Posts

A trust really isn’t as complicated as it first may seem. After all, there are only three parties to a trust.

A Settlor, Trustee, & Beneficiary

A trust is created when a property owner transfers the property to a person with the intent that the recipient holds the property for the benefit of someone else. So, there are three parties to a trust: (1) the owner who transfers the property (the settlor, or sometimes called the donor or grantor); (2) the person receiving the property (the trustee); and (3) the person for whose benefit the property is being held (the beneficiary).

Three men walking down the street

Note that although a trust involves three parties, it does not require three persons. One person can play multiple roles. For example, in a typical revocable inter vivos trust, it is quite common for the person establishing the trust to be the initial trustee and the principal beneficiary. In this situation, one person is all three parties—they are the settlor, the trustee, and the beneficiary.

What a Merger Means

There is one limitation to the rule of one person wearing multiple hats. The same person cannot be the sole trustee and the sole beneficiary of the trust. In such an event, it is said merger occurs, and the trust is terminated. Why so? The essence of a trust is that it divides legal title from beneficial ownership, and merger ends this division.

In practical terms, however, merger is rarely an issue. “Wait!” you shout. You just said that in a typical revocable inter vivos trust, the person establishing the trust can be trustee and beneficiary. Yes, in this situation one person is all three parties—the settlor, the trustee, and the beneficiary. But, in almost all situations, one person isn’t the sole beneficiary. Such a trust will designate other beneficiaries who will benefit from the property after the settlor’s death. So, one person can indeed wear three hats.

Let’s Talk More About Trusts

Trusts aren’t that difficult to understand and also can be an effective estate planning tool to meet your wealth transmission goals. Want to learn more? Email me at gordon@gordonfischerlawfirm.com. I offer a free one-hour consultation to everyone, without any obligation. I’d be happy to talk to you at any time.

#GivingTuesdayNow

Over the past few weeks, it has been easy for the days to blur together⁠—with schedules important for stability but also keeping our socially distant lives accordingly mundane. But tomorrow, May 5, 2020 is an important day to note, promote, and celebrate! #GivingTuesdayNow was organized, in part, as an effort to encourage donations to nonprofit organizations helping to address the immense collateral damage inflicted by COVID-19. Now.GivingTuesday.Org offers other ways to support the effort while maintaining social distancing:

  • Support healthcare workers by donating supplies, advocating for them, and staying home
  • Help out small businesses by buying gift cards or writing an online review
  • Combat loneliness by reaching out to a neighbor, relative, seniors or veterans

A simple-but-important step every Iowa nonprofit can and should take is to promote #GivingTuesdayNow as a part of fundraising⁠—particularly with programs and services focused on serving populations affected by COVID-19.

Engage board members, staff, past donors, potential donors, and other stakeholders with fundraising efforts by posting #GivingTuesdayNow content and participating in the international digital conversation. Consider the many resources hosted on now.givingtuesday.org as a good starting point for content inspiration.

#GivingTuesdayNow is an important reminder that especially during this challenging time Iowans need high-functioning nonprofits now more than ever.

The mission of Gordon Fischer Law Firm is to promote and maximize charitable giving in Iowa. This is all year long—not just on #GivingTuesdayNow. GFLF is available to work with nonprofit organizations on every element of operations including but certainly not limited to:

  • Training of nonprofit boards and staff and educating on charitable giving tools and techniques
  • Employment law guidance for nonprofits including advice about hiring and firing, and drafting of policies and procedures
  • Handling compliance issues, like forming a 501(c)(3)and Form 990 reporting
  • Working with nonprofit and donors on complex gifts

Interesting in discussing your nonprofit’s operational needs? Contact me for a free consultation at 515-371-6077 or gordon@gordonfisherlawfirm.com.

black headphones against yellow background

Recently I had the chance to speak with Jeff Stein the News and Program Director at News/Talk 1540 KXEL. We chatted about charitable donations to nonprofits in this age of COVID-19. Because there are so many financial challenges affecting both nonprofit organizations (and the beneficiary populations they serve) and current and prospective donors, this is a precarious, fragile time.

In preparation for the #GivingTuesdayNow global on Tuesday, give this interview a listen. It’s less than twenty minutes and will give you some solid insights into how to practice strategic charitable giving in a way that’s most useful to the nonprofit organizations you care most about during this trying time.

News Talk 1540 KXEL

board of directors hands in

If you’re thinking of forming a nonprofit organization, joining a board, or being a regular donor you may be confused by the differences between a “board of trustees” versus “board of directors.” It almost seems like they’re used interchangeably, and does it really matter? Isn’t a director a trustee, and vice versa?

