Benefits of Gifting Appreciated Stock, Flexible Funds, & Philanthropy in the Spotlight | Advisor Newsletter (April ’24)

Happy spring from the Community Foundation of Southern Indiana! 

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

And now, CFSI can help with your clients’ do even more with their philanthropy thanks to a generous $3.75 million matching grant from the Lilly Endowment. The grant presents a $2-for-$1 matching opportunity, meaning the Foundation can TRIPLE your clients’ charitable impact on any gift made to our unrestricted Community Impact Fund, which supports the greatest needs of our community – now and forever. 

Working with clients on their estate plans? Clients can use a “future” fund option to create their charitable legacy now – without giving a penny until after their lifetime. Or, for current givers, learn more about how to show clients the benefit of giving appreciated assets to give back to their community in ways they might not have known was even possible – more on all of these topics below…

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

• No matter what words you use to express the advantages of giving appreciated assets, it can be hard for clients to truly hear it. Consider showing clients – using numbers and examples – that it really is better to support favorite charities by giving appreciated assets instead of cash.
• Help your clients get ahead in their estate planning by leaning into the flexibility and benefits of a fund at CFSI, including your clients’ ability to leave permanent legacies to support the community for generations to come. 
• CFSI has been awarded $3,750,000 in funding to match contributions to its unrestricted Community Impact Fund. The match is a $2-for-$1 matching grant, meaning the Foundation can TRIPLE your clients’ charitable impact to any gift made to CFSI’s unrestricted Community Impact Fund – which supports the greatest needs of our community, now and forever.
• There’s lots going on in the world of charitable giving! Our team has curated several articles that are worth reading if you’d like to dig deeper into springtime issues that are trending in philanthropy circles.

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

Wishing you continued luck during tax season! 

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Gifts of Appreciated Stock: Let the Benefits Do the Talking

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

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

Sally and Bob Jones give $100,000

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

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

Jenny and Joe Smith give $1 million

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

Tiffany and Brett Thomas give $5 million

Tiffany and Brett Thomas plan to give a target amount of $5 million to charity as the cornerstone of their overall philanthropy plan. They would like to use publicly-traded stock that they’ve held for many years, valued currently at $5 million. They would love to receive a lifetime income stream from these assets, so that the remaining assets will flow to their fund at the community foundation after their deaths. In this case, you’ll explore setting up a charitable remainder trust that pays out an income stream to Tiffany and Brett while they are both living and then to the survivor for the survivor’s lifetime. 

Let’s assume that Tiffany and Brett are both 55 years old. And let’s assume that the stock has a very low cost basis – just $500,000 – because the Thomases have held it for so long. Depending on the IRS’s applicable rates, and assuming a 5% annual payout rate paid at the end of each quarter, here’s an approximate tax result if you worked with the community foundation to help Tiffany and Brett establish a charitable remainder trust:

• $1,042,550 approximate potential income tax deduction based on the present value of the gift of the remainder interest to charity 
• $4,500,000 in capital gains that may not be subject to tax
• $250,000 in total payments during the first year
• Annual payments of 5% of the value of the assets in the trust, which means the income stream will fluctuate depending on the value of the assets

Following the death of the survivor of Tiffany and Brett, the remaining assets will flow to the Thomas Family Fund at the community foundation, which Tiffany and Brett have already established and which, upon their deaths, will split equally into two funds. The first fund will be a donor-advised fund for which their children will serve as advisors, and the second fund is an unrestricted endowment fund to support the community foundation’s priority initiatives in perpetuity. 

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

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

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“Future Funds” & Other Handy Tools for Charitable Clients Planning Ahead

Getting a jump on a future “to do” list is always such a good feeling. The team at the Community Foundation of Southern Indiana can help you with your clients’ long-term charitable giving plans by putting in place the structures to receive bequests decades from now.

Consider a case where you’re finalizing an estate plan for a client who would like to leave bequests to multiple charitable organizations, but the identity of those specific organizations may be a moving target over the years because of the client’s evolving level of engagement with various charities as a donor, volunteer, or board member. In other words, this client likely will want to make small changes to the estate plan’s provisions for charitable giving but leave everything else as is.

For example, a client’s trust could be drafted to provide that 10% of the remaining estate be divided equally among five charities, which of course could be listed in the trust document. But what if, a few years from now, the client wants to add another charity to that list? Even a small change like this would require an amendment, which can be time-consuming for both attorney and client. 

Instead, the client’s trust document could name a CFSI fund at the community foundation as the beneficiary of 10% of the remaining estate. Then, the client can work with CFSI to draft a fund agreement that lists the charities that will share the 10%. When the client wants to add new charities or switch out charities from the list, the client can reach out to us and execute simple documentation of the client’s updated intent for the fund. This process is fast and simple, and it allows clients to ensure that their bequests are in line with ever-changing needs in the community. 

In some cases, the client may not intend to use the fund during their lifetime. That’s perfectly fine; the community foundation can establish a “future fund” to sit dormant and receive assets only after the client passes away. Your client can still name the fund whatever they’d like, and the future fund agreement can be modified anytime before the client’s death. 

Please reach out to CFSI to learn how shell funds and other planning tools can help your clients achieve their charitable goals both during their lifetimes and beyond. 

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TRIPLE Your Clients’ Charitable Giving Using a Qualified Charitable Distribution, Other Gift Options

Thanks to a generous opportunity from the Lilly Endowment, CFSI has been awarded $3,750,000 in funding to match contributions to its unrestricted Community Impact Fund as part of the Endowment’s Giving Indiana Funds for Tomorrow, Phase viii (GIFT VIII) initiative. The match is a $2-for-$1 matching grant, meaning the Foundation will need to raise $1,250,000 in contributions from our community to earn the entire match.

Each year from the Community Impact Fund, we award over $400,000 to organizations, projects, and programs that directly benefit Southern Indiana residents. By meeting our $5 million matching grant goal, the increased amount available to spend from the Community Impact Fund would allow for an estimated additional $200,000 in local grant awards – a 50% annual increase – each year. Forever.

This initiative presents an opportunity to award more grants annually – by a substantial margin. And your clients can TRIPLE their charitable impact to any gift made to CFSI’s unrestricted Community Impact Fund – which supports the greatest needs of our community, now and forever.

Gifts that can be matched include:

• Qualified Charitable Distributions (IRA Rollover)
• Cash / Checks
• Stocks / Bonds
• Mutual Funds
• More!

When you support your local Community Foundation, you’re not just giving to a single entity – you’re investing in the entirety of your community. Together, we have the power to address pressing challenges, unlock potential, and nurture the seeds of growth and prosperity for everyone in our community.

**If you would like a team member from the Community Foundation of Southern Indiana to make a presentation to your company or firm on the GIFT VIII match — and the tax-beneficial ways your clients can use it — please send us an email and we’d be happy to schedule a time to come out and speak with your team: LSpeed@CFSouthernIndiana.com

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Spotlight: Charitable Planning for Wealthy Clients

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

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Disclaimer: The Community Foundation of Southern Indiana 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.