Advice to Advisors: Seek Clarity About Clients’ Commitment to Community

The odds of President-Elect Biden’s proposed tax plan becoming law depend on factors that will not be known until Georgia’s run-off elections on January 5, which will determine 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 (DAFs) do not count; nonetheless, this deduction is a great way for clients to help their favorite organizations in this challenging year. Also, keep in mind that other funds at GCF do qualify! Eligible funds at GCF include funds that are designated to benefit a specific organization, The Women’s Fund, Northern Kentucky Fund, as well as gifts made to GCF’s Empowering Communities Fund.
  • Individuals who itemize deductions can elect to deduct donations up to 100% of their 2020 adjusted gross income (AGI) instead of being capped at 60%. For corporations, the CARES Act increased the cap from 10% to 25% of taxable income. (Again, contributions to DAFs and private foundations are not eligible.) Again, contributions to donor advised funds and private foundations are not eligible; however some funds at GCF do qualify in addition to the examples above. This includes single purpose designated funds, which donors who are 70 ½ may establish for the purpose of making qualified charitable distributions (QCDs) to support their church, school, or favorite non-profit.

As always, remember that Greater Cincinnati 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
donor advised fund at Greater Cincinnati Foundation. This bequest will trigger all the
tax benefits of a direct bequest to a charity because GCF, and therefore your client’s
donor advised fund, qualifies as a donation to a 501(c)(3) organization.

Here are three key takeaways:

  • Your client may already have established a donor advised fund at GCF that the client is using to make annual gifts to charity. This DAF can be the recipient of a charitable bequest.
  • Even if your client has not established a donor advised fund currently, we can help them set up what is known as a “shell fund” now to receive a bequest later. A shell fund is governed by a fund agreement, but the fund itself does not contain any assets until the client passes away and the bequest is activated.
    A fund at GCF does not need to be donor advised, your client can also name specific charities to be the beneficiary of the fund, and they have the option to endow the fund to last in perpetuity. Clients can adjust the terms of their fund anytime before death. This gives your client maximum flexibility to adjust charitable beneficiaries without the need to amend a will or trust.

Please contact one of us for assistance with the proper language for designating a fund at Greater Cincinnati Foundation as a bequest recipient. Your team at Greater Cincinnati Foundation is always happy to help. We look forward to hearing from you and wish you all the best for the season.

This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or
financial planning advice.