton Community Foundation stays on top of trends that impact your work with your charitable clients. We’re sharing updates so you can stay current on popular planning techniques, how the election year may influence charitable giving, and what’s ahead on the calendar to help motivate your clients to complete their planning to do lists. 

Thank you for the opportunity to work together! We are grateful.

The Morton Community Foundation Staff
Scott Witzig, Executive Director
Darcy Riddle, Administrative Manager

Charitable planning can help ease client procrastination

“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 Morton Community Foundation 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 Morton 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 Morton 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 Morton 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 Morton 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.   The MCF has a Schwab Charitable account that allows us to inexpensively liquidate stock so that more flows into the client’s fund.  Recently, a donor had his advisor transfer 100 shares of CAT stock to his DAF at the MCF, and it only cost $1.80 to have the stock liquidated.  The donor avoided capital gains tax on the entire amount, and received a charitable donation benefit of the full market value of the stock.

·      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 Morton Community Foundation is here to help you serve your charitable clients every step of the way, every month of the year. 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. It’s our pleasure to assist! 

Closely-held stock is having a moment

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 Morton Community Foundation or other public charity. Notably, two developments could have a big impact on your work with these clients: 

1. 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 Morton Community Foundation is likely to become more attractive to a broader cross-section of your client base.

2. 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 Morton 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 Morton Community Foundation to learn more about how we 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. 

Looking ahead: Charitable planning techniques on the horizon

The Morton Community Foundation team keeps a finger on the pulse of current events and legal developments that could impact the way you work with your charitable clients. Below are three notable items that you’ll likely want to keep in mind this fall.

Election year implications

Naturally, as a financial, legal, or tax advisor, you’re very interested in how the results of the November elections could impact tax laws. What you might not know, though, is how significantly an election cycle can impact nonprofits’ fundraising efforts. Keep this dynamic in mind as you meet with clients who serve on nonprofit boards. These clients will appreciate the fact that you’re aware of the challenges. They’ll also be glad to know that you’re happy to loop in the MCF as a resource to structure and accept complex gifts as charities double down on fundraising efforts this year. 

Snapshot of giving trends

If it feels like more clients are asking about giving techniques such as crowdfunding, using appreciated stock to support charities, and setting up donor-advised funds, you are not imagining it. These trends are real! It’s smart to stay up-to-date at a high level so that you’re generally aware of what’s going on with philanthropy. Beyond that, the only information you need is the Morton Community Foundation’s phone number…309-291-0434. We are here for you! We are honored to be your first call anytime a client mentions that they’d like to launch or update a charitable giving plan. In most cases, the Morton Community Foundation can provide tools and services that will help your client achieve their goals. In any event, we’ll help you figure out a solution, whether or not the MCF ultimately plays a role.

For your calendar 

If you’re in search of tools to help motivate clients to move forward with financial and estate planning, be sure to note that National Estate Planning Awareness Week is coming up. October 21 - 27, 2024 is this year’s designated timeframe to help the public understand the basics of estate planning and the reasons it’s so important. The original House of Representatives resolution includes key points that may spark messaging ideas for your client outreach. And of course, on all things related to charitable planning, please reach out to the Morton Community Foundation. We’re happy to share best practices for encouraging clients to get serious about planning all aspects of their estates, including the legacies they’d like to leave to their favorite causes and the community they love. 

The team at the Morton Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

Advising frugal clients, passing wealth to children, and steps to give real estate

Greetings from the Morton Community Foundation! =

Sorry for the delay in sending out this August e-newsletter. August flew by so fast, and the hectic fall season is just around the corner. The Morton Community Foundation is here to support you as you help your clients update their charitable giving plans. We’re already hearing from many of you that you expect the next few months to be very busy as clients reach out with questions about possible tax law changes and how charitable giving can fit into estate and financial planning strategies. 

Here are three examples of the many ways the Morton Community Foundation can help you serve your philanthropic clients. 

1. We’re constantly on the lookout for ways to help your clients who want to leave a bequest to their favorite causes. That’s the case all year round, and especially during national Make-A-Will Month. Now is a great time to evaluate how best to help clients who may lean toward the frugal end of spending practices but who still want to support local charities.

2. Structuring estate and financial plans to leave just the “right” amount to children can be tough. The Morton Community Foundation can help you incorporate charitable giving into the plans you are developing for parents who want to provide for their kids but don’t want to demotivate children’s own quest for financial independence. 

3. Gifts of real estate to a fund at the Morton Community Foundation can work wonders for both the charitable causes your client supports as well as the client’s tax situation. Please reach out to the Morton Community Foundation to learn more about each critically important step in the process and how to comply with tax laws. 

