Happy May!
Springtime has arrived in our region! We hope you are enjoying the change in seasons and warmer weather.
In this newsletter, we’re covering three topics that have recently risen to the top of conversations with our fund holders.
Our first feature this month is an article about balancing your goals for giving while you are alive, with leaving a family and community legacy through charitable bequests. This is one of our favorite topics because the community foundation is uniquely qualified to help with your full range of charitable intentions.
Questions about Qualified Charitable Distributions continue to flow in. We’re taking a shot at clearing up the confusion; that said, we hope you’ll continue to call and ask questions about QCDs and everything else related to your charitable giving.
Third, we’re excited to dive deeper into the benefits of using your traditional IRA to fund your charitable bequests.
If you are already a fundholder at the community foundation, thank you! We hope you’ll continue to reach out to our team with questions and ideas about how you can deploy financial resources to achieve your charitable goals. If you’ve not yet established your own individual, family, or corporate fund at the community foundation, we encourage you to reach out to learn more.
Thank you for all you do. We are honored to work together.
–Angie Tatro, CEO Central Kansas Community Foundation
Have your cake and eat it too: A dual approach to charitable giving
The change of seasons is often an opportunity to catch our breath and reassess. We’re done with taxes, really done with cold weather (hopefully), and feel a sense of renewal as our attention turns to gardening and other growth-oriented, warm weather pursuits. And, many of us are wondering how in the world it can already be May. Wasn’t 2022 just five minutes ago?
Soon enough, the seasons will change yet again. Just as springtime is limited, so is the time any of us has to build a legacy for our families and communities and make a difference through charitable giving. Planning–and acting–with a sense of urgency is helpful, given life’s unpredictability and the many good causes many of us want to support.
At the community foundation, we’re frequently struck by the number of fund holders and donors who enthusiastically embrace strategies for both lifetime gifts and bequests. Indeed, planning techniques for each frequently work hand in hand. We’re inspired by champions of the ”do it now” approach to charitable giving; sadly, many people never have the opportunity to watch their money in action. We’re equally inspired by the longstanding commitment to estate giving that has been a part of the culture of philanthropy in our country for decades.
So, how can you take action now to ensure that you will experience both the joy of seeing first hand the difference you’re making, as well as the joy of knowing that you’re leaving a legacy to further the community priorities you’ve supported your whole life? A donor-advised fund with a bequest provision, established at the community foundation, is a great solution for many donors.
Here’s how this works:
- Donor-advised funds continue to be popular tools to help charitably-minded individuals organize their giving and support their favorite causes.
- Because of the community foundation’s deep knowledge of our region’s needs and the organizations addressing critical issues, a donor-advised fund established at the community foundation is an especially useful vehicle.
- If you are a current fund holder at the community foundation, or if you are considering establishing a fund, you already know that a donor-advised fund is easy to start and easy to use.
- You’re also likely aware of the donor-advised fund’s tax benefits, in that you are eligible for a tax deduction in the year of the gift and then you can work with the community foundation to use the funds to support your favorite 501(c)(3) organizations over the long term.
- What you might not know, though, is that the community foundation can work with you to include provisions in your donor-advised fund document to name your children or other family members as successor advisors to make recommendations following your death and you can provide that certain organizations or causes receive a portion of the grants each year after you’re gone.
- In this way, a donor-advised fund is not only a convenient giving vehicle during your lifetime, but it is also flexible enough to accommodate your wishes for leaving a legacy after your death.
- You can even name the community foundation itself to receive all or a portion of your donor-advised fund following your death.
- Bequests to the community foundation help keep our institution strong to grow the philanthropy required for our area’s nonprofits to serve the community for generations to come and respond to the most critical needs at any given time–needs that are impossible to predict.
Remember, with the help of the community foundation, you can give publicly or anonymously. We can help you fulfill your giving instincts by acting as a secure, knowledgeable, and trustworthy facilitator. Our team personally knows–and regularly vets–hundreds of charities every year, and we can help you navigate the options for both local and international giving.
If you are a current fund holder at the community foundation, we look forward to working with you to include bequest provisions in your existing donor-advised fund documents. If you are not yet a fund holder, we’d love to work with you to achieve your goals for lifetime giving and leaving a legacy. Please reach out anytime.
