September 2023 Professional Advisor News

Sadly, rarely does a month go by without the news of another disaster or humanitarian tragedy. Most recently, the Maui fires and right here in our own backyard, Hurricane Idalia, are making the headlines – and also generating widespread charitable support. Indeed, many of your clients are no doubt supporting relief efforts through monetary donations.

Disasters are both unpredictable yet, sadly, predictable. Multi-billion-dollar damage events occur annually and, not surprisingly (and thankfully), natural disasters and humanitarian tragedies consistently attract much-needed philanthropic support.

Understandably, most of the charitable dollars following a disaster flow toward essential and immediate relief efforts. Your clients might be interested to know, however, that dollars for efforts related to rebuilding and future mitigation are also critically important. Affected communities need both immediate philanthropic support for people affected by a disaster and long-term support to address ongoing consequences. Ongoing support, for example, is needed not only for rebuilding after a fire or hurricane, but also to fund preparedness to blunt the effects of the next fire, hurricane, or pandemic.

The philanthropic services team at GiveWell Community Foundation (GWCF) is happy to work with you and your charitable clients to explore ways to address future humanitarian disasters. Many people, for instance, use their donor-advised funds at GWCF to support disaster relief efforts. And with rebuilds and recoveries often occurring long-term, a bundling or bunching strategy could help clients support disaster relief efforts through their donor-advised funds for several years. This allows clients to plan in advance to provide support, while also being smart about the tax advantages in the year of the transfer to their donor-advised fund.

Not limited to disaster responsiveness, GWCF is an ideal partner for disaster preparedness. Encourage your clients to consider endowments, field-of-interest funds, designated funds, and other perpetual structures established through the Community Foundation to ensure that the community we love is protected for generations to come. Field-of-interest or designated fund can be especially attractive because, for people who’ve reached the age of 70½, these funds are eligible recipients of QCDs (Qualified Charitable Distributions) from IRAs. Creating a field-of-interest or designated fund allows a client to make charitable gifts in advance of disasters so that GWCF can deploy resources immediately when urgent needs occur.

As disasters and hardships across the country inevitably occur, our professional staff is honored to serve as your valuable resource as you help your clients deploy the power of philanthropy as a helping hand to those who need it most.

Such a difference a year makes – maybe?!

By August 2022, markets were down 12% for the year and inflation was up 8.3% year-over-year. Perhaps consequently, but then unknown, annual charitable giving was on its way to a rare (fourth time in 40 years) year-over-year decline of some 4% according to Giving USA. Certainly this decline was due in part to donors not wanting to give stock at depressed values. You likely even discussed this with your clients!

Nearly 12 months later, as of July 2023, markets were up 7.28% year to date and inflation was roughly half at 4.7% year–over-year. Even though the stock market still shows signs of volatility, hopefully, charitable giving will rebound.

No matter the times, and even in down markets, some stocks will still out-perform. These holdings are of course excellent candidates for your clients to give to charity and avoid taxes on the capital gains. This year is no different, with stocks like Microsoft, Apple, Nvidia, among others, enjoying banner years. Indeed, Microsoft, Apple, and Nvidia were up 38%, 36%, and 228%, respectively through mid-August. For some of your clients, these gains have created concentrated stock positions where you, as an advisor, may believe that portfolio allocations have become imbalanced under the investment strategy you are pursuing. Your clients who support charities through a fund at GiveWell Community Foundation (GWCF) can consider potentially alleviating this situation through charitable gifts of highly-appreciated stock.

Your clients who give appreciated stock to a donor-advised fund can:

• Enjoy the ease of the donor-advised fund as a depository for current and future charitable giving
• Conveniently support the causes they and their families care most about
• Maintain a mix of assets in the donor-advised fund that are consistent with the client’s investment philosophies
• Benefit from an up-front income tax deduction, avoid capital gains on the assets’ sale within the fund, and grow the proceeds for future grantmaking
• Leave a legacy for children, grandchildren, and family name to continue their philanthropic commitments
• Reduce the value of their taxable estate, potentially reducing estate taxes
• Comply with IRS charitable gifting guidelines
• Enjoy supporting charities in the fund’s name, or anonymously
• Receive a single year-end tax document that summarizes all gifts for tax purposes

By establishing a donor-advised fund at the Community Foundation, your client is part of a community of giving and will have opportunities to collaborate with other donors who share their interests. In addition, your client is supported in strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference.

So while it’s nice to see the market’s performance improve, a bonus opportunity lies in your clients’ transferring appreciated stock to donor-advised funds at GWCF. We are here to help!

Business owners who may have enjoyed summertime’s more relaxed energy can deservedly daydream about the “extended vacation” that comes with selling the business! 

While it all sounds good, business brokers will tell you that many business owners fail to optimize — and they sometimes even compromise — the value of their business’s proceeds by rushing the process, hastily determining an asking price, or not fully assessing the value of their business to a potential buyer. In their haste, owners often miss strategies that can deliver an improved post-sale result and a true reward for their years of work. 

GiveWell Community Foundation (GWCF) can be a valuable resource as you guide a business owner client through a pre-sale preparation process. This is especially true for a business that has operated for many years and has accumulated significant unrealized capital gains in its valuation that are likely to be heavily taxed at the time of the sale. 

Many closely-held business owners and their advisors may not be fully aware of the advantages of giving shares to a donor-advised fund at the Community Foundation well in advance of any external discussion about a potential sale of the business. With prudent planning, the gifted shares will be free of capital gains at sale time, allowing the proceeds to flow into the donor-advised fund, ready to be deployed to meet the business owner’s charitable goals. The business owner also benefits because they’ve reduced the value of their taxable estate. This can have huge repercussions given the anticipated reduction of the estate tax exemption slated for 2025. 

Remember that it will be important to secure a proper valuation of the business at the time the business owner makes a gift of shares in order to comply with IRS requirements for documenting the value of the charitable deduction. 

Critically important to successfully executing this strategy is to ensure that your client avoids even any preliminary discussions about sale, let alone negotiations, before consulting with advisors, including looping in the Community Foundation early on. Otherwise, your client might get caught in the IRS’s step-transaction trap, a risk with any pre-sale gift to charity of real estate, closely-held stock, or other alternative asset. Definitely, the devil is in the details!  

By the way, if you routinely advise owners of closely-held businesses, and if you like to go deep into tax law, you might enjoy reviewing the issues related to the business itself supporting charitable causes, totally unrelated to its eventual sale.

Please reach out to our philanthropic services team if a business owner client would like to explore the idea of potentially giving a portion of the business to a donor-advised fund or other type of fund at GWCF. We can work alongside you and the client to help optimize the exit and maximize the resulting proceeds.