As always, thank you for the opportunity to work with you! We are honored to help you serve your charitable clients and we appreciate the opportunity to do so.

With gratitude,

Your Morton Community Foundation Staff
Scott Witzig, Executive Director
Darcy Riddle, Administrative Manager 

Counting pennies: How to counsel frugal yet charitable clients

Over the years, you’ve no doubt experienced a wide range of what clients perceive as “wealthy.” You’ve likely also observed that clients have different assumptions about what it takes to be a “philanthropist.” The interplay between a client’s perception of personal wealth and charitable giving capacity presents interesting opportunities for client engagement. You may find yourself helping a client get comfortable with pursuing their charitable objectives while remaining secure in the knowledge that their financial plan is on track.

Whether clients choose to give to charity or not depends on a lot of factors. Here are a few themes to keep in mind as you work with clients who skew toward the more frugal end of spending practices, especially during national Make-A-Will month when estate planning may be top of mind.

Stay within budget. A client’s fear of running out of money may be preventing them from investing more meaningfully in the causes they care about. When savings-minded clients express charitable intentions, you can certainly guide the conversation toward showing them that their assets, income sources, expenses, and long-term projections are in good shape and leave them plenty of room to make charitable donations. When you lay out the big picture, even your historically cautious clients may see that they truly have more flexibility than they realize.

Every gift counts. Some clients who watch every penny are concerned that giving modestly doesn’t really rise to the level of “philanthropist” and might not make a difference. These clients may not realize that everyone can make a difference through small gifts, large gifts, and everything in between. The Morton Community Foundation is happy to help your clients get started with charitable giving at a level that makes the most sense for them, whether that’s setting up a donor-advised or other type of fund at the Morton Community Foundation, arranging for a bequest to a fund, or, for your clients who are 70 ½ and older, structuring a gift from an IRA to a designated fund to support a favorite nonprofit. 

Bang for the buck. The Morton Community Foundation can help show your clients how gifts of highly-appreciated stock to a fund at the MCF can avoid capital gains taxes, thereby freeing up more resources to support favorite charities than if the client had sold stock, paid the tax, and then given the proceeds to charity. We can also help identify meaningful giving opportunities based on each client’s budget and areas of interest. 

See results. By activating philanthropy plans during their lifetimes, your clients can experience the joy of giving and witness tangible returns on their investments. The Morton Community Foundation can arrange for a client to meet with nonprofit leaders and hear first hand the impact their money is making to improve peoples’ lives. This real-time feedback also allows your client and the Morton Community Foundation to adjust giving strategies to more closely align with your client’s evolving intentions. 

We look forward to working with you and your clients. Philanthropy is meant to be fun and rewarding for everyone involved. Our team is here to help make that happen! 

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

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, you can help them evaluate strategies such as:

1. 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 an endowment fund at the Morton Community Foundation.

2. Setting up a donor-advised fund at the Morton Community Foundation 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.

3. As successor advisors to the donor-advised fund, the children can work with the Morton 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. 

Please reach out to the Morton Community Foundation anytime. 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 

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 Morton 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 Morton 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, you’ll want to work with the Morton 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 Morton 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 Morton Community Foundation. Income-producing real estate can potentially trigger “UBIT” (unrelated business income tax) for the Morton Community Foundation. Although there are exceptions and strategies to minimize UBIT’s impact, it’s important that this issue be dealt with up front. 

• You may need to work with the Morton 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 Morton 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.

• Importantly, ensure that the client obtains a qualified appraisal to determine the fair market value of the property. 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, transfer the property with the appropriate legal documents, including a deed. 

Whew! That’s a lot! The bottom line here is that 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 Morton Community Foundation. We 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.  

The team at the Morton Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Emotional ties to stock, mixing business with charity, and locking in the exemption

Hello from the community foundation! 

We hope the summer of 2024 is treating you well!

As always, we appreciate the opportunity to work with you and your charitable clients. 

Every year, the Giving USA study released in June reports the status of charitable giving in America. Adjusted for inflation, 2023 numbers were down, which means it’s been more difficult for our region’s charities to meet the needs of the people they serve. This is relevant to your clients because for many of them, philanthropy is an important part of financial plans and family traditions. 

In this issue, we’re sharing insights to help with your client conversations about charitable giving.

• As an advisor, you’ve certainly experienced clients’ emotions running wild! Confronting mortality, addressing complex family relationships, and discussing money all come with financial planning’s often rocky terrain. The community foundation can help when you encounter a charitably-minded client who is devoted to a particular stock and may be reluctant to take the tax-savvy step of giving it to charity.

