Greetings from the Community Foundation
The aftermath of Hurricane Helene has significantly impacted our community, leaving many in need of immediate support and recovery efforts. To aid in these recovery efforts, the Community Foundation for the CSRA established the Hurricane Helene Community Crisis Fund to support trusted nonprofit partners who are providing critical services to our neighbors both now and on the long road ahead. If you would like to learn more, please visit our Hurricane Helene Updates page stay up to date on our recovery efforts.
We know that Fall is the beginning of your busiest season, and you are recovering from the after-effects of Hurricane Helene while caring for your clients.
Our team is here to support you as you help your clients with their charitable giving plans. As you are meeting with clients for year-end planning, we wanted to share several ways the Community Foundation for the CSRA can help you serve your philanthropic clients.
When your client is getting ready to make a charitable contribution, remind them not to automatically reach for the checkbook. A Qualified Charitable Distribution (“QCD”) can be a very smart way to support charitable causes. If your client is over the age of 70 ½, the client can direct up to $105,000 (in 2024) from an IRA to charities. If your client is subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. Although donor-advised funds cannot accept QCDs, the Community Foundation offers other types of funds that can accept QCDs including field-of-interest, designated, unrestricted, and scholarship funds.
The Community Foundation does really great work supporting the most pressing needs in our community with a focus on organizations making the greatest impact. The Community Grants Fund is a great option for the broadest “bang for the philanthropic buck” but there are several other great funds that could appeal to your clients’ specific interests. The link below will provide you with more information on some of our funds which can receive a QCD.
Gifts of real estate to a fund at the Community Foundation can work wonders for both the charitable causes your client supports as well as the client’s tax situation. The article below outlines each critically important step in the process. Please reach out to discuss the specifics for your client.
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 Community Foundation can help!
We look forward to helping you serve your charitable clients.
Best,
Elizabeth Finch, CPA, FCEP
Vice President of Finance
Gifts of Real Estate: The Advantages and Process
Gifts of real estate to a fund at the 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 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). 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 team at the 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 Community Foundation fund) versus a private foundation.
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 Community Foundation. Income-producing real estate can potentially trigger “UBIT” (unrelated business income tax) for the Community Foundation. Although there are exceptions and strategies to minimize UBIT’s impact, it’s important that this issue be dealt with up front.
Verify that the client has not entered into any discussions about an imminent sale of the property. Even if the 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. 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 Community Foundation. Our team can help you through the process, every step of the way.
Gifts of Closely-held Stock
Giving stock is an important strategy for any private business owner to explore. Not only can these gifts help implement a business succession plan that calls for transferring the business to the next generation if that is your client’s goal, but gifts of stock can also help your business owner client achieve charitable goals and avoid estate tax.
In light of recent legal developments and pending tax law changes, more and more financial and estate planning advisors are encouraging their clients to consider implementing gifts of closely-held stock to a fund at the Community Foundation or other public charity. Notably, two developments could have a big impact on your work with these clients:
The estate tax exemption sunset set to occur at the end of next year continues to loom large. Without intervening legislation, a lot more of your clients will need to wrestle with the reality that their estates likely will be subject to a hefty tax, causing many clients to rethink both the timing and methods to transfer business interests. Making gifts of closely-held business interests to a fund at the Community Foundation is likely to become more attractive to a broader cross-section of your client base.
Valuation has always been a critical factor in any type of tax or estate planning. This is certainly still the case with substantiating the value of closely-held business interests that your clients transfer to a charity, such as a fund at the Community Foundation. And now, the additional wrinkle presented by the Supreme Court’s decision in Connelly v. United States makes things even more interesting. The Connelly decision impacts the way business interests are valued for estate tax purposes. In Connelly, the Supreme Court held that life insurance proceeds indeed ought to be included in the valuation of a company without offsetting the redemption obligation. This could translate to higher taxable estates for your business owner clients, creating further incentive to leave a portion of closely-held stock to charity. The decision is also a reminder that careful planning can potentially avoid pitfalls.
Please reach out to the Community Foundation to learn more about how our team can help as you work with your business-owner clients to navigate legal and tax developments that could significantly impact future plans for their privately-held companies.
Elizabeth W. Finch, CPA, FCEP
Vice President of Finance
