Spotting client opportunities, unrestricted giving, and tax trends to watch

Happy New Year from the Morton Community Foundation!

We appreciated the opportunity to work with so many of you at the end of 2023! Your work with philanthropic clients is inspiring. It is our team’s honor to serve as your behind-the-scenes partner to help execute your clients’ charitable giving plans in the most tax-savvy, community-minded way possible.

In this issue, we’re covering topics that are important to you and your clients as you kick off a new year.

1. First, we’re offering suggestions for how to spot potential charitable planning opportunities within your client base. Clients who gave large year-end gifts, families whose grown children are spread out geographically, and clients whose portfolios jumped in value are examples of types of clients who may benefit from proactive charitable planning. As always, we are here to help!

2. Second, we’ve continued to see an uptick in the number of families who are interested in diversifying their charitable giving portfolios by adding unrestricted giving components to their work with the community foundation. From gifts to the community foundation’s operating fund, to gifts to support Morton Community Foundation (MCF) grant making initiatives, the options are plenty. We look forward to exploring the possibilities with your philanthropic clients. 

3. Third, the team at the community foundation is constantly on the lookout for trends and developments in the tax laws that govern charitable giving. We’re sharing five of the hottest topics that could impact the way you work with your philanthropic clients. 

As always, the team at the Morton Community Foundation is just a phone call (309-291-0434) or an email (info@mortoncommunityfoundation.org) away to help you and your clients build charitable plans for 2024 to support the charities that are keeping our community afloat.  Thank you for the opportunity to work together.

Your Staff at the Morton Community Foundation:

Scott Witzig, Executive Director

Darcy Riddle, Administrative Manager

Big gifts, bullish portfolios, and kids who move away

If you’re not talking about charitable giving with your high net-worth clients, 2024 is the year to start doing it! Recent studies show that 85.1% of affluent households give to charity. Certainly many of your clients are among them. 

Take a few minutes this month to scan your client list for three common scenarios and related opportunities for charitable giving solutions.

1) Clients who made significant charitable gifts at year-end. 

You’re probably aware of at least a few clients who increased their charitable giving at the end of 2023. Perhaps you worked with a client to establish a donor-advised or other type of charitable fund at the community foundation, or maybe you helped a client structure a Qualified Charitable Distribution to a field-of-interest or designated fund at the MCF. Now that the dust has settled on year-end planning activities, go back to these clients to find out more about their overall philanthropic plans. You may discover that a client would like to work with you to update their estate plan to include a bequest to their fund at the community foundation, set up a charitable remainder trust with highly-appreciated stock, or proactively plan their charitable gifts for 2024 to get a jump on tax strategies. 

2) Clients whose stock portfolios have rallied.

2023 brought good news and record highs for the stock market  As always (and perhaps especially now!), giving appreciated, publicly-traded stock to charitable organizations is a highly effective tax strategy. This is because capital gains tax is avoided when your client transfers long-term, marketable securities to a fund at the Morton Community Foundation or other public charity. The client is typically eligible for an income tax deduction at the fair market value of the securities, and when the charity sells the securities, the charity does not pay capital gains tax. This is a win-win for your client and the charity. Scan your client list for clients who are holding long-term stock positions that have appreciated substantially since they bought them, especially with the market’s latest rally.

3) Clients whose children have moved away. 

Children of affluent parents tend to move away. This means many of your clients may be seeking ways to stay in close communication with their children. Remember that while the MCF can help your clients maximize the impact and tax benefits of their local giving, the community foundation’s tools are also very geographically flexible. This means, for example, that your clients can use their donor-advised fund to support 501(c)(3) organizations across the country, including in communities where their grown children are living. When you demonstrate your interest in your clients’ charitable giving priorities, you not only are strengthening your client relationships, but you’re also helping clients strengthen relationships with their children. 

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Unrestricted giving, the trust factor, and why it matters to your clients

The gifts Americans give to charity every year provide critical support for more than a million organizations that are helping sustain the quality of life in our communities. Philanthropy equates to 2% of GDP–that’s a little more than the home health care services sector! And, trust is growing as a must-have prerequisite before your clients decide to give to an organization, increasing from 63.9% to 69.9% between December 2021 and December 2022.  

With trust in charitable organizations driving so many giving decisions, it’s important for you and your clients to be aware of the community foundation’s role and commitment to stewardship. Every day, the team at the community foundation works with members of our board of directors, civic leaders, and nonprofit organizations to deeply understand the areas where the people in our community need the most help. Today, the most pressing needs might be for emergency assistance in response to a disaster. Tomorrow, our community might need scholarships for inner city youth, or investments in research to improve access to healthcare for the underserved. Indeed, the needs of our community are ever-changing. The community foundation always has its finger on the pulse of the community’s top priorities and the best way to address them. Through its convening power, community knowledge, and perpetual mission, your community foundation is an unparalleled resource to make our community better for everyone.  

As you talk with your clients about their philanthropic plans, keep in mind that many individuals and families establish multiple funds at the community foundation to meet all of their various charitable giving needs. For example, a family might establish a donor-advised fund to organize their regular annual giving, making it easy to track gifts of appreciated stock and support for a large number of individual charities. A member of this family might also set up a charitable remainder trust with the community foundation to accept a gift of highly-appreciated real estate and retain an income stream for life. And, this family might also establish an unrestricted fund or make gifts to existing funds that are specifically designated by the community foundation and its board of directors to address the most critical needs of our community. For example, your client may decide to:  

• Contribute to an unrestricted fund at the community foundation to support the foundation’s long-term grant making. 

• Donate to the community foundation’s operating fund to support the foundation’s mission for years to come. 

• Support a special initiative fund to help people who need assistance right now to get back on their feet, relying on the community foundation’s network and expertise to invest the dollars where they’re needed most critically. 

Whatever ways your clients choose to get involved, you’ll know that you and your clients can trust the community foundation to make a lasting difference in the community we all love.

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Tax law twists and turns: Five developments impacting charitable giving

2023 was a busy year! We understand that charitable giving topics may not always be at the top of your reading list. That’s why we're here! The team at the community foundation is committed to keeping you up-to-date on what you need to know. Here’s a recap of five key developments last year that are most certainly worth keeping an eye on in 2024.

1) NIL Collectives

The IRS has had a lot to say lately about NIL collectives. In addition to offering insights for athlete recipients of NIL (name, image, and likeness) dollars, the IRS has also issued guidance pertaining to organizations that help develop NIL opportunities for athletes, suggesting that the activities of these entities, known as “collectives,” may not qualify as “charitable.” This development could be problematic for your clients who believe that their contributions to NIL collectives will qualify for a charitable tax deduction.  

2) Donations of Cryptocurrency 

It’s still a thing! At least a few of your clients are likely still invested in cryptocurrency, despite the whirlwind in that industry over the last year or so. You should know that in early 2023, the IRS published guidance  confirming that a taxpayer cannot take a charitable deduction for a gift of cryptocurrency over $5,000 without submitting a qualified appraisal. Cryptocurrency, in the eyes of the IRS, is treated as property, not cash. And it is not a security, either. Note that the IRS also said that a price quotation from a cryptocurrency exchange (such as FTX!!) doesn’t count; a qualified appraisal is still required. 

