Starting a conversation about charitable giving with clients can be a bit of a dance. Their interests and financial situation, as well as your expertise, must be in step. But it’s a dance that should not be avoided, because philanthropic planning is an important element of overall legal and financial planning.
By discussing charitable goals with your clients, you can help them increase their impact, decrease tax liability, engage their families in philanthropy, and leave a lasting legacy.
Consider starting the charitable conversation with clients if you are working with:
1. CLIENTS WHO ARE CHARITABLY INCLINED
If your client regularly gives to their school, house of worship, or other nonprofits, they might benefit from streamlining their giving—and tax receipts—by establishing a Donor Advised Fund (DAF). DAFs are effective tools for donors who desire ease and flexibility in their giving. The Columbus Foundation offers DAFs along with a range of other charitable giving vehicles.
2. CLIENTS WITH A SIZEABLE INDIVIDUAL RETIREMENT ACCOUNT (IRA)
IRAs are an excellent resource for charitable giving, because they’re among the worst possible assets to pass on to heirs. They are subject to estate tax (should the estate exceed the exemption threshold), and upon distribution, the assets would be taxed as income in respect of a decedent (IRD).
Meanwhile, as more and more baby boomers surpass age 73 each year, the current age for mandatory IRA distributions, they are confronted by the need to take a required minimum distribution (RMD) from their IRA annually. If your client does not want their full RMD counted as income come tax season, they have the option to roll over up to $100,000 annually (indexed for inflation beginning in 2024) from an IRA directly to a qualifying charity without recognizing the assets as income. This technique, known as a qualified charitable distribution (QCD)—or more colloquially, an IRA charitable rollover—is available to anyone age 70½ or older.
Did you know that QCDs can also be used to strategically fund longer-term charitable giving vehicles at community foundations, including Designated Funds, Field of Interest Funds, Scholarship Funds, and Charitable Gift Annuities (CGAs)? However, current restrictions do not allow individuals to fund Donor Advised Funds, private foundations, or supporting foundations using a QCD, and restrictions apply to CGAs funded by a QCD.
3. CLIENTS WHO ARE ON THE CUSP BETWEEN ITEMIZING AND TAKING THE STANDARD DEDUCTION
The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction. As a result, many taxpayers who used to itemize deductions are now taking the standard deduction. Some charitably inclined individuals are enjoying the best of both worlds by condensing several years’ giving into a DAF during a select year and itemizing to gain the maximum tax benefit, then taking the standard deduction during other years while gradually making grants from the DAF. This technique, known as “bundling,” makes it possible for donors to bunch giving one year for an immediate charitable tax deduction, and then suggest grants out of that fund over time, so they can continue providing stable support to their favorite charities while taking full advantage of their charitable deduction.
4. CLIENTS WHO ARE FACING A LARGE TAX EVENT
If a charitably-minded client comes to you seeking advice on a way to offset the tax liability connected to a large tax event, such as the sale of a business, charitable giving is an option to consider. The Columbus Foundation can work with you to help your client avoid some tax liability by accepting a gift of an interest in the business. Your client may be eligible for a tax deduction, and, if there is a liquidation event, The Columbus Foundation generally pays no tax on its portion of the proceeds of liquidation. Your client’s gift of the business interest can establish a charitable fund, with proceeds from a liquidation event ultimately being available for grantmaking. Similar principles apply to the sale of other appreciated assets, such as real estate and publicly traded securities.
5. CLIENTS WHO DESIRE TO ENGAGE THEIR FAMILY IN PHILANTHROPY
Often charitably inclined clients are interested in engaging future generations in philanthropy. The Columbus Foundation works with many families—each with their own charitable philosophy. We can share resources on family philanthropy, work with your clients to clarify their unique philanthropic values, and design a fund that will facilitate their charitable goals.
6. CLIENTS WITH NO DESCENDANTS
If you have a client who does not have children or descendants, or does not want to provide exclusively for children or descendants through their estates, charitable giving is an option. The Columbus Foundation facilitates a variety of charitable giving vehicles that can be funded through lifetime giving or planned gifts.
7. CLIENTS WISHING TO HONOR A LOVED ONE
If you have a client who wants to do something to memorialize a loved one’s legacy but is not sure how, The Columbus Foundation can help. We can work with you and your client to create a fund that is designed to honor a loved one for years to come—or even in perpetuity.
There are many options for your clients to fully leverage charitable giving vehicles to meet their philanthropic and financial goals. Finding the best way to do so begins with a charitable conversation—one that you’re equipped to start.
Check out this article for additional tips on starting charitable conversations, or contact us if you are interested in learning more about The Columbus Foundation’s services and how we can assist you and your clients.
