Given the broad consensus that new rules affecting charitable giving are in the offing, it may be tempting to plan based on what may change and when. It remains worth considering what can be achieved under current law. As the year’s end approaches, here are a few attractive approaches.
By Bill Zook, Senior Advisor, Gift Planning
Given the broad consensus that new rules affecting charitable giving are in the offing, it may be tempting to plan based on what may change and when. Indeed, many possibilities have been floated, some that would enhance incentives for being philanthropic. Yet if recent decades have taught advisors nothing else, it is that the nature and extent of what is ultimately enacted will often vary considerably from what was on anyone’s radar.
With this understanding, it remains worth considering what can be achieved under current law. As the year’s end approaches, here are a few attractive approaches.
When transferred to a charity directly, in lieu of being sold and the resulting cash donated, such assets are deductible at their full value and avoid capital gains tax. Many donors contribute publicly traded securities. With sufficient lead time, however, Seattle Foundation may be able to accept real estate or interests in closely-held businesses, as well.
A gift of appreciated capital assets held more than a year can be made to the Foundation for any purpose. On the other hand, many small organizations that do vital, influential work do not even accept publicly traded securities, let alone more sophisticated assets. Via a donor-advised fund or funds such as the Center for Community Partnerships Fund from which grants are made pursuant to its Blueprint for Impact, Seattle Foundation can open a channel through which support for a variety of local community-based organizations would not otherwise pass.
A donor over age 70-1/2 with a traditional IRA can transfer up to $100,000 a year directly from the IRA to an organization such as Seattle Foundation without any of the money being added to taxable income. The gift is not deductible but can be used to satisfy minimum distribution requirements applicable to those age 72 and older, to the extent the requirements haven’t already been met for the year. Note: Such “charitable rollover” gifts can be added to any type of Seattle Foundation fund such as the Fund for Inclusive Recovery, except a donor-advised fund.
An alternative that may be appealing to anyone over age 59-1/2 who itemizes their deductions is to take a distribution from a non-Roth IRA – or a qualified retirement plan – and then transfer long-term appreciated securities of equal value to Seattle Foundation. As noted above, the gift can be made for any purpose, including adding to a donor-advised fund. The resulting charitable deduction should offset the taxable income received from the IRA or qualified plan. The donor can then use the cash in a variety of ways. Options include purchasing new units of the same securities (which will now have a higher cost basis) or purchasing entirely different securities to diversify a portfolio.
In the last couple years, Seattle Foundation has worked with many donors holding substantial amounts of cash, typically as the result of selling a business. Even though it’s usually wise for a donor to explore contributing an interest in the business to Seattle Foundation in advance of the sale, contributing cash can also make sense, especially before the end of 2021. For the balance of the year, those who itemize their deductions can still claim them for gifts of cash up to 100% of adjusted gross income (AGI) rather than just 60% of AGI — although donor-advised funds, supporting organizations, and private foundations continue to be excluded from this provision.
As in years past, alternative AGI limits may apply when a taxpayer’s deductions derive from charitable gifts of both cash and other assets. Likewise, complications can arise when charitable deductions are carried forward from prior years. Moreover, the marginal tax savings associated with charitable gifts of cash decline to zero as one gets closer to the 100%-of-AGI ceiling. Accordingly, clients will be relying on their advisors to help them weigh these and other factors.
Whenever you think Seattle Foundation might be of assistance, please contact Bill Zook, Senior Advisor, Gift Planning, at (206) 388-1722.