3) Charitable Act

Senate Bill 566, which is still pending, was introduced in early 2023 to address what is sometimes called the “universal charitable deduction,” meaning that even taxpayers who do not itemize their deductions would be able to claim a charitable deduction, potentially in an amount up to one-third of the taxpayer’s standard deduction. Keep an eye on this; the bill enjoys broad support and, if it becomes law, could be a real perk for both your clients and the charities they care about.  

4) Exempt Purpose

It seems that at least once a year, the IRS issues guidance on what it means for an organization to be organized for an exempt purpose under Section 501(c)(3). In Private Letter Ruling 202349014, we are once again reminded that personal activities that have no direct public benefit simply will not be viewed by the IRS as exempt. While private letter rulings are of course not binding, they are nevertheless useful tools to provide to a client to show specific examples of what the IRS considers to be non-exempt. Estate planning attorneys and CPAs tell us that every few months, a client comes to them with an idea for starting a nonprofit, and it’s easier to tell a cautionary tale than it is to recite Internal Revenue Code sections!   

5) Proposed Regulations

Proposed regulations issued by the IRS are not binding, and often they are revised–or even shelved or canceled entirely–before they go into effect. Still, the Morton Community Foundation is always keeping an eye out for these and other forms of IRS rulemaking that could potentially affect your work with your charitable clients. A recent example of this type of IRS activity is a set of proposed regulations concerning donor-advised funds, issued in November 2023. The public comment period ends February 15, 2024, and then the IRS will take time to review the comments, so we won’t know anything definitive for quite some time. For those who are interested, we like the detail provided in this podcast series on the topic. You can take a long winter walk and learn everything you want to know about what’s being proposed! The Morton Community Foundation is a member of both the Council on Foundations and the Alliance of Illinois Community Foundations. We’re all tracking any new information regarding these proposed regulations. And of course, you’ll hear from us when (and if) the proposed regulations ever go into effect and what to do about it. 

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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 to know, giving in the golden years, and how to keep clients sticky across generations

Greetings from the Morton Community Foundation, and happy December! 

The final weeks of 2023 are upon us. We always enjoy hearing from attorneys, accountants, and financial advisors about the questions you're hearing from your clients as year-end approaches.

In this newsletter, we’re covering three highly-requested topics…

Numbers to know. It's that time of year! The IRS has issued increases to key planning thresholds, including tax bracket breakpoints, standard deductions, QCD increases, and Social Security cost-of-living adjustments. We break down what each of these increases means for your clients' charitable giving plans and how the community foundation can help.  Read More

Golden opportunities for giving. Your retired clients are more likely to get involved in the community, less likely to itemize deductions, more likely to want to get their children and grandchildren involved in their philanthropy, and excellent candidates for QCDs. Learn how to make the most of these techniques by working with the community foundation.

Preventing client attrition across generations. Did you know that philanthropy is an excellent tool for retaining children as clients after their parents pass away? Learn how charitable giving strategies with the community foundation can help avoid an unfortunate situation that affects so many attorneys, accountants, and financial advisors at key inheritance transition points. As many as 90% of children fire their parents' advisors. Learn how to avoid this happening to you! 

Thank you for your partnership. We wish you all the best for the holiday season!

Scott Witzig, Executive Director

Darcy Riddle, Administrative Manager

By the numbers: What’s around the corner in 2024

As 2023 makes way for 2024, you’re no doubt inundated with information about the various IRS thresholds that are subject to adjustment. But have you thought about how each of these thresholds might be connected with your clients’ charitable giving? Here are a few pointers to keep handy as you inform your clients about changes for 2024 and also help them tee up their charitable giving plans for the coming year.

1.     Social Security COLA increases

The Social Security Administration announced a cost-of-living adjustment (COLA) increase of 3.2% that will take effect in January. This increase is less than half of 2023’s COLA increase (which was the highest since 1981) and reflects inflation’s decline in recent months. 

Connection to charitable giving: Remember that retirees are a unique group when it comes to tools and techniques related to charitable giving. Remember also that 72% of Baby Boomers (and 88% of the Silent Generation!) give to charity every year, so if your clients include retirees, you’re almost certainly dealing with philanthropic individuals. When you talk about the Social Security increase, it’s a logical time to also bring up charitable giving plans for 2024. 

2. Standard deduction increases

The standard deduction will increase in 2024 by approximately 5.5 percent to $14,600 for single tax filers and $29,200 for married couples filing jointly.

Connection to charitable giving: The standard deduction is an important factor in charitable giving. Your clients whose gifts to charity, plus other deductions, total more than the standard deduction are eligible to itemize deductions. You know this, of course, but it is worth talking with your clients about their 2024 charitable giving plans (and their last-minute plans for 2023!) to evaluate whether a “bunching” strategy, working with the community foundation, could be helpful to maximize a client’s intended support of favorite charities over the next few years. 

3.    Tax brackets

Though tax rates in each tax bracket, ranging from 10% to 37%, aren’t changing, the income levels that define each bracket are increasing. Generally speaking, your clients can earn up to about 5% more in 2024 and remain in their 2023 tax bracket. 

Connection to charitable giving: Reviewing tax brackets with your clients is a good time to bring up pending legislation known as the Charitable Act, which would create a “universal deduction” even for taxpayers who do not itemize. A similar, pandemic-era law that has since expired helped boost giving following the drop in giving that occurred after the standard deduction increased in 2018.  

4. Qualified Charitable Distributions

Each taxpayer aged 70½ and older may direct up to $105,000 in distributions from an IRA to a qualified charity in 2024, up from $100,000 in 2023. Note that your client can make a once-in-a-lifetime QCD to a charitable remainder trust or charitable gift annuity in the amount of $53,000 in 2024 (adjusted for inflation from $50,000 in 2023).

Connection to charitable giving: With the ability to give more in 2024 than 2023, your clients can further escape income tax via QCDs and satisfy a greater portion of  their Required Minimum Distributions (RMDs). Field-of-interest and designated funds at the community foundation are very effective recipients of QCDs. 

Charitable giving tips for clients’ golden years

The rising popularity of the Qualified Charitable Deduction–”QCD”--appears to be inspiring an increasing number of retirees to re-evaluate their charitable giving plans. Before the clock winds down on 2023 giving opportunities, be sure you’re familiar with the various charitable giving techniques that are most appealing to retirees and the various ways the community foundation can help.

Here are four characteristics of retirees and their charitable giving situations that will help you serve your retired clients.

–Greater connection to community. Retirees often feel a greater connection to their community and favorite charities than your clients who are not retired. Whether it’s because a retiree’s income and corresponding giving capacity are more predictable, or because a retiree has more time, getting involved with favorite charities can help retirees stay active and even avoid loneliness. The team at the community foundation stays connected with the many nonprofit organizations in our region, and we are happy to serve as a sounding board for your retired clients who want to get involved. 

–Less likely to itemize deductions. Many retirees apply the standard deduction on their income tax returns because they don’t have many expenses that qualify for itemization, such as business expenses and mortgage interest deductions. Help your retired clients evaluate whether itemizing deductions in certain years could be beneficial. Through a donor-advised fund at the community foundation, your clients may be able to concentrate charitable contributions into particular tax years and benefit from the deductions above and beyond the standard deduction. This is called “bunching,” and a donor-advised fund can help your client take advantage of itemizing tax deductions while still allowing them to provide steady support to nonprofits in years that follow the itemizing year.