• ”Doing well by doing good” is a popular notion in corporate giving programs. Many of your clients may be in positions to influence corporate giving strategies. The community foundation can support you as you advise clients about avoiding tax pitfalls and conflicts of interest as clients and their work colleagues create charitable giving strategies that align with business purposes. 

• If it feels like the topic of the estate tax exemption sunset is heating up, you are right! More and more of your clients are becoming aware of the change in the law that is slated to occur at the end of 2025 unless legislation intervenes. Be sure you know the basics about how this change could impact your clients, including the ways charitable giving and the community foundation can fit into smart planning. 

Of course, please reach out anytime! It’s our pleasure to work with you as you help your clients achieve their charitable giving goals for this year and many years to come.

Happy summer! 

The Staff of the Morton Community Foundation,

Scott Witzig, Executive Director

Darcy Riddle, Administrative Manager

Gifts of appreciated stock: Picking favorites

You’re well aware that donating highly-appreciated stock to a fund at the Morton Community Foundation offers significant advantages for your clients over making cash gifts. Communicating this benefit, however, can be challenging when clients have emotional attachments to their shares. 

How can you overcome this hurdle and help optimize your clients' charitable giving strategies?

Start by understanding the reasons a client might be reluctant to part with certain stocks in the first place:

• Legacy: "These shares have been in my family for generations."

• Professional: "I worked at this company for decades; it's the source of my wealth."

• Simple preference: “I just love this stock.” 

Emotional ties like these can create psychological barriers to effective charitable planning. There is, however, a potential solution that can satisfy both your clients' emotional needs and their philanthropic goals: The client donates shares of the highly-appreciated, emotionally significant stock to their fund at the Morton Community Foundation, and then the client purchases shares of the same stock in their personal investment portfolio. 

Here’s why this can be such an effective strategy:

• Maximize tax deductions: Publicly-traded securities are typically deductible at fair market value (and the tax savings could potentially help fund the repurchase).

• Reset cost basis: This transaction effectively resets the cost basis of the stock in the client’s personal portfolio to its current market price, potentially reducing future capital gains taxes.

• Emotional satisfaction: Clients can support charities while maintaining their shareholder status in the company they like.

• Community impact: The Morton Community Foundation can sell the donated shares tax-free, and at a very small cost, thereby maximizing the proceeds flowing into the client’s fund, and the fund in turn can be used to support the client’s favorite causes.

As you share this strategy with a client, be sure to acknowledge the emotional value of the stock and emphasize the client’s opportunity to maintain ownership in the company. Building on this, you can show the client how the tax benefits of giving stock allow the client to make an even bigger difference than if they’d given cash instead. 

As always, the Morton Community Foundation can help you assist your clients with selecting the best assets to give to charity, evaluate tax implications of various giving strategies, and structure gifts to achieve strong community benefit. We look forward to a conversation! 

Mixing business and charity: Keep it ethical, legal, and transparent

Your clients who are corporate executives have likely wondered at some point about the benefits of aligning their companies with philanthropy, whether specific causes or particular organizations. 

In general, a community engagement strategy can be good for business, if well-executed. For example, almost half of consumers view a brand favorably when the brand supports a charitable cause. Community engagement programs can help with employee retention, too. 

But what are the risks involved in mixing business with charity?

In the spirit of aligning doing good with doing well, some companies would love to set up their own nonprofit organizations as “charitable arms” of their enterprises. Corporate leadership may like the idea of efficiency, control, and tight alignment between the company’s offerings and the charity’s mission. For example, a company that makes swimming pools might think it’s a great idea to set up a charity to build swimming pools at community centers to give more kids access to water sports. The company would like to donate tax-deductible dollars to the charity and ask its suppliers and customers to do the same. The company’s executives would serve on the board of the charity, and the charity would purchase swimming pools from the company to carry out its mission. 

Is this a good idea? 

No. This strategy plays fast and loose with the rules. Beyond setting up an obvious conflict of interest, this practice would mean that a company effectively would be using charitable funds to benefit itself. This is not a “charitable purpose” in the eyes of the IRS and could result in the loss of the charity’s tax exemption. Plus, if the news got out about this structure, the company could suffer reputational damage.

The company, its executives, and the community are all better off if the company pursues more transparent and ethical charitable strategies such as establishing a corporate donor advised fund at the community foundation, setting up a volunteer program for employees, establishing a matching gifts program, or aligning with wholly-independent charities on cause-related marketing partnerships.