QCDs: Clearing up confusion
If you’ve been involved with the community foundation for a while, you’ve likely heard of the Qualified Charitable Distribution (“QCD”) because we mention it a lot. And with good reason!
If you are aged 70 ½ or older, it is well worth your time to investigate whether a QCD might be right for you. Actually, if you are not yet 70 ½ but know people who are, it is well worth your time to mention the tool to them! You will be doing them a great service.
Unfortunately, we hear from many donors and fund holders that they don’t understand how the QCD works. We totally get it. The QCD is a product of the Internal Revenue Code, after all, which does not always have the reputation for clarity. For starters, the name itself–Qualified Charitable Distribution–is long and not user-friendly.
If your head spins when you see the letters Q-C-D, here are two options for cutting through the complexity.
Your first and best option is to call us! The team at the community foundation is here to help. We talk with people like you about charitable giving techniques–including QCDs–literally all day long. We love this stuff. Reach out, and we will explain the QCD and help you figure out whether it could be useful to you or useful to a 70 ½-aged friend or relative.
If you are a DIY-type or love learning about tax techniques, here are a few quick bullets to help get your head around it:
- You can make a QCD if you have reached the age of 70½, and as such you can direct up to $100,000 annually from your IRA to a qualified charity (which includes, for example, a designated, unrestricted, or field-of-interest fund at the community foundation).
- If you’ve reached the age-73 threshold for IRS-mandated Required Minimum Distributions (RMDs) from qualified retirement plans, a QCD counts toward your RMD.
- QCD transfers are not included in your taxable income.
- QCDs are even more popular now that the $100,000 cap will be indexed for inflation under the new laws. Also, under the new laws, a one-time, $50,000 distribution to a charitable remainder trust or charitable gift annuity is now permitted.
Still clear as mud? Still curious? Just want to chat? Call us! We love working with you and welcome the opportunity.
Supersize your legacy: Stock to the kids, IRA to charity
To say that the total dollar amount in Americans’ retirement accounts is massive would be an understatement. Accounting for 30 percent of all household financial assets, at the end of 2022 total retirement assets in the United States topped more than $33 trillion dollars, including assets in IRAs, defined contribution plans such as 401(k)s and 457 plans, pension plans, and annuities. IRAs topped the charts at $11.5 trillion–the most assets of any category.
The large balances in traditional IRA accounts (not to be confused with Roth IRAs) are partially due to the fact that many taxpayers have rolled over–tax-free–assets from their employer-sponsored qualified retirement plans to IRAs after retiring or changing jobs.
If you have one or more traditional IRAs, you’re probably familiar with the basics:
- An IRA can have multiple beneficiaries following your death, and you can designate a dollar amount or percentage of assets.
- You can change your IRA beneficiaries as often as you like, and beneficiaries can differ across your multiple IRA accounts.
- If a beneficiary dies before you do, and you don’t change the beneficiary designation, the assets will be proportionately reallocated to remaining beneficiaries when you die.
Here’s a critical additional point that is often overlooked: Designating your fund at the community foundation or another charity as the beneficiary of all or a portion of your IRAs is extremely tax advantageous. If you intend to leave money to charity when you die, chances are that this technique is absolutely the best option if you own other assets, such as stock or real estate, to leave to your family members or other heirs.
Why is it so beneficial to leave your IRA to charity and other assets to your family? Three words: taxes, taxes, and taxes.
- First, IRAs are included in your estate for federal estate tax purposes when you die. The current exemptions are set at such high levels right now that they do not affect as many taxpayers as they used to, but for many families, estate taxes are still an issue. If you leave your IRA to charity, estate taxes do not apply to that balance.
- Second, the bulk of the balance in an IRA (sometimes the entire amount) is counted as income when IRA withdrawals are taken by your estate or your heirs. If a charity receives your IRA, the charity will not pay these income taxes.
- Third, highly-appreciated stock and other non-retirement assets you own outside of your qualified retirement plans when you die get a “step up” in basis, meaning that your beneficiaries who receive and then sell the assets won’t pay capital gains tax on the appreciation that occurred before you died. And, inherited, non-retirement assets are not included in the beneficiary’s income for tax purposes.
The bottom line here is that if you are choosing between stock and an IRA to leave one to your children and the other to charity, leaving the IRA to charity and the stock to your children is a no-brainer.
Have questions? Please reach out to the team at the community foundation. We are happy to help!
The team at the community foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.
