Select a gift type below to learn about specific considerations for your clients.
In making a gift of cash, your client can draw upon any of a number of sources such as a bank account, a matured certificate of deposit, or a money market fund. When made to public charities such as the Community Foundation, outright gifts of cash made in any of these forms are completely deductible from your client’s income, up to a limit of 50 percent of their adjusted gross income for the year in which they make the gift. Any unused portion of their charitable deduction can then be carried forward to the following year for up to five consecutive years. Each year, the deduction carried forward is subject to the same limitations, with the understanding that any current-tax-year gifts will be applied before carry-over deductions can be factored in.
As with publicly-traded securities and closely-held securities, your client can make an outright gift of real estate to the Community Foundation and avoid paying tax on any of the capital gain. This applies to farms, land, personal residences, commercial buildings and income-producing property, but excludes any property that is considered “inventory.” Provided your client has owned the property for more than one year, the resulting income tax deduction is equal to the fair market value as determined by a qualified appraisal. The resulting deduction can be used to offset up to 30 percent of the client’s adjusted gross income in the year of the gift. Any unused portion of the client’s deduction can be carried to the following year as many as five times, with the understanding that the same limits apply and that deductions for current-tax-year gifts will precede any carry-over deductions. In the case of a personal residence or a farm, your client also has the option to retain a life estate in the property.
Appreciated stocks, bonds and mutual fund shares owned for more than one year can be directly transferred to the Community Foundation for a deduction equaling their current fair market value and avoidance of any applicable capital gains tax. If your client has owned appreciated securities less than one year, the deduction would instead equal their cost basis. These gifts can then offset up to 30 percent of the client’s adjusted gross income in that year. Any unused portion of the client’s deduction can be applied to the following year as many as five times, with the understanding that the same limit applies and that deductions for current-tax-year gifts will precede any carry-over deductions. In the event that your client wants to make a gift of securities owned at a loss, they may be better off selling the securities to recognize a capital loss before contributing any of the resulting cash.
The Community Foundation can own Sub-chapter S Corporation stock, as well as interests in entities such as partnerships and limited liability companies. When used to make charitable gifts, these assets bring your client the same tax benefits as gifts of publicly-traded securities once the fair market value is determined by a qualified appraisal. However, closely-held securities are much less suitable than publicly-traded securities if your client is interested in establishing a charitable gift annuity or charitable trust. In particular, charitable remainder trusts cannot own Sub-chapter S stock. It is also good to keep in mind that these assets generally require a more thorough review by the Community Foundation, due to the illiquid nature of many closely-held business interests.
Life Insurance Policies
Your client may name the Community Foundation as the owner of a life insurance policy. The client can then take a charitable deduction for the lesser of the policy’s appraised value — often similar to its cash value — or the policy’s cost basis at the time of the gift. If premiums are still owed, and your client pays them to the insurance company or by means of a contribution to the Community Foundation, the amount paid each year will be tax deductible. Your client can even purchase a new policy naming the Community Foundation as the owner from the start. As an alternative, the client can retain ownership of a policy but name the Community Foundation as beneficiary of the death benefit, thereby reducing any estate tax that would otherwise be due.
Your client can avoid taxes on these assets by naming the Community Foundation as a beneficiary upon their death. By contrast, under current law, drawing upon such assets to make charitable gifts while living does not typically produce any tax benefit. In fact, this approach often results in a net tax cost. The best strategy for those age 59-1/2 or older making use of lifetime distributions, in the context of a charitable gift, is for your client to transfer long-term appreciated publicly-traded securities to the Community Foundation. Once the gift is completed, your client can establish the same investment position by reinvesting the cash distributed from their IRA or qualified plan.
Tangible Personal Property
Gifting items such as cars, artwork or jewelry allows your client to deduct only their cost basis, not the fair market value, of the donated good. If their property has depreciated in value from the original cost — as is typically the case with cars — then their deduction will be based on the property’s current value. In the event the Community Foundation can use the property in connection with its stated mission, your client’s tax benefits are more favorable. Because this will rarely be the case, often your client’s best option will be to sell the property and contribute some or all of the cash proceeds. Another approach is for the client to retain their assets and leave them to charity through their will or living trust, which avoids the unfavorable tax considerations tied to making gifts of personal property during one’s lifetime.
Other Nontraditional Assets
Annuity contracts issued by insurance companies can sometimes be used to benefit the Community Foundation. Usually, it is best to arrange for a beneficiary designation that will result in the Community Foundation receiving some or all of any value remaining at the end of your client’s life. This is because part of that remaining value can be taxable when received by their surviving family members or other loved ones, but not when received by the Community Foundation. In certain circumstances, it can also make sense to advise your client either to draw upon the value of an annuity contract or to surrender it entirely for cash, which can then be used to make an outright gift to the Community Foundation during their lifetime. Commercial annuities can even be a source of cash to use in establishing a charitable gift annuity, a charitable remainder trust or a charitable lead trust.