Reach out to the Morton Community Foundation to learn more about effective corporate philanthropy strategies. We are here to help as you work with your clients to achieve their charitable goals both at home and in the workplace.  

Planning for a sunset: Lock in a higher exemption, unlock a legacy

Without legislation to prevent it, the sunsetting of current estate tax laws at the end of 2025 will dramatically reduce the federal estate tax exemption from $13.61 million per person in 2024 to approximately $7 million in 2026 (this includes adjustments for inflation). This change would affect many high net-worth individuals and families, likely exposing many more estates to federal estate taxes.

It is impossible to predict whether or not legislation will prevent the sunset. Even so, it is important for advisors to prepare for client discussions and start considering estate planning strategies now, especially techniques that incorporate multi-generational gifts and charitable planning.

Indeed, for a client who is charitably-inclined, making larger lifetime gifts to charity and arranging for charitable bequests will help reduce the client’s taxable estate because of the charitable estate and gift tax deduction. Donor-advised, field-of-interest, designated, unrestricted, and endowment funds at the community foundation are flexible and effective charitable recipients of both lifetime and estate gifts. 

For some clients, you may wish to begin exploring a comprehensive, multi-generational wealth transfer plan, potentially using key tax-planning vehicles:

Charitable lead trust

Charitable lead trusts (CLTs) may be particularly effective in the current environment. These trusts can provide income to your client’s fund at the Morton Community Foundation for a set period of time, with the remaining assets passing to family members. Right now, the higher exemption allows for potentially significant initial funding of such trusts. This is because the value of the remainder interest counts toward the client’s estate and gift tax exemption.

Generation-skipping trust
A generation-skipping trust is an irrevocable trust that can benefit a client’s grandchildren and later generations. This trust utilizes a client’s generation-skipping transfer (GST) tax exemption (which parallels the estate and gift tax exemption). This type of trust could allow a client to take advantage of the higher exemption before it potentially decreases in 2026. It is possible under some states’ laws for these trusts to go on for many generations in a “dynasty” format, such that each generation benefits from the trust’s income (and potentially principal for health and education) without the trust’s assets being included in the beneficiaries’ estates for estate tax purposes. 

Multi-generational fund at the Morton Community Foundation

Alongside a charitable lead trust or generation-skipping trust, or as a standalone, a client can establish an endowed donor-advised fund at the Morton Community Foundation that can function much like a family foundation, with successive generations serving as advisors, or the Morton Community Foundation stepping in after the first or second generation, to recommend grants from the fund to carry on a tradition of supporting the causes that have been most important to the client during the client’s lifetime. 

The Morton Community Foundation looks forward to working with you to achieve your clients’ long-term charitable goals, even in the midst of uncertainty concerning the estate tax laws.

The team at the Morton Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

401(k) millionaires, charitable giving for corporate executives, and IRS updates

Greetings from the Morton Community Foundation! 

Before we go any further, I’d like to announce a truly amazing program that you can discuss with your clients.  July 1 begins our 2024/2025 fiscal year, and we will be celebrating the 25th Anniversary of the Morton Community Foundation.  Thanks to a generous estate gift, the MCF Board was able to set aside $250,000 of that gift for a 25th Anniversary New Fund Matching Gift Challenge.  Briefly, we will match the initial donation by a donor who starts a new endowment fund at the Morton Community Foundation, up to a maximum of $10,000.  What quicker way could there be to double the charitable impact of a fund?  Learn more details by clicking HERE for the program guidelines.

As always, our team welcomes the opportunity to be your first call the minute you begin discussing philanthropy with a client. It is our honor–and our mission–to help you develop charitable giving plans to meet your clients’ philanthropy goals while also supporting the important tax and estate planning objectives you’re establishing for those clients.

And a lot of you are taking us up on this invitation! We’ve enjoyed the opportunity to talk with attorneys, accountants, and financial advisors to help set philanthropy in motion for your clients. Recent conversations are very much reflected in the three articles we’re sharing in this issue.

1. As clients’ retirement accounts continue to grow, so does the opportunity for clients (and the community) to benefit from careful and intentional charitable planning. The MCF can help you serve clients who may be among the newly-minted “401(k) millionaires” as well as clients who crossed that threshold years ago. 

2. Clients wear many hats. They are children, parents, siblings, and volunteers for charities. Many of your clients are also corporate executives or small business owners. Addressing your clients’ corporate giving needs alongside their individual and family philanthropy priorities is sometimes an overlooked component of estate and financial planning. The Morton Community Foundation can help. 

3. A common theme during conversations with advisors is the importance of the community foundation’s ability to help clients take a holistic approach to charitable giving. This is especially relevant in light of the steady drumbeat of news about the IRS’s focus areas. We are always on top of the issues and happy to share insights. 