–More interested in involving children and grandchildren in their philanthropy. The community foundation is happy to help your retired clients fulfill their desire to stay connected with their children and grandchildren, including formalizing roles for these family members as advisors and successor advisors of the retiree’s donor-advised fund at the community foundation. This is often an excellent and easy way to structure philanthropic priorities for generational wealth as well as create positive, authentic communication channels across an extended family.

–Excellent candidates for Qualified Charitable Distributions. Your clients who are at least age 70½ can direct a tax-free distribution (up to $100,000 per spouse in 2023) from an IRA to a qualified charity such as a field-of-interest or designated fund at the community foundation. For your clients who must take Required Minimum Distributions (RMDs), the Qualified Charitable Distribution (QCD) is especially beneficial. This is because the distribution to charity counts toward the RMDs and therefore never lands in the client’s taxable income. 

Philanthropy keeps your clients sticky

Regardless of your business or industry, retaining your clients or customers is a key to success. And as the saying goes, it’s easier and less costly to retain or get more work from a current client than it is to find a new client. 

As an attorney, accountant, or financial advisor who helps clients with tax and estate planning matters, you’re well aware of the fragile transition phase after a client passes away. Not only are many tax planning techniques activated (and validated!) after a client’s death, but you’re also navigating the understandably stressful and emotional factors that impact your work with the heirs to administer the estate, transfer assets, and file tax returns. 

It’s no wonder that the death of a client presents business retention challenges. You’d love to continue representing the client’s children, but that can be a difficult discussion immediately following their parents’ death. It’s no surprise that the rate of advisor disconnect and abandonment from one generation to the next is remarkably high. The numbers behind this churn are staggering. Historically, studies have found that 75% of parents report that their advisor had never met their children, and 10% or fewer of heirs retain their family’s advisor post-inheritance.

The solution is, of course, for the advisor to establish a connection with the next generation well in advance of a client’s death. Certainly there are many ways to cultivate a next-generation connection—starting young, sending birthday or holiday cards, encouraging clients to include children in meetings where appropriate, offering to counsel children on career choices, and making networking introductions or job referrals. Few touchpoints, however, are as substantive and meaningful as philanthropy. After all, in most clients’ view, inheritances are about more than money. They’re about values, humanity, multi-generational connections, understanding wealth’s origins, and more. 

Children who get to know their parents’ advisors begin to appreciate the advisors’ roles in not only making family wealth last across generations, but also leaving a family legacy to the community. The community foundation can help advisors create opportunities to discuss philanthropy with clients and their children and grandchildren. Here are a few examples:

–Suggest that your clients consider working with the community foundation to establish easy-to-understand charitable giving tools, such as a family donor-advised fund, field-of-interest fund, or designated fund. 

–Encourage your clients to take advantage of the community foundation’s services for families, which include researching family members’ favorite causes, arranging site visits at local charities, and educational sessions about the basics of charitable giving and what’s going on in the community. 

–Share with your clients and their children materials provided by the community foundation describing tax-savvy charitable giving, including the benefits of giving highly-appreciated stock instead of cash to a fund at the community foundation to avoid capital gains taxes.

–Ask the community foundation to help facilitate family discussions so that all family members  see how they can support causes that have been important to their parents and grandparents over the years as well as causes that are contemporary, relatable, or meaningful to them. 

While any conversation with a client’s child or grandchild can increase the likelihood of retaining the family as a client across generations, the topic of philanthropy is an especially effective tool to create a common bond that keeps the family from becoming your former client. 

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.

Year-end charitable giving punch list, why life insurance shouldn’t be overlooked, and what’s trending in philanthropy

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, accountants, and financial advisors. 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, we enjoy and appreciate every minute.

We’re covering three topics in this issue that are very much in demand right now:

--Keep a punch list handy for your upcoming meetings with your philanthropic clients. Key items to cover include reviewing clients’ charitable goals, exploring the various fund types available through the MCF, and understanding the advantages of a community foundation donor-advised fund over those offered by national providers. Our team is here to help! 

--Don’t overlook life insurance as an effective charitable giving tool for certain clients under certain circumstances. You might find that for some clients, buying additional coverage is a solid financial move that also expands the beneficiary pool to include a charitable organization such as the client’s fund at the MCF.

--Keep an eye on developing news in the philanthropic sector, including the Charitable Act which would expand charitable deductions to non-itemizers, recent IRS rulings affecting supporting organizations, and the benefits of establishing a field-of-interest or designated fund at the Morton Community Foundation to focus charitable support on a particular area of need (and take advantage of QCDs, too).  

As always, we are here for you! We love serving as your first stop for all things philanthropy.

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

Scott Witzig, Executive Director

Tips for clients’ year-end giving

Year-end giving makes up a significant portion of total revenue for most charitable organizations. Research even shows that a whopping 25% of online giving occurs in December! What this means is that there’s a pretty good chance your clients are already considering end-of-year gifts to support causes they care about, are being asked by at least one nonprofit for an end-of-year gift, or both. That’s why it’s important for you to talk with clients well in advance of the year-end giving rush. 

Here are six tips to help jumpstart your client conversations over the next few weeks. Please give us a call if you’d like to dive deeper! We are here for you. 

Check in on goals. By discussing your clients’ overall charitable goals, you can ascertain which causes your clients are passionate about and why they care, how much they’d like to contribute in the short term and over time, the impact they’d like to see, and whether they intend to provide for their favorite charities in their estate plan. Against this backdrop, year-end giving strategies become easier to develop.

Explore a wide variety of fund types. Donor-advised funds are very popular vehicles, and community foundations are ideal providers of donor-advised funds for clients who want to keep their philanthropy local and benefit from the community foundation’s focus, expertise, and mission-driven 501(c)(3) status. But donor-advised funds are not the only types of funds that the community foundation offers. Your clients can also establish field-of-interest funds, designated funds, unrestricted funds, or scholarship funds. Our team will help you evaluate what type of fund (or funds) is best suited for a particular client. For example, a client considering a Qualified Charitable Distribution from an IRA is a great candidate to establish a field-of-interest or designated fund.  

Understand the community foundation’s donor-advised fund advantages. As you work with clients for whom a donor-advised fund is appropriate, be sure you understand why the community foundation is such a great fit for so many philanthropic individuals and families. Indeed, the community foundation is the truly local option for donor-advised funds. Large, national providers associated with financial institutions also offer donor-advised funds, but those vehicles are typically not a fit for clients who care about our community and want to support the region’s nonprofits in a meaningful way. 

Know how a donor-advised fund works. It’s easy for a client to establish a donor-advised fund at the community foundation. After completing simple paperwork, your client will make a tax-deductible gift (of cash or, ideally, stock or other highly-appreciated asset) to the community foundation to fund the donor-advised fund. The funds can then be granted out to eligible charities at the client’s recommendation over time. Many clients find that a donor-advised fund operates almost identically to a private foundation, but without the sometimes hefty administrative overhead costs and burdensome restrictions. A donor-advised fund can be named after the client (e.g., Smith Family Fund) or named to reflect the purpose of the client’s giving (e.g., Fund for the Future of Anytown), or even structured to enable the client to give anonymously. 

