December 2023 Professional Advisor News

As 2023 makes way for 2024, you’re no doubt inundated with information about the various IRS thresholds that are subject to change. But have you thought about how each of these thresholds might be connected with your clients’ charitable giving? Here are a few pointers to keep handy as you inform your clients about changes for 2024 and also help them gear up their charitable giving plans for the coming year.

Social Security COLA increases
The Social Security Administration announced a cost-of-living adjustment (COLA) increase of 3.2% that will take effect in January. This increase is less than half of 2023’s COLA increase (which was the highest since 1981) and reflects inflation’s decline in recent months.

Connection to charitable giving: Remember that retirees are a unique group when it comes to tools and techniques related to charitable giving. Remember also that 72% of Baby Boomers (and 88% of the Silent Generation!) give to nonprofit organizations every year, so if your clients include retirees, you’re almost certainly dealing with philanthropic individuals. When you talk about the Social Security increase, it’s a logical time to also bring up charitable giving plans for 2024.

Standard deduction increases
The standard deduction will increase in 2024 by approximately 5.5% to $14,600 for single tax filers and $29,200 for married couples filing jointly.

Connection to charitable giving: The standard deduction is an important factor in charitable giving. Your clients whose gifts to nonprofit organizations, plus other deductions, total more than the standard deduction are eligible to itemize deductions. You know this, of course, but it is worth talking with your clients about their 2024 charitable giving plans (and their last-minute plans for 2023!) to evaluate whether a “bunching” strategy, working with the Community Foundation, could be helpful to maximize a client’s intended support of favorite charities over the next few years.

Tax brackets
Though tax rates in each tax bracket, ranging from 10% to 37%, aren’t changing, the income levels that define each bracket are increasing. Generally speaking, your clients can earn up to about 5% more in 2024 and remain in their 2023 tax bracket.

Connection to charitable giving: Reviewing tax brackets with your clients is a good time to bring up pending legislation known as the Charitable Act, which would create a “universal deduction” even for taxpayers who do not itemize. A similar, pandemic-era law that has since expired helped boost giving following the drop in giving that occurred after the standard deduction increased in 2018.

Qualified Charitable Distributions
Each taxpayer aged 70½ and older may direct up to $105,000 in distributions from an IRA to a qualified charity in 2024, up from $100,000 in 2023. Note that your client can make a once-in-a-lifetime QCD to a charitable remainder trust or charitable gift annuity in the amount of $53,000 in 2024 (adjusted for inflation from $50,000 in 2023).

Connection to charitable giving: With the ability to give more in 2024 than 2023, your clients can further escape income tax via QCDs and satisfy a greater portion of  their Required Minimum Distributions (RMDs). Field-of-interest and designated funds at the Community Foundation are very effective recipients of QCDs.

The rising popularity of the Qualified Charitable Deduction – ”QCD” – appears to be inspiring an increasing number of retirees to re-evaluate their charitable giving plans. Before the clock winds down on 2023 giving opportunities, be sure you’re familiar with the various charitable giving techniques that are most appealing to retirees and the various ways GiveWell Community Foundation (GWCF) can help. Here are four characteristics of retirees and their charitable giving situations that will help you serve your retired clients:

Greater connection to community. Retirees often feel a greater connection to their community and favorite nonprofit organizations than your clients who are not retired. Whether it’s because a retiree’s income and corresponding giving capacity are more predictable, or because a retiree has more time, getting involved with favorite charities can help retirees stay active and even avoid loneliness. The professional staff at the Community Foundation stays connected with the many nonprofit organizations in our service area, and we are happy to act as a sounding board and information source for your retired clients who want to get involved.

Less likely to itemize deductions. Many retirees apply the standard deduction on their income tax returns because they don’t have many expenses that qualify for itemization, such as business expenses and mortgage interest deductions. Help your retired clients evaluate whether itemizing deductions in certain years could be beneficial. Through a donor-advised fund at the Community Foundation, your clients may be able to concentrate charitable contributions into particular tax years and benefit from the deductions above and beyond the standard deduction. This is called “bunching,” and a donor-advised fund can help your client take advantage of itemizing tax deductions while still allowing them to provide steady support to nonprofits in years that follow the itemizing year.

More interested in involving children and grandchildren in their philanthropy. The Community Foundation is happy to help your retired clients fulfill their desire to stay connected with their children and grandchildren, including formalizing roles for these family members as advisors and successor advisors of the retiree’s donor-advised fund at GWCF. This is often an easy way to structure philanthropic priorities for generational wealth as well as create positive, authentic communication channels across an extended family.

Excellent candidates for Qualified Charitable Distributions. Your clients who are at least age 70½ can direct a tax-free distribution (up to $100,000 per spouse in 2023) from an IRA to a qualified charity such as a field-of-interest or designated fund at the Community Foundation. For your clients who must take Required Minimum Distributions (RMDs), the Qualified Charitable Distribution (QCD) is especially beneficial. This is because the distribution to charity counts toward the RMDs and therefore never lands in the client’s taxable income.

Regardless of your business or industry, retaining your clients or customers is a key to success. And as the saying goes, it’s easier and less costly to retain a current client than it is to find a new client.

As a professional advisor who helps clients with tax and estate planning matters, you’re well aware of the fragile transition phase after a client passes away. Not only are many tax planning techniques activated (and validated!) after a client’s death, but you’re also navigating the understandably stressful and emotional factors that impact your work with the heirs to administer the estate, transfer assets, and file tax returns.

It’s no wonder that the death of a client presents business retention challenges. You’d love to continue representing the client’s children, but that can be a difficult discussion immediately following their parents’ death. It’s no surprise that the rate of advisor disconnect and termination from one generation to the next is remarkably high. The numbers behind this churn are staggering. Historically, studies have found that 75% of parents report that their advisor had never met their children, and 10% or fewer of heirs retain their family’s advisor post-inheritance.

The solution is, of course, for the advisor to establish a connection with the next generation well in advance of a client’s passing. Certainly, there are many ways to cultivate a next-generation connection – starting young, sending birthday or holiday cards, encouraging clients to include children in meetings where appropriate, offering to counsel children on career choices, and making networking introductions or job referrals. Few touchpoints, however, are as substantive and meaningful as philanthropy. After all, in most clients’ view, inheritances are about more than money. They’re about core values, humanity, multi-generational connections, understanding wealth’s origins, establishing a family legacy, and more.

Children who get to know their parents’ advisors begin to appreciate the advisors’ roles in not only making family wealth last across generations, but also leaving a family legacy to the community. The Community Foundation can help advisors create opportunities to discuss philanthropy with clients and their children and grandchildren. Here are a few examples:

• Suggest that your clients consider working with the Community Foundation to establish easy-to-understand charitable giving tools, such as a donor-advised fund, a family foundation donor-advised fund, field-of-interest fund, or designated fund.
• Encourage your clients to take advantage of the Community Foundation’s services for families, which include researching family members’ favorite causes, arranging site visits at local charities, and educational sessions about the basics of charitable giving and what’s going on in the community.
• Share with your clients and their children materials provided by our professional staff describing tax-savvy charitable giving, including the benefits of giving highly-appreciated stock instead of cash to a fund at GiveWell Community Foundation to avoid capital gains taxes.
• Ask the Community Foundation to help facilitate family discussions so that all family members see how they can support causes that have been important to their parents and grandparents over the years as well as causes that are contemporary, relatable, or meaningful to them.

While any conversation with a client’s child or grandchild can increase the likelihood of retaining the family as a client across generations, the topic of philanthropy is an especially effective tool to create a common bond that can strengthen the family’s commitment as your client.