We look forward to continuing the conversation! 

The Staff of the Morton Community Foundation,

Scott Witzig, Executive Director

Darcy Riddle, Administrative Manager

Advising the charitable millionaire next door

At the end of 2024’s first quarter, an estimated 485,000 Americans could count themselves among the so-called “401(k) millionaires,” meaning the balance in their employer-sponsored retirement plans has reached the $1 million level. Thanks in part to stock market rallies during the first part of the year, that’s a larger number than ever before. Many of these 401(k) accounts will be rolled over into IRAs after retirement and the assets will continue to grow. 

With so many of your charitably-inclined clients holding large sums of money in 401(k)s and IRAs, now is an important time for a brief refresher course on the benefits of deploying these accounts toward achieving clients’ philanthropic goals. Indeed, although a charitable bequest of any type of property can help achieve a client’s estate planning and legacy goals, retirement accounts are especially powerful. 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:  

1. First, the client achieved tax benefits over time as the client contributed money to a traditional IRA or to an employer-sponsored plan. That’s because contributions to certain retirement plans are what the IRS considers “pre-tax”; your client does not pay income tax on the money used to make those contributions (subject to annual limits).

2. Second, assets in IRAs and qualified retirement plans grow tax free inside the plan. In other words, the client is not paying taxes on the income generated by those assets before distributions start in retirement years. This allows these accounts to grow rapidly. 

3. Third, when a client leaves a traditional IRA or qualified plan to a fund at the community foundation or another charity upon death, the charity does not pay income taxes (or estate taxes) on those assets. By contrast, if the client were to name children as beneficiaries of an IRA, for example, 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. 

So, 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 when they sell it. 

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.” 

The Morton Community Foundation is 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! 

Left behind? Why companies need philanthropy advice, too

It’s relatively straightforward to see how philanthropy figures into the financial and estate plans you build for individuals and families. After all, many of these clients are already supporting their favorite community causes, and it’s your job to make sure they know about all the options for structuring both their near-term and long-term plans to give to charity using techniques that achieve both philanthropic goals and tax goals. The MCF regularly works with attorneys, accountants, and financial advisors to help meet clients’ needs. 

What you might not always consider, though, is that many of your clients are executives in companies whose leaders want the company itself to lean into charitable giving. That’s why it’s wise to be aware of best practices in corporate philanthropy and know the ways the community foundation can help. 

For example, establishing a corporate donor-advised fund–essentially functioning and named as a corporate foundation–helps corporate executives organize the company’s giving in a convenient, 501(c)(3)-qualified structure, avoiding the time and expense that would be required for the company to establish and maintain a separate foundation entity. The company can fund the corporate donor-advised fund each year (especially in really good years!), thereby organizing charitable donations to a wide range of nonprofits through a single source of funds. This structure can help maintain historical corporate giving levels even when the company experiences a down year. 

The Morton Community Foundation can help establish and administer employee giving and disaster relief campaigns. The MCF’s tools to receive and process donations can help a company and its employees respond quickly and meaningfully to disasters and other urgent community needs. 

Note that many companies appreciate the Morton Community’s Foundation’s infrastructure, reporting practices, and compliance protocols to ensure that all tax laws and other IRS requirements are met. Instead of the company bearing these responsibilities, it’s the community foundation’s job. Corporate executives regularly view the relationship with the community foundation as a very wise outsourcing move, 

Morton Community Foundation looks forward to working with you and your clients who are corporate executives, or even local small business owners, who are excited to give back to the community where they’ve built businesses and developed lasting relationships with employees and customers.

Legal developments: We’re watching! 

As your go-to resource for charitable giving techniques, the community foundation team pays close attention to best practices in addressing the broad range of your clients’ charitable intentions to support both near-term and long-term community needs. This includes tracking legal developments that may impact philanthropy broadly, impact specific giving vehicles, and everything in between.

An issue we’re watching closely is the latest news on the IRS’s proposed regulations of donor-advised funds. We’ve studied the transcript from the public hearings in early May, and it was inspiring to see so many community foundation leaders share their recommendations urging that any new regulations not disrupt the positive and productive working relationships between community foundations and advisors who are helping their clients achieve philanthropic goals. At this point, no one can predict what will happen with the proposed regulations--whether and how they will be revised or when they might become effective, if ever. As always, our team is staying on top of the issues. We’ll keep you informed. 

Of course, a donor-advised fund is just one of many types of funds your clients can establish at the community foundation. We offer donor-advised funds, endowment funds, field-of-interest funds, scholarship funds, designated funds, and a wide range of planned giving and legacy options for clients who want to invest in the community’s long-term needs.