In nonprofit practice and law today, both a “trustee” and a “director” describe an individual in a position of governance. But traditionally the term trustee was only used to refer to board members of a charitable foundation or trust. These days, generally, the name of a board of directors versus trustees mean the same thing and largely indicate syntactic differences.

Charitable Trust Laws

That said, some states have charitable trust acts (which are different from nonprofit corporation laws) and the term “trustee” can have a distinct meaning under such laws. In such cases, trustees are held to a higher fiduciary duty than directors, meaning trustees may be held liable for acts related to simple negligence. This means that a trustee could be held personally liable for certain acts even made in good faith.

As you might have presumed, trustees of a charitable trust have a duty to the beneficiaries of that trust.

The role of trustee can also come with an “absolute” duty of loyalty to the trust and a charge to the beneficiaries of the trust. Plus, even if approved by co-trustees, any personal transactions with the trust are prohibited.

What’s in a Name

If a nonprofit’s board members are referred to as trustees instead of directors, it doesn’t magically transform duties to those under the higher standard indicated in trust laws. But, there is a risk that in referencing board members as trustees in lieu of directors may inadvertently increase the governing board’s exposure to arguments that trust law and their associated standards applied.

Make Your Smart Start

When forming an organization or joining a nonprofit’s board, you want to be certain that the governing term—directors, trustees, or even governors—chosen is defined clearly and appropriately in governing documents. This helps ensure that everyone is on the same page regarding obligations, expectation, and legal standing. I highly recommend consulting with an attorney to make certain the officer terminology used with your organization is the best possible fit. It’s also important that the parameters of operation per that term are defined.

Questions? Concerns about your defining your board one way or another? Don’t hesitate to contact me for a free consultation. I can also assist with governing document drafting and review, as well as board training so that members know precisely their roles.

hammers and tools hanging in garage

Three Parties

I’ve previously written about the three parties necessary for every trust: (1) the settlor (sometimes called the donor or grantor); (2) the trustee; and (3) the beneficiary.

Two Other Elements

Besides three parties, at least two other elements are necessary for a valid trust.

  1. The trust instrument is the document that sets forth the terms of the trust.
  2. The other necessary element is property. After all, the trustee must be holding something for the benefit of the beneficiary.

Property of the Trust

When laypersons use the word “property,” I believe they usually mean real estate. But, lawyers use the term “property” much, much more broadly, to mean literally any transferable interest. Sometimes trust property is also referred to as the res or corpus or assets of the trust. (Bonus words!)

Any property can be held in trust. Seriously, check out this list of 101 assets that would fit in a trust. You could likely think of literally hundreds more types or categories of property to place in your own individual trust.

Pour Over Trust

How about an unfunded trust that will receive property at some point in the future? Can you even do that?

Yes, that can certainly be done. This is usually called a pour-over trust. (More bonus words!) The pour-over trust deserves its own blog post. Briefly, a pour-over trust is usually set up by language in a will. A will may validly devise property to a trust, established during the testator’s lifetime, and then funded at her death.

Example

Let’s take a very simple example. Kate has a lawyer write her will, including language that at her death all her Monster Truck memorabilia be placed in a trust for the benefit of her nieces and nephews. Only at Kate’s death will the property be transferred into the trust, not before.

Monster Truck

Take-Aways

The important points are that property is necessary, at some point, to make a trust valid, and that literally any transferable interest in property – anything! – can be held in a trust.

Let’s Talk Trusts

It can be difficult to determine on your own if a trust may be right for your personal situation. It certainly doesn’t hurt to take me up on my offer for a free one-hour consultation. Give me a call at 515-371-6077 or shoot me an email at gordon@gordonfischerlawfirm.com.

woman holding ornament

Thanks for reading the 25 Days of Giving series. Each day through December 25, I’m covering different aspects of charitable giving for both donors and nonprofit leaders. Have a topic you want to be covered or questions you want to be answered regarding charitable giving? Contact me.

I’ve covered the term quid pro quo in a previous legal word-of-the-day blog post and much of that applies to understanding quid pro quo donations. In short, quid pro quo (now you know Latin!) translates to “something for something” and means an exchange of goods or services, where one transfer is contingent upon the other. In the case of nonprofit organizations, sometimes a good or service is offered in exchange for a donation. When the donor makes a charitable donation more than $75 and the nonprofit offers a good or service in exchange for said donation, the tax-exempt charity must provide a written statement to the donor disclosing the following:

  • Statement of the good(s) or service(s) received in exchange for the donation.
  • A fair market value (FMV) of the good(s) or service(s) received.
  • Information for the donor that only a portion of the total contribution (the portion that exceeds the FMV) is eligible for a federal income tax charitable contribution deduction.