Supercharge both tax benefits and giving. Giving through a donor-advised fund at the community foundation may allow a client to tap a helpful technique called “bunching,” which maximizes the client’s itemized deductions for the tax year, while still ensuring that the client can give strategically over the next few years to achieve charitable goals and support favorite organizations when they need it the most. 

Don’t default to cash. Many clients naturally think of cash as the source for their year-end giving. That’s a missed opportunity! Most of the time, highly-appreciated marketable securities (or other highly-appreciated, long-term assets) are a better gift to a client’s fund at the community foundation or other public charity because the client is eligible for a tax deduction at the assets’ fair market value, and the proceeds from the sale of the assets will flow into the client’s fund at the community foundation free from capital gains tax. That means more funds are available to support the client’s favorite causes.  

Philanthropy is an important topic of conversation with your clients, not just at the end of the year, but always. Our team is here to help you ensure that your clients can meet their financial and charitable goals through year-end giving and beyond.

Life insurance: A key charitable planning tool for certain clients

As an advisor, you often talk with your clients about life insurance–how much is enough and which policies are best suited for a client’s particular situation. As you counsel your clients about risk management and the role of life insurance in their estate plans, don’t forget that life insurance can be an effective charitable giving tool in some situations.

Many advisors overlook the ease of naming a charity as the beneficiary of a life insurance policy. Certainly, qualified plans and IRAs are a more tax-effective vehicle to leave to a charity via a beneficiary designation, but some clients might want to do even more than that. For instance, “second-to-die” life insurance policies are a common hedge or shield against anticipated estate taxes. These policies may become more popular as the estate tax exemption drops back down at the end of 2025. 

Some clients may not be fully aware of how important beneficiary designations really are. Of course, many policyholders will first want to provide for family members in either specified dollar amounts or percentages. What some clients may not realize is that they can also designate insurance proceeds to support the causes they care about, whether by naming a charity directly or naming a fund at the community foundation to carry out their charitable wishes.  

Increasing the coverage under an existing policy may present an additional charitable giving opportunity for some clients. Because policy premiums generally do not rise proportionately to benefit amounts, expanding the benefits can be cost efficient. For example, if a client would like each of four family-member beneficiaries to receive $250,000 from a million-dollar life insurance policy, adding $250,000 of benefit will typically not increase the premium by 25%. In fact, the benefit-to-premium ratio may improve. In a case like this, the client can name the four family-member beneficiaries and the charity to each receive ⅕ of the policy benefits. Depending on the client’s overall financial and estate planning picture, a technique like this might truly deliver bang for the buck.  

And although deploying life insurance as a charitable planning technique may not be a fit for every client, it’s certainly worth considering in edge cases. Indeed, the global market for term insurance is growing—from $850 billion in 2021 to an expected $1.3 trillion by 2028. Many people buy term insurance with its relatively low fixed-rate premiums for 20 - 30 years as a hedge for potentially lost income during high-expense times in life, such as children’s college years, or to pay off a mortgage. But if those years pass uneventfully (fingers crossed!), and amid an improved personal financial position, it’s an opportune time to reassess and even continue the policy. 

Past term insurance policy premiums can then be viewed as sunk or unrecoverable costs, and future premiums can be seen as a relatively moderate “investment” relative to the benefit. Of course, all of your clients want to outlive their policies. But as long as a policy is in effect, the policy offers many potential opportunities, including for charitable giving. Reach out to the community foundation to explore this further. We’d love to talk! 

Philanthropy tips and trends

Many eyes are on the Charitable Act, which, if passed, would allow for deductible charitable contributions that exceed the standard deduction. The Charitable Act proposes to restore the pandemic-era “universal charitable deduction” and raise the cap from $300 for individuals ($600 for joint filers) to approximately $4,600 for individuals ($9,200 for joint filers). 

Some advisors have been watching the regulations surrounding Type I and Type III supporting organizations. If you are dealing with these vehicles in your practice, be sure to stay up to date on the latest IRS regulations. 

Finally, for your situational awareness as you advise clients who are pet owners, no amount of pet cuteness on Instagram will resolve the nationwide overcrowding at animal shelters. Dog and cat populations are up sharply from the pandemic due to owner-adopters returning to in-office work, inflationary costs for food and veterinary care, and owners seeking new forms of companionship. For a client who is passionate about this issue–or any issue–be sure to encourage your client to learn more about establishing a designated fund or field-of-interest fund at the MCF to support highly targeted areas of relief, and, for those clients who are over 70½, serve as recipients of Qualified Charitable Distributions from IRAs.  Check out these pet/animal related funds already established by donors at the Morton Community Foundation: Critter Meals on Wheels Fund, The Samantha Hou - Peoria Humane Society / PAWS Fund, Tazewell Animal Protective Society (TAPS) Fund

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

Smart disaster giving, appreciated stock, and supporting charities through the sale of a business

Greetings from the community foundation! 

Fall is upon us, and philanthropy is on the minds of many. That’s not only because you and other attorneys, accountants, and financial advisors frequently start year-end planning for your clients in September, but it’s also because charitable individuals and families are looking closely at their charitable giving goals and budgets for the year and setting in motion the gifts they want to make before 2023 winds up. And of course, during this year’s giving season, philanthropy will surely be on the minds of many because of the tremendous community needs in the wake of recent natural disasters.

The community foundation is here to assist you as you guide your clients in executing their philanthropy plans for the remainder of 2023. In that spirit, we’d love to draw your attention to three important topics:

Giving to relief efforts

Your clients might not realize that charitable giving support is not only needed immediately following a disaster such as a hurricane or fire, but also ongoing as communities rebuild over the long term. Lean on the community foundation to help you work with your clients to structure gifts to provide relief and support for the people of Maui affected by the fires and the people impacted by Hurricane Idalia. Indeed, community foundations are an important “first responder” to help ensure that charitable support is facilitated efficiently and effectively and is deployed as fast as possible to the people who need it most–and over time as rebuilding and recovery efforts persist for years. 

The power of appreciated stock

We just can’t say this enough! Attorneys, accountants, and financial advisors like you are well aware of the tremendous benefits your clients get when they give appreciated stock, instead of cash, to their donor-advised funds at the community foundation. Unfortunately, the message often does not get through to clients. A regular reminder from you is so important to ensure that your clients are maximizing their charitable giving dollars to not only support their favorite causes, but also to optimize their own financial plans. Despite the rocky stock market, many stocks are way up in 2023.

Business sale on the horizon? 

Your clients who own businesses might be eyeing some analysts’ predictions that mergers and acquisitions may pick back up in 2024. That’s good news for clients who are looking at possible exit strategies. If these clients are charitable, though, start talking about it now. Gifting shares of closely-held businesses to a fund at the community foundation is a brilliant strategy, but you must think way ahead to avoid running afoul of IRS rules. The community foundation can help. 

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

– Scott Witzig, Executive Director, Morton Community Foundation

Smart disaster giving can offer predictability to the unpredictable

Sadly, rarely does a month go by without the news of another disaster or humanitarian tragedy. Most recently, the Maui fires and Hurricane Idalia are making the headlines–and also generating widespread charitable support. Indeed, many of your clients are no doubt supporting relief efforts through monetary donations.  

