When your client is ready to contribute to a charity or start a donor-advised fund (or other charitable fund) at the Foundation, it’s essential to remind them not to automatically reach for the checkbook. There are several other, often more tax-savvy options to consider.
Marketable Securities
Gifts of long-term appreciated stock to a donor-advised or other type of fund at the Foundation are among the most tax-efficient ways to support favorite charitable causes. By avoiding capital gains tax, clients can maximize the impact of their contributions. The process is straightforward: transferring publicly-traded stock to a fund is simple, and the Foundation’s team can provide detailed transfer instructions.
As with cash gifts, the Foundation will issue a receipt for tax purposes, and the stock gift will be valued at the shares’ fair market value on the transfer date. When the Foundation sells the shares, the proceeds go into the client’s fund without any capital gains tax reduction. Since the Foundation is a 501(c)(3) charitable organization, it does not pay income tax. However, if the client sold the stock first and then transferred the proceeds to the fund, they would owe capital gains tax on the sale—a significant hit, especially if the stock’s value has substantially increased over time.
Closely-Held Business Interests
The Foundation team can assist you and your client in exploring how to donate shares of a closely-held business to a fund at the Foundation. Such transfers are eligible for a charitable deduction in the year of the transfer and are valued at fair market value if the shares have been held for more than a year. These gifts can also potentially reduce income tax burdens triggered by a future business sale. It’s crucial to discuss this well before any potential sale to maximize the tax benefits. While powerful, gifts of closely-held business interests can be complex to administer.
QCDs from IRAs
Qualified Charitable Distributions (QCDs) are a smart way for clients over 70½ to support charitable causes. In 2024, clients can direct up to $105,000 from an IRA to certain charities, including various funds at the community foundation. For clients subject to Required Minimum Distributions (RMDs), QCDs count toward these RMDs, allowing clients to avoid income tax on the distributed funds. Our team can help evaluate whether a QCD is a good fit for your client’s charitable goals.
Real Estate
Clients can donate real estate, such as farmland or commercial property, to their fund at the Foundation in several ways. An outright gift of real estate held for more than a year is deductible for income tax purposes at 100% of the fair market value on the gift date, avoiding capital gains tax and reducing the client’s taxable estate. Other options include a bargain sale or transferring the property to a charitable remainder trust, which provides lifetime income for the client and their family.
Life Insurance
Life insurance is an often-overlooked but effective charitable giving tool. Clients can name their fund at the Foundation as the beneficiary or, in the case of whole life policies, transfer the policy itself. Transferring the policy may allow the client to make annual, tax-deductible contributions to cover the premiums.
We hope this article provides valuable insights and strategies for you and your clients. Please reach out to Monika Collins with any questions or to discuss how we can support your clients’ charitable giving goals.
Additional Resources
Discussing Charitable Giving With Clients
Five of the Most-Asked Questions about Qualified Charitable Distributions
Charitable Fund Options at The Foundation for Delaware County
Benefits of a Community Foundation for Advisors
Professional Advisor Toolkit
