Advice to advisors: Seek clarity about clients’ commitment to community

The odds of Biden’s proposed tax plan becoming law depend on factors that won’t be known until Georgia’s run-off elections on January 5, which will decide whether the Democrats or the Republicans will control the United States Senate.

This uncertainty prevents advisors from having confidence about advising clients whether to implement planning strategies that would take advantage of the potential window of opportunity at the end of 2020, before new laws take effect. Should clients act now, betting that significant changes to the tax law are in store for 2021, or, betting on status quo in 2021, hold off on taking action now but potentially trigger significant tax hits if tax laws do wind up changing?

Despite the uncertainty about exactly what might happen with the tax laws in 2021 and beyond, there are still opportunities for you to advise your charitable clients with conviction that they are doing the right thing for themselves and for the causes they care about. To that end, keep in mind that the CARES Act includes charitable giving incentives for 2020:

• Even for taxpayers who take the standard deduction, a reduction in adjusted gross income is available for charitable contributions up to $300 per taxpayer. Donations to donor-advised funds don’t count; nonetheless, this deduction is a great way for clients to help their favorite organizations in this challenging year.
• Individuals who itemize deductions can elect to deduct donations up to 100% of their 2020 adjusted gross income instead of being capped at 60%. For corporations, the CARES Act increased the cap from 10% to 25% of taxable income. (Again, contributions to donor-advised funds and private foundations are not eligible.)

As always, remember that YouthBridge Community Foundation can help you develop your clients’ future plans. A donor-advised fund is a powerful estate planning tool. A client can execute wills and trusts that leave a specific bequest or remainder interest to a donor-advised fund at the community foundation. This bequest triggers all the tax benefits of a direct bequest to a charity because the community foundation, and therefore the donor-advised fund, qualifies as a 501(c)(3) organization.

Here are three key takeaways:

• Your client may already have established a donor-advised fund at YouthBridge that the client is using to make annual gifts to charity. This donor-advised fund can be the recipient of a charitable bequest.

• Even if your client is not actively using a donor-advised fund currently, the client can still set up what is known as a “shell fund” now to receive a bequest later. A shell fund is governed by a donor-advised fund document, but the fund itself does not contain any assets until the client passes away and the bequest is activated.
• A client typically has some flexibility to adjust the terms of the donor-advised fund anytime before the client’s death. This gives your client maximum flexibility to adjust charitable beneficiaries without the need to amend a will or trust.

Please contact our philanthropy advisors for assistance with the proper language for designating a donor-advised fund at the community foundation as a bequest recipient. Our team also will work with you on the terms of the donor-advised fund itself. For example:

• Your client can use the donor-advised fund as a way to keep the next generation–or generations–involved with the family’s philanthropy to carry on the family’s legacy of community support. Surviving family members can serve as advisors to the fund and make decisions about which causes and organizations to support.
• It’s also possible to create several donor-advised funds–one for each grandchild, for example–so that each beneficiary has their own charitable giving account.

Your team at YouthBridge Community Foundation is always happy to help. We look forward to hearing from you and wish you all the best for the season.