Disasters are both unpredictable yet, sadly, predictable. Multi-billion-dollar damage events occur annually and, not surprisingly (and thankfully), natural disasters and humanitarian tragedies consistently attract much-needed philanthropic support. 

Understandably, most of the charitable dollars following a disaster flow toward essential and immediate relief efforts. Your clients might be interested to know, however, that dollars for efforts related to rebuilding and future mitigation are also critically important. Affected communities need both immediate philanthropic support for people affected by a disaster and long-term support to address ongoing ramifications. Ongoing support, for example, is needed not only for rebuilding after a fire or hurricane, but also to fund preparedness to blunt the effects of the next fire, hurricane, or pandemic.  

The team at the community foundation is happy to work with you and your charitable clients to explore ways to address future humanitarian disasters. Many people, for instance, use their donor-advised funds at the community foundation to support disaster relief efforts. And with rebuilds and recoveries often occurring long-term, a bunching strategy could help clients support disaster relief efforts through their donor-advised funds for several years. This allows clients to plan in advance to provide support, while also being smart about the tax advantages in the year of the transfer to their donor-advised fund. 

Not limited to disaster responsiveness, the community foundation is an ideal partner for disaster preparedness. Encourage your clients to consider endowments, field-of-interest funds, designated funds, and other perpetual structures established through the community foundation to ensure that the community we love is protected for generations to come. Field-of-interest or unrestricted funds can be especially attractive because, for people who’ve reached the age of 70 ½, these funds are eligible recipients of QCDs (Qualified Charitable Distributions) from IRAs. Creating a field-of-interest or unrestricted fund allows a client to make charitable gifts in advance of disasters so that the community foundation can deploy resources immediately when urgent needs occur. 

As disasters and hardships across the country inevitably occur, the team at the community foundation is honored to serve as your valuable resource as you help your clients deploy the power of philanthropy as a helping hand to those who need it most.

Keep your eye on clients’ appreciated stock–always

Such a difference a year makes–maybe!?

By August 2022, markets were down 12% for the year and inflation was up 8.3% year-over-year. Perhaps consequently, but then unknown, annual charitable giving was on its way to a rare (fourth time in 40 years) year-over year decline of some 4% according to Giving USA. Certainly this decline was due in part to donors not wanting to give stock at depressed values. You likely even discussed this with your clients! 

Nearly 12 months later, as of July 2023, markets were up 7.28% year to date and inflation was roughly half at 4.7% year–over-year. Even though the stock market still shows signs of volatility, hopefully, charitable giving will rebound. 

No matter the times, and even in down markets, some stocks will still out-perform. These holdings are of course excellent candidates for your clients to give to charity and avoid taxes on the capital gains. This year is no different, with stocks like Microsoft, Apple, Nvidia, among others, enjoying banner years. Indeed, Microsoft, Apple, and Nvidia were up 38%, 36% and 228%, respectively through mid-August. For some of your clients, these gains have created concentrated stock positions where you, as an advisor, may believe that portfolio allocations have become imbalanced under the investment strategy you are pursuing. Your clients who support charities through their donor-advised funds at the community foundation can consider potentially alleviating this situation through charitable gifts of highly-appreciated stock.

Your clients who give appreciated stock to a donor-advised fund can: 

–Enjoy the ease of the donor-advised fund as an account for current and future charitable giving

–Conveniently support the causes they and their families care most about 

–Maintain a mix of assets in the donor-advised fund account that are consistent with the client’s investment philosophies

–Benefit from an up-front income tax deduction, avoid capital gains on the assets’ sale within the fund, and grow the proceeds for future grantmaking

–Leave a legacy for children and grandchildren to continue their philanthropic commitments

–Reduce the value of their taxable estate, potentially reducing estate taxes

–Comply with IRS charitable gifting guidelines

–Enjoy supporting charities in the client’s name, the fund’s name, or anonymously

–Receive a single year-end tax document that summarizes all gifts for tax purposes 

By establishing a donor-advised fund at the community foundation, your client is part of a community of giving and will have opportunities to collaborate with other donors who share their interests. In addition, your client is supported in strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference. 

So while it’s nice to see the market’s performance improve, a bonus opportunity lies in your clients’ transferring appreciated stock to donor-advised funds at the community foundation. We are here to help! 

For clients who may sell a business, the time to think charitably is right now

Business owners who’ve enjoyed summertime’s more relaxed energy can deservedly daydream about the “extended vacation” that comes with selling the business! 

While it all sounds good, business brokers will tell you that many business owners fail to optimize—and they sometimes even compromise—the value of their business’s proceeds by rushing the process, hastily determining an asking price, or not fully assessing the value of their business to a potential buyer. In their haste, owners often miss strategies that can deliver an improved post-sale result and a true reward for their years of work. 

The community foundation can be a valuable resource as you guide a business owner client through a pre-sale preparation process. This is especially true for a business that has operated for many years and has accumulated significant unrealized capital gains in its valuation that are likely to be heavily taxed at the time of the sale. 

Many closely-held business owners and their advisors may not be fully aware of the advantages of giving shares to a donor-advised fund at the community foundation well in advance of any external discussion about a potential sale of the business. With prudent planning, the gifted shares will be free of capital gains at sale time, allowing the proceeds to flow into the donor-advised fund, ready to be deployed to meet the business owner’s charitable goals. The business owner also benefits because they’ve reduced the value of their taxable estate. This can have huge repercussions given the anticipated reduction of the estate tax exemption slated for 2025. 

Remember that it will be important to secure a proper valuation of the business at the time the business owner makes a gift of shares in order to comply with IRS requirements for documenting the value of the charitable deduction. 

Critically important to successfully executing this strategy is to ensure that your client avoids even any preliminary discussions about sale, let alone negotiations, before consulting with advisors, including looping in the community foundation early on. Otherwise, your client might get caught in the IRS’s step-transaction trap, a risk with any pre-sale gift to charity of real estate, closely-held stock, or other alternative asset. Definitely, the devil is in the details!  

By the way, if you routinely advise owners of closely-held businesses, and if you like to go deep into tax law, you might enjoy reviewing the issues related to the business itself supporting charitable causes, totally unrelated to its eventual sale.

Please reach out to the community foundation team if a business owner client would like to explore the idea of potentially giving a portion of the business to a donor-advised fund or other type of fund at the community foundation. We can work alongside you and the client to help optimize the exit and maximize the resulting proceeds.

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

Structuring the multi-generational philanthropy plan, tapping charitable giving to motivate clients, and three eye-catching news stories

Greetings from the Morton Community Foundation!

It’s August, and many of you have reported that you are already getting questions from clients about how to get organized this fall–really organized. It seems that many clients and their families are finally back in full swing after the pandemic restrictions. People are getting together in person more frequently, which includes attending events and gatherings hosted by their favorite charities.

We’re offering a few suggestions for how you might support your clients as they dust off those charitable giving plans:

• ·Structuring a philanthropy plan is especially important for families who want to involve their children and grandchildren in a meaningful way. Many wealth and tax advisors notice that while the matriarchs and patriarchs might have a vision and a plan for the family’s multi-generational approach to philanthropy, that vision and plan are probably not very clear to the younger family members. A family donor-advised fund at the community foundation can provide that much-needed structure and organization to help a family advance its philanthropic purposes for many years to come.