The donor-advised fund is popular because it allows your client to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, the client can recommend gifts to favorite charities from the fund to meet community needs as they emerge.

What’s especially rewarding for our team is to work with you and your clients to explore a diversified portfolio of giving vehicles. It’s possible that a client's portfolio would include a donor-advised fund, and perhaps also one or more of a variety of other tools, such as a bequest, unrestricted gift, charitable trust, and endowment gift. Above all, we are confident in our ability to continue to work collaboratively with you and other advisors for years to come to help fulfill your clients’ philanthropic wishes. Thank you for the opportunity to work together! 

The team at the Morton Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Numbers talk, the benefits of flexible funds, and philanthropy in the spotlight

Happy spring from the community foundation! 

As the weather warms up and people begin to venture outside, your clients' already busy schedules start to get even busier. Even if your clients are tempted to log off and enjoy the sunshine, we encourage you to help them stay the course. Your clients’ 2024 financial and estate planning goals are important, and now is the time to start tackling those strategies, especially after the tax season dust settles. 

In this issue, we’re covering three topics that can help you counsel your philanthropic clients:

1. No matter what words you use to express the advantages of giving appreciated assets, it can be hard for clients to truly hear it. Consider showing clients–using numbers and examples–that it really is better to support favorite charities by giving appreciated assets instead of cash. The Morton Community Foundation is here to help!

2. Help your clients get ahead in their estate planning by leaning into the flexibility and benefits of a fund at the Morton Community Foundation, including your clients’ ability to leave permanent legacies to support the community for generations to come. 

3. There’s lots going on in the world of charitable giving! The Morton Community Foundation has curated several articles that are worth reading if you’d like to dig deeper into springtime issues that are trending in philanthropy circles.
   
   The Staff of the Morton Community Foundation

Scott Witzig, Executive Director

Darcy Riddle, Administrative Manager

Gifts of appreciated stock: Let the numbers do the talking

No matter how frequently you remind clients to pause before they automatically reach for the checkbook to make their charitable gifts, many clients still give cash! As an attorney, accountant, or financial advisor, you are well aware that giving long-term appreciated assets is often one of the most tax-savvy ways your clients can support their favorite charities. Nevertheless, it’s sometimes hard to convey that message to clients with words that stick. Next time, consider using illustrations to help clients see the benefits. 

Below are two simple examples* to help you show your clients the benefits of giving appreciated stock. 

Sally and Bob Jones give $100,000

Sally and Bob Jones plan to give $100,000 to their donor-advised fund at the Morton Community Foundation to organize all of their giving for the calendar year. Let’s assume Sally and Bob have a combined adjusted gross income of $600,000, which lands them in the 35% federal income tax bracket. If they gave $100,000 in cash to their donor-advised fund, they could realize an income tax savings, potentially, of $35,000.

What if instead of giving cash, Sally and Bob gave highly-appreciated, publicly-traded stock, valued currently at $100,000, to their donor-advised fund. Let’s assume they’ve been holding the stock for many years, and the shares have a cost basis of $20,000. Not only are Sally and Bob eligible for a potential income tax deduction that will save them up to $35,000, but they have also potentially avoided $12,000 of capital gains tax that they would have owed if they’d sold the stock (using a long-term capital gains tax rate of 15%). So, it’s easy to see why Sally and Bob should consider giving highly-appreciated stock instead of cash.

Jenny and Joe Smith give $1 million

Jenny and Joe Smith plan to give $1 million to community causes this year. They’ll do that by adding $500,000 to their donor-advised fund at the community foundation, which in turn they will use to support their favorite charities. They’ll also be making a $500,000 gift to the Morton Impact Fund (unrestricted grantmaking fund) at the MCF to help address the region’s greatest needs for generations to come. Let’s assume that Jenny and Joe are in the highest federal income tax bracket because they earn multiple seven figures. If they were to give $1 million in cash, they could save, potentially, up to $370,000 in income tax. If they gave publicly-traded stock instead of cash, assuming a $200,000 cost basis in stock valued currently at $1 million, they would still potentially save up to $370,000 in income tax, and they would also potentially avoid $160,000 in capital gains tax (based on a long-term capital gains tax rate of 20%).

Of course, no client’s circumstances will exactly match those of Sally and Bob, or Jenny and Joe. The net-net here, though, is that the community foundation is happy to discuss the various tax-savvy options for charitable giving in any client situation. Please reach out. We’re here for you! It is our honor to help you serve your charitable clients. 