• It is always surprising to hear again and again that so many people do not have a will or any type of estate plan! Attorneys, financial advisors, and accountants do their best to recommend that their clients set up wills, trusts, beneficiary designations, and other estate planning vehicles, but some clients are too uncomfortable to directly deal with their own mortality. Approaching an estate plan through the more gentle lens of charitable giving can help break the ice and motivate clients to act. 

• We’re always on the lookout for the latest news that affects advisors and their work with charitable clients. The news is not always boring! Recently, stories about emojis, Aretha Franklin’s will, and the rise of donor-advised funds within professional niches have caught our attention–and we can’t resist sharing.

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

– Scott Witzig, Executive Director, Morton Community Foundation

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Helping your clients get organized: Structure is a critical step in multi-generational philanthropy

Instilling the idea of charitable giving in children and grandchildren at first blush may appear to be easy, but where to begin, and how to make it ongoing? More and more, wealth advisors are being asked by their clients to weigh in on strategies for fostering a family’s financial values, which frequently include charitable giving traditions.

An important first step in creating any multi-generational philanthropy plan is to advise clients to consider organizing their charitable giving, such as through a family donor-advised fund at the community foundation.

The process of organizing charitable giving itself creates much-needed clarity around the family’s philanthropic purpose. This is because without an organized approach to family giving, it is easy for children and grandchildren to get confused about their parents’ and grandparents’ processes for making decisions about which nonprofits to support.

Consider this scenario:

"Before we got everything organized through the community foundation, our family seemed to take a shotgun approach to charitable giving," commented the daughter of an entrepreneur who formed a family donor-advised fund upon the sale of a business.

Her mother, the entrepreneur, had underestimated the confusion: "Nearly every check I’d ever written to a charity was aligned with my commitment to supporting a healthy workforce in our community. Without a healthy workforce, my business would never have been successful. Now, though, I see that because I was not involving the rest of my family in my giving and explaining why I was supporting certain causes, it might have looked chaotic to them."

Establishing a fund at the Morton Community Foundation can be a very effective solution for many of your clients who are launching a multi-generational giving strategy. Here’s why:

• Morton Community Foundation vehicles are extremely flexible and can be used to engage an extended family in the process of charitable giving. Donor-advised funds, for example, are popular because they allow your client to name children and grandchildren as successor advisors.

• When your client organizes charitable giving through a community foundation fund, the client can make a large transfer of cash or marketable securities that is immediately eligible for a charitable deduction. Your client then can recommend gifts to favorite charities from the fund when the time is right. This is especially useful in the case of clients who sell a business or for another reason experience a large influx of taxable income in a single tax year.

• Establishing a donor-advised fund at the Morton Community Foundation can be a much better choice for your family-oriented clients than a donor-advised fund offered through a brokerage firm (such as Fidelity or Schwab). That’s because, at a community foundation, your clients, as well as their children and grandchildren, are part of a community of giving and have opportunities to collaborate with other donors who share similar interests.

• The Morton Community Foundation can work with a client and the client’s family on a charitable giving plan that extends for multiple future generations. That is because the Morton Community Foundation supports strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference.

•  Finally, the Morton Community Foundation’s tools and resources make it much easier for families to communicate across generations about the family’s charitable giving purpose and goals for long-term impact. 

We welcome the opportunity to work with you and any of your philanthropic clients to establish an enduring and rewarding family philanthropy program that is customized to meet each client’s unique purpose.

Legacy giving: A conversation that’s full of opportunity

August is National Make-A-Will Month. This means your clients may be reading articles and hearing about estate planning more this month than usual, which makes the next few weeks an especially good time to prompt your clients to review their estate plans–or get their wills and trusts in order if they haven’t done so yet.

Charitable giving is an important part of any estate planning conversation. Certainly, bold, legacy-making plans are frequently in the news because of the high-profile people who establish them. Your clients may not realize that they, too, and nearly anyone, really, can leave a legacy to support favorite charitable causes.

By discussing what legacy charitable gifts are, how they work, what the client has in mind, and then formalizing the client’s plan with the proper legal and financial documentation, you can help your clients tie up a few of “life’s loose ends” far in advance of when that legacy gift is actually made—and give your client the peace of mind of knowing it will actually get done.

Clients’ charitable giving intentions and the possibility of establishing legacy gifts should be a routine and standard topic of any financial or estate planning discussion, right alongside provisions in an estate plan for family and loved ones.

Here’s a primer to help you simplify key principles as you convey to your clients what they need to know about leaving a legacy:

Q: What is a legacy gift to a charity?

A: Encourage your clients to think of leaving a charitable legacy as a post-life gift that the client structures in advance. Legacy gifts are often referred to as planned giving.

Q: What assets can be used to make a legacy gift?

A: Like the gifts to charity that your clients are already making during their lifetimes, cash, stock (especially highly-appreciated stock), real estate, life insurance, an IRA beneficiary designation (which is extremely tax effective), are examples of assets that can be the subject of a legacy gift. A legacy gift can be expressed in a client’s estate planning documents as a dollar amount, percentage of the whole, or a legacy gift of the assets themselves. Your client will want to choose assets carefully, enlisting your expertise to do so.

Q: How is a legacy gift actually made?

A: Legacy gifts are typically spelled out in detail in a client’s will or trust documents. This is especially important because after the client is gone, too much is otherwise potentially subject to hearsay or conflict. To attorneys, accountants, and financial advisors, this is common sense. But do not overestimate your clients’ understanding about estate plans and how they work. A surprising 2 out of 3 Americans have no estate planning documents!

Q: How can a discussion about legacy gifts help motivate clients?

A: Estate planning can be an uncomfortable topic because, by definition, it requires a client to contemplate mortality. This is likely part of the reason that 40% of Americans say they won’t even consider putting a will in place unless or until their life is in danger. Most clients think charitable giving, though, is a much more pleasant topic than discussing the end of their own lives. That’s why legacy giving is a topic that can help break the ice and pave the way for the broader, essential conversation about overall estate planning. 

Q: What are some particulars to be aware of?

A: Most legacy gifts can be revoked or altered through beneficiary or will changes while the client is alive. This is an important feature to mention to clients who want to include charitable giving in their estate plans but like the idea of flexibility as the overall family and financial picture changes over the years.

Q: What tools does the community foundation offer to help?

A: A particularly useful technique is for a client to establish a fund at the community foundation that spells out the client’s wishes for charitable distributions upon death to specific organizations. The client’s estate planning documents can, in turn, simply name the fund as the beneficiary of charitable bequests. The client can adjust the terms of the fund anytime during the client’s lifetime to reflect evolving charitable priorities.

We look forward to working with you and your charitable clients as they firm up their legacy giving plans, whether in August or anytime of year!

Stories that caught our attention 

Emojis are fun, but . . .

Words matter, and apparently, emojis do, too. At least in Canada, where a judge recently ruled that a thumbs-up emoji within a text message qualified as acceptance of a contract despite the sender’s alternate intentions stated later—and at an eventual cost to him of more than $60,000. This differs drastically, for example, from doctrine such as a frequent and strict United States custom where clients’ stock trade instructions to brokers can only occur through one-to-one voice instruction and not even via voicemail. For advisors who focus on fundamental legal documents such as trusts and beneficiary designations, whether charitable planning is involved or not, treatment of emojis may be a trend to keep an eye on.

Yikes!

As a trusted advisor, you may wish to consider sharing with clients the cautionary tale of late singer Aretha Franklin’s estate. A story like this might be the motivation it takes for resistant clients to finally implement estate planning! In a recent court decision, a jury found that the remnants of a 2014 will found in a sofa superseded Franklin’s earlier-stated intentions—and over which family members argued for years.

The doctor is in

Donor-advised funds have gone mainstream! You may notice that the term “donor-advised fund” or “DAF” pops up more and more in your newsfeed. That’s no accident! Even niche markets (such as physicians, for example) are getting on board. Just remember that a donor-advised fund established through the community foundation delivers all of the benefits to your client that a commercial donor-advised fund through Schwab or Fidelity delivers–plus so much more. Your community foundation is the hub for all things philanthropy and the best place for your clients to organize their giving, support favorite causes, and join with others to make a meaningful difference in the community they love.

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

AI and charitable planning, "catch up" contributions to boost IRA philanthropy, and the latest news

HELLO FROM THE COMMUNITY FOUNDATION

We hope the summer is treating you well.  As always, we appreciate the opportunity to work with you and your charitable clients.  This is the time of year when many clients are traveling and spending time with family, which means they may be having conversations about their favorite charities and the year’s plans for giving to favorite charities. To help you prepare for your clients’ questions when they return after summer holidays and travels, in this issue we’re sharing insights on a few topics that may be top of mind:

–AI is certainly a hot topic, even in discussions about philanthropy. We’re offering three suggestions for client conversations about AI and charitable giving, whether your clients are investors, nonprofit board members, or just curious.

–IRAs are a fabulous source of charitable gifts, not only through beneficiary designations, but also via the popular QCD tool for clients 70 ½ and older. Make sure you’re helping your philanthropic clients maximize their IRAs’ potential through catch up contributions. 

–Every year, the Giving USA report tells us about the state of charitable giving in America. 2022 numbers were down, although the total number is still inspiringly large. We’re also keeping you up-to-date on the latest tax news surrounding NIL money, along with an article to help you brush up on why the philanthropy conversation is so valuable to your practice.

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! 

Scott Witzig, Executive Director, Morton Community Foundation

Advising clients about AI's impact on charitable giving

News about the capabilities of artificial intelligence has skyrocketed over the last few months. As attorneys, accountants, and financial advisors, no doubt you are watching these developments closely, both because of the potential legal issues involved and also because of the ways AI can enhance your work. 

Here are three suggested discussion points when your clients ask how AI might impact their philanthropy plans:

–For clients who serve on boards of directors of nonprofits or work for a nonprofit, AI could mean significant advancements in fundraising capabilities. From research to communications, generative AI could help fundraisers get their work done, which would be a welcome development in a profession that has been under stress due to a shortage of professionals and a challenging fundraising environment. 

–Some of your clients may be investing in AI companies. Pay close attention to this. While certainly not all AI ventures will make it, some AI startups will likely be very successful, creating huge financial gains for their shareholders. Talk with your clients about contributing shares of these companies to their donor-advised or other funds at the community foundation. Upon an eventual exit, the shares held by a donor-advised fund will not be subject to capital gains tax, allowing your client to support their favorite charities much more significantly than if the client waits to sell the shares and transfer the proceeds (minus the tax hit) to a charitable fund.

–While AI can certainly help your clients research their favorite charities, and similarly will also play a role in helping charities fundraise and carry out their missions, it’s important to remember that right now, in AI’s early stages, most AI results are still only as good as the prompts and instructions provided by humans. The key to getting the right answers is to ask the right questions, and sometimes asking the right questions is the hardest part.

As always, please reach out to the community foundation for help as you serve your charitable clients. Our team has deep, personal knowledge and experience in all areas of charitable giving, from tax deductibility rules, to planned giving techniques, to understanding the needs of our community and how your clients can make a difference in the causes they care about. We welcome the opportunity for human interaction as that becomes even more of a rarity! 

How “catch-up” contributions can boost clients’ giving

At the community foundation, we regularly work with legal, financial, and tax advisors like you to help clients reach their charitable goals. 

As a professional who regularly works with charitable clients, you are no doubt well aware of the tremendous benefits to both clients and charities when a client names a charity, such as a fund at the community foundation, as the beneficiary of an IRA or other qualified retirement plan.

So how can you help a client plan ahead to maximize a bequest of retirement fund assets, as well as support increased giving during the client’s lifetime? 

A great way to do this is by encouraging clients to maximize their IRA contributions—for many reasons:

–Taxable income “suppression” in the year of the contribution. 

–Tax-deferred growth until distribution—and now not required until age 73 of the account owner.

–Ease of changing a beneficiary designation to name the client’s fund at the community foundation, which will remove the assets from the client’s taxable estate at death and avoid income tax. 

–With retirement plans flowing to charity, leaning into highly-appreciated stock and other property at stepped-up values to make bequests to family or others, effectively erasing the unrealized capital gains for the recipients. 

Make sure your charitable clients don’t overlook an important tool in retirement savings maximization (and ultimately charitable giving) known as the “catch-up” contribution. This is the “extra” money that retirement savers aged 50 or older can stash away into their retirement accounts—and into more than one account as applicable. 

Advisors and clients might better think of this as a bonus opportunity rather than a “catch-up,” especially if a client has been maximizing their retirement savings all along. Additionally, of course, the catch-up contribution allowance helps a client make up for years when retirement contributions fell short due to earnings or savings interruptions due to layoffs, caregiving, high-expense years or similar circumstances.  

Thanks to the SECURE Act, catch-up contributions have created even more buzz about opportunities for retirement savings, especially as the rules are set to shift in 2024 and 2025. In any event, the effects can be impactful. For example, an extra $1,000 deposited annually from age 50 through 65 earning 6% on average could potentially deliver an extra $27,000 in retirement income at age 65. 

From a charitable giving perspective, the greater the IRA balance, the more opportunity there is for a client to give later to a fund at the community foundation. What’s more, higher IRA balances can motivate your clients to deploy a Qualified Charitable Distribution strategy, with its many benefits:

–Beginning at age 70 ½, your client can make Qualified Charitable Distributions (QCDs) up to $100,000 in 2023 ($200,000 for married couples) and indexed for inflation beginning in 2024.

–QCD assets can be distributed to a designated or field-of-interest fund at the community foundation or to another qualifying public charity.

–QCDs can count toward Required Minimum Distributions for clients who are required to take them.

All in all, IRAs are the most prolific retirement savings vehicle in the United States, accounting for nearly 33% of the $33 trillion of total retirement assets as of December 2022. But regardless of the retirement savings vehicle, contribution maximization—and aided by so-called catch-up contributions—is a winning strategy for wealth building, family gifting, and charitable giving. 

Our reading selections…

Giving is down, but the total amount-–nearly $500 billion—is still impressive

Just reported in June by Giving USA was a rare decline, 3.4%, in charitable giving by Americans in 2022. Though giving totaled nearly $500 billion, officials cited high inflation and the stock market’s pullback as reasons for the decline from $516 billion of total giving in 2021. Despite households’ financial pressures, 64% of giving came from individual donors. Dig into this compelling (and free!) infographic for a comprehensive look at the state of philanthropy in America. 