*These examples are for illustration purposes only. Every client’s situation is different, and therefore the tax strategy and tax impact will be different for each client. For example, these illustrations are based on federal income tax rates only, and you’ll need to evaluate, among many other factors, the impact of state taxes.

“Shell funds” and other handy tools for charitable clients who are planning ahead

Getting a jump on a future “to do” list is always such a good feeling. The Morton 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 10% 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 Morton 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, their church, faith-base charities, or alma mater. 

In some cases, the client may not intend to use the fund during their lifetime. That’s perfectly fine; the Morton Community Foundation can establish a “shell fund” 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 reach out to the Morton Community Foundation to learn how shell funds and other planning tools can help your clients achieve their charitable goals both during their lifetimes and beyond. 

Charitable planning for wealthy clients: In the spotlight

As you read up on techniques to structure philanthropy plans for your high-net worth clients, we recommend reviewing the potential impact of the estate tax exemption sunset, as well as making sure you’re one of just half of advisors (!) who are truly helping their clients with charitable giving in the first place. The team at the community foundation is happy to help you start the philanthropy discussion with clients; we understand that it’s not always easy, but it is so important. 

The Morton Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Tax return reviews, types of funds, and the latest donor-advised fund news

Hello from the community foundation! 

Tax time is just around the corner, which means your clients may be taking a closer look at charitable giving options as they pull together information for 2023 filings. In this issue, we’re covering three topics that may capture the attention of philanthropic individuals and families this year while they’re talking with advisors about tax preparation.

• Reviewing tax returns with a client can feel like an administrative task that simply needs to get done. But don’t overlook the value of the review process to point out planning opportunities for this year and beyond, especially related to charitable giving and working with the community foundation.  

• Each philanthropic client’s goals are unique, and charitable planning is not a one-size-fits-all proposition. The community foundation offers charitable giving vehicles to meet a wide range of clients’ needs. Discover the many types of funds available through the community foundation and how each may be a fit for certain client situations.

• We’re always on the lookout for trends and legal updates that may impact charitable planning and the work you do for your clients. To that end, we’re sharing recent developments related to donor-advised funds and offering suggested reading materials to help you stay informed. 

As always, we appreciate the opportunity to work with you and your clients during tax time and every other time of year. We’re your partner in charitable giving, and it is our pleasure to help you serve your philanthropic clients as they support the causes they love.

Wishing you all the best for tax season! 

The Staff of the Morton Community Foundation

Scott Witzig, Executive Director

Darcy Riddle, Administrative Manager

Tax return reviews help clients level up charitable giving plans

Tax time has its silver linings! Going over a tax return with a client helps start a productive conversation about ways to plan gifts to charity more effectively. As you scan 2023’s charitable contributions, talk with the client about whether those charitable gifts were made with cash or with other assets and then steer the conversation toward discussing the most effective assets to give to charity during 2024 and beyond. 

Here is a four-point checklist that can help you advise your clients about the range of charitable giving options:

1. Remind clients that cash is not king when it comes to charitable giving. Cash is typically not the most tax-effective form of charitable giving. Instead, encourage clients to consider giving highly-appreciated assets, including publicly-traded stock, to their fund at the MCF to support their favorite charities.   

2. Think even beyond stock. Encourage clients to explore not only highly-appreciated stock as a potential gift to charity, but also the various forms of “noncash” assets that can make great charitable gifts. After all, American households’ most valuable assets are retirement accounts and personal residences, not cash. Examples of assets that could be excellent charitable gifts depending on the client’s circumstances include gifts of real estate, closely-held stock, collectibles, and, for clients who are age 70 ½ and older, direct transfers from an IRA (known as a Qualified Charitable Distribution) to a field-of-interest or unrestricted fund at the Morton Community Foundation. 

3. Make it easy on yourself and your client. Reach out to the team at the community foundation for assistance! We are happy to help you and your client evaluate the best assets to give to a donor-advised or other type of fund at the Morton Community Foundation to achieve the client’s charitable goals.

4. Close the loop on IRS reporting. Remember that the reporting requirements are different for noncash gifts to charity versus cash gifts. Make sure you are familiar with IRS Form 8283, which must be filed with any tax return claiming a deduction for noncash assets valued at $500 or more. The IRS expects strict adherence to the terms of the form, especially the requirement for a qualified appraisal. On our end, the MCFa will handle the confirmation of receipt and a commitment to document and notify the IRS if disposition occurs within three years.

Opening up the full range of charitable giving options for a client can help you structure a holistic estate and financial plan that meets the client’s objectives for family wealth, philanthropy, and tax effectiveness. Reach out anytime to the team at the Morton Community Foundation to discuss techniques and strategies. 