NIL collectives: DOA?

NIL collectives have been all the rage in some higher education circles, but that may be changing. Contributions to these entities may not be tax-deductible after all, according to the IRS in a May 23, 2023 memo. This development serves as an excellent reminder that private benefit and charitable tax exemptions do not mix well. 

Even more reasons to talk about philanthropy with your clients

If philanthropy is not a regular topic of your client conversations, you may be missing out. Not only can it be an easy icebreaker, but also studies have documented strong organic client growth through such conversations. And as this article points out, the combination of client dissatisfaction, wealth transfer, and the affluence of future generations spells o-p-p-o-r-t-u-n-i-t-y for advisors.

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

THE TRIPLE POWER OF THE IRA BENEFICIARY DESIGNATION, THE IRS'S BIGGER BUDGET, AND NOT-TO-MISS NEWS AND TRENDS

Hello and Happy May!

As you and other advisors emerge from a busy tax season, your attention may be turning to estate and financial planning for your clients, which could include how to capture charitable bequests through IRA beneficiary designations. Like us, you're likely also watching and wondering how the IRS's increased budget may affect your high income-earning clients and their charitable giving plans. And, as always, you want to keep up with the latest news and planning trends that will help you serve your philanthropic clients. We're covering all of those topics in this newsletter.

As always, the Morton Community Foundation is here to help you and your clients navigate the various options for charitable giving. We’ll help give you the insights and confidence you need to develop plans that enable your clients to provide the charitable support they intend while also keeping the clients’ activities well within the boundaries of the law.    

It is our honor and pleasure to work with you and your clients. We look forward to talking with you soon!

–Morton Community Foundation…Scott Witzig, Executive Director

Retirement plans to charity: Understanding the “trifecta” of tax benefits

Over the last few months, many advisors have noticed an uptick in client inquiries about leaving their IRAs and other retirement plans to charity. If you’re wondering why, it likely has a lot to do with the buzz about Qualified Charitable Distributions, which allow those who’ve reached the age of 70 ½ to direct up to $100,000 annually to qualified charities (such as a designated or field-of-interest fund at the community foundation), avoiding both the need for an RMD (if they’ve reached age 73) and the income tax hit. 

It’s probably more than just the QCD, though, that has spurred your clients to ask questions. More and more, charitable planning with IRAs and other qualified retirement plans is a topic in financial and mainstream media. A case in point is a September 2022 article in the Wall Street Journal, irresistibly titled “Win an Income-Tax Trifecta With Charitable Donations.” If you subscribe to the Wall Street Journal, the article is well worth your time. 

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:  

First of all, 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).

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. 

Third, when a client leaves a traditional IRA or qualified plan to a fund at the Morton 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 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 the client’s estate plan, intending 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. 

Here’s the net-net:

Traditional IRAs are often poor vehicles for your clients to use to leave a family legacy. Instead, if a client is charitably inclined, traditional IRAs are likely better deployed to posthumous philanthropy if other assets, such as appreciated stock, are available to leave to children and other heirs. 

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. 

Tax scrutiny: Should clients worry about the IRS’s bigger budget? 

A major portion of the $80 billion scheduled to be invested in Internal Revenue Service upgrades is earmarked to “increase tax compliance among wealthy taxpayers and businesses,” according to the IRS’s plan. Indeed, the IRS is investing upwards of $47 billion toward enforcement efforts, an amount that towers over the next-largest item on its spending plan, which is just over $12 billion slated for technology enhancements.

Little doubt remains that your high income-earning clients can expect more oversight and less room for error. This reality is of concern to attorneys, accountants, and financial advisors who are responsible for helping their clients adhere to the tax laws with integrity. 

If you’d like to dig into the details about the IRS’s newly-secured tens of billions of dollars, you can peruse the agency’s Inflation Reduction Act Strategic Operating Plan submitted April 5, 2023 by IRS Commissioner Daniel I. Werfel. The 150-page plan covering 2023 - 2031 speaks primarily to five areas of priority spending:

• $47.4 billion to increase tax compliance among wealthy taxpayers and businesses.

• $12.4 billion for technology enhancements.

• $8.2 billion to recruit and retain a highly skilled, diverse workforce.

• $7.5 billion targeting taxpayer service improvements.

• $3.9 billion for cybersecurity.

Significant operational efficiencies are anticipated, and the heightened compliance efforts will generally apply to taxpayers making more than $400,000 annually. What’s raising eyebrows is that high-income earners and thus, donors to charity—and the financial professionals who serve them—should likely expect more in terms of attention, oversight, and audits. 

According to the plan, “segments of taxpayers with complex issues and complex returns where audit rates are minimal today, such as those related to large partnerships, large corporations, and high-income and high-wealth individuals,” will be areas of focus. 

The new-hire ramp up and technology implementation will take some time, per experts, with some believing that 2022 tax returns will be less subject to scrutiny than those in future years. But, the agency also has a three-year window to initiate an audit, giving it time to look back. 

Of specific importance to the charitable community is Objective 3, Initiative 4 (PDF page 66 of the plan), which states: “The IRS will increase enforcement activities to help ensure tax compliance of high-income and high-wealth individuals.” 

Increasing right along with the enhanced scrutiny is the need for solid charitable planning advice to assist your high net-worth clients. The Morton Community Foundation is an ideal partner, offering secure and efficient vehicles for charitable giving—including the precise tax documentation and compliance that the IRS expects. 

Indeed, a silver lining for advisors and their clients who work with the Morton Community Foundation may be that the added potential IRS oversight plays to the foundation’s strengths. By offering donors fully-vetted grantee organizations, plus gift execution, documentation and compliance services, your charitable clients who’ve established donor-advised, field-of-interest, designated, or other funds at the community foundation can rest more easily knowing that their philanthropy is being handled as intended and able to withstand questioning, whether your clients are funding their contributions with Qualified Charitable Distributions, highly-appreciated stock, or complex assets such as closely-held businesses and real estate.

We look forward to working with you and your clients as we navigate a new era of IRS scrutiny.  

Here's what we're reading

As you talk with your clients about charitable giving, are you leading with tax benefits? Deferring philanthropy topics until November and December? Not looking at the big picture? If so, you may want to rethink your approach, according to a recent article. The article also points out the importance of engaging specialists to assist you in advising a client about how to make a difference in the community. The team at the Morton Community Foundation specializes in charitable giving and community impact. We’re just a phone call away. 

Our team also enjoyed digging into the latest study on family philanthropy, particularly because it reinforced so many of the best practices we already deploy here at the Morton Community Foundation as we work alongside you to help your clients and their families make a difference in the lives of others for generations to come. We look forward to working together on practical solutions to engage your clients, their children, and their grandchildren in comprehensive philanthropy planning that moves the needle for the organizations and causes they care about. 

Finally, as the dust settles on tax season, and as we look ahead to what the charitable deduction might look like in future years, we appreciated the perspectives in this piece about the surprising benefits of a complex tax code. More proof that it is always possible to look on the bright side! 

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. How can we help you in your practice? Call: 309.291.0434, or Email: info@cfmorton.org. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.