Fund types tailored to your client’s charitable goals

Just as each of your clients has a unique estate plan and financial plan to meet the client’s particular situation and goals, each of your philanthropic clients needs a unique charitable giving plan. For example, for some clients, giving shares of highly-appreciated stock consistently every year to their fund at the MCF makes the most sense for their charitable goals and their mix of assets. For other clients, leaving a bequest to the Morton Community Foundation to support specific areas of interest is the best fit for the client’s financial situation and community priorities.  

The Morton Community Foundation offers charitable giving vehicles to meet a wide range of clients’ needs. In many cases, a single client can benefit from setting up multiple funds of different types. 

Here’s a quick primer on a few of the most popular fund types.

• Donor-advised Fund

  A donor-advised fund enables your client to establish a specific account for charitable giving. Your client makes tax-deductible contributions of cash (or, ideally, stock or other highly-appreciated assets) to the fund, and then recommends grants to favorite charities. 

• Unrestricted Fund

  The Morton Community Foundation has its finger on the pulse of the community’s most pressing issues. An unrestricted fund gives your client 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 clients and their families to offer support to nonprofits that evolves over time as priorities in the region shift. 

• Field-of-interest Fund

  Clients who want to target their giving to specific areas of community need (such as education, health, environment, or the arts) can set up 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 Morton Community Foundation's staff manages the distributions from the fund according to the terms established by your client.

• Agency Fund

  An agency fund is similar to a designated fund, except in the case of an agency fund, the source of the initial contribution is the beneficiary nonprofit organization itself, not a donor or donors as is the case with a designated fund. If your client serves on boards of directors of charities, they’d likely be interested in learning more about agency funds. Indeed, if you represent nonprofit organizations and their board members in your practice, it’s helpful to keep in mind that organizations frequently establish agency funds at the MCF to set aside endowment reserves or rainy day funds. The team at the community foundation is adept at navigating the specific accounting standards that are unique to this type of arrangement.

• Scholarship Fund

  Clients can set up funds to support students’ educational pursuits based on the parameters and application requirements they outline with help from the experts at the community foundation. 

Here’s a pro tip: If you represent clients who are age 70 ½ and older, consider recommending a Qualified Charitable Distribution from a client’s IRA to a fund at the community foundation. All of the fund types noted above are eligible recipients, with the exception of only the donor-advised fund.

We look forward to working together to discover the type of fund (or funds!) at the community foundation that could be a good fit for each client’s unique charitable giving needs. 

Donor-advised funds: Recommended reading

On an ongoing basis, the team at the community foundation tracks legislation, legal developments, trends, news, and innovative strategies for all types of charitable giving so that we can keep fund holders and their advisors up to date. 

Recently, donor-advised funds have been the subject of conversation within financial and estate planning circles, as well as a trending topic in philanthropy, related to a set of proposed regulations issued by the IRS late last year. The IRS has scheduled public hearings on the proposed regulations, set for May 6, 2024.

As just one of many types of funds your clients can establish at the Morton Community Foundation, the donor-advised fund is popular because it allows your client to make a tax-deductible transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Then, the client can recommend gifts to favorite charities from the fund to meet community needs as they emerge.

Our team has compiled a list of articles we’d recommend if you’d like to dig deeper into the topic of donor-advised funds. Of course, we welcome your questions and comments, so please reach out anytime!  

• The Donor Advised Fund Research Collaborative’s recently-released study of donor-advised funds reported that the majority of donor-advised funds make at least one grant per year, and the national average annual “pay-out rate” for all donor-advised funds is 18%. Donor-advised funds are frequently deployed as a tool to help philanthropists who have a wide range of financial capacity, from a little to a lot, organize their charitable giving; consistent with that function, the study found that nearly half of all donor-advised funds carry balances less than $50,000. 

• The proposed IRS regulations related to donor-advised funds are attracting significant interest in legal circles. To dig into the legal issues, you might check out this article in Financial Advisor because it includes commentary from professionals in the field, as well as this article if you are a Bloomberg subscriber. You can also check out the Council on Foundations’ comments for additional insight. 

• For a big-picture look at the state of donor-advised funds, including the relevance of recent research and the status and implications of the proposed regulations, check out this article in Wealth Management and this article in Think Advisor. 

While these materials are useful to gain an understanding of the current situation, at this point, no one can predict what will happen with the proposed regulations--whether and how they will be revised or when they might become effective, if ever. As always, our team is staying on top of the issues. We’ll keep you posted!

The team at the Morton Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.