What Nonprofits Need to Know

merry christmas event menu

As a nonprofit organization offering a quid pro quo donation situation, there’s a penalty for not making the required disclosure of contributions greater than $75. The penalty is $10 per contribution up to $5,000 per fundraising mailer or event. If your nonprofit fails to disclose, but can prove the failure was due to a reasonable cause, the penalty may be avoided.

Offering a good or service as an incentive for a donation can be a great way to spark donor interest, but you’ll definitely want to determine the FMV and have a reasonable method, applied in good faith, for doing so. This can be easier said than done for goods and services that are not generally or commercially available. If that’s the case it’s recommended to estimate the FMV off of similar/comparable products and services that are available. Let’s consider a couple examples:

Example 1. For a contribution of $20,000 a history museum allows a donor to hold a private event in a ballroom of the museum. The museum doesn’t typically rent out this room, so how can a FMV be determined if there’s no standard rate? Looking at other similarly sized and quality ballrooms in the surrounding, general area cost $3,000 a night to rent. So, even though the museum’s ballroom has unique artifacts, a good faith estimate of the FMV of the museum’s ballroom is $3,000. The donor would then have a charitable contribution deduction total of $17,000.

Example 2. Your charity offers a one-hour golf lesson with a golf pro at the local country club to anyone who donates $500 or more. Usually the golf pro can be hired for a one-hour lesson for $100. An estimate made in good faith of the lessons’s FMV is $100.

Example 3. What if the service offered is unique, but is typically free? A state park foundation fundraiser advertises that a donation of $200 or more entitles you a spot on one of four different guided nature hikes with a volunteer park ranger. Typically the foundation doesn’t offer guided hikes to the general public, but hiking in the state parks is otherwise free. So, the FMV made in good faith for the hike is $0 and the charitable contribution eligible for deductions would be the full amount.

The only time you wouldn’t need to disclose the quid pro quo donation is when the good(s) or service(s) are of insubstantial value. The IRS also says disclosure is not required when the donor makes a payment of $75 or less (per year) and the exchange is only membership benefits that equate to, “Any rights or privileges (other than the right to purchase tickets for college athletic events) that the taxpayer can exercise often during the membership period, such as free or discounted admissions or parking or preferred access to goods or services.” The contribution can also stay undisclosed if the good/service is, “Admission to events that are open only to members and the cost per person of which is within the limits for low-cost.”

Basics of What Donors Need to Know

woman in winter with scarf

As a donor, if you’re making a contribution to an organization and receive something in exchange, know that it’s almost like you’re paying for the good/service you receive, but then can deduct the rest of the contribution.

Let’s say you make a charitable contribution of $100 to a 501(c)(3) organization that helps mistreated farm animals. To celebrate their anniversary, the organization is offering donors that gift $80 or more a large coffee table book filled with stories, poems, and photographs of the animals the organization has helped over the years. The book’s fair market value is $30. This FMV is based on the price if you were to buy it outright from the organization’s online shop. In this situation you as a donor would need to receive a written disclosure detailing your contribution amount ($100), FMV of the good (the book) received ($30), and the portion that is considered a tax-deductible charitable contribution amount ($70).

Even though the tax-deductible charitable contribution amount is $70 (less than the $75 threshold), the total donation was $100, so the charity is still required to provide a written disclosure.

Whether you’re a donor or a nonprofit leader, I’m here to help promote and maximize charitable giving in Iowa. Questions about written disclosure compliance or FMV calculation? Don’t hesitate to contact me.

holiday wreath with ornament

Thank you for reading the 25 Days of Giving series! In the spirit of the holiday season, I’m covering different aspects of charitable giving…perfect to get you thinking about your end-of-year giving.

I came across an article in Forbes about two tax court cases where families claimed large charitable contributions on their federal income tax and, given that they were fraudulent claims, failed to have the substantiation to back it up. As the article stated, “the IRS is NOT messing around when it comes to holding taxpayers to the substantiation requirements for charitable contributions.” The substantiation is required in exchange for the federal income charitable deduction.

Note there is, of course, a limit to the charitable deduction on your taxes. Mind this when considering maxing out your charitable deduction.

Substantiation requirements

First and foremost, the donations must be made to a qualified charitable organization. You must then be able to substantiate your contribution to said qualified charitable organization. The record-keeping required by the IRS depends on the amount of your contribution. At their most basic, the IRS substantiation rules for the charitable deduction are as follows:

  • Gifts of less than $250 per donee — you need a canceled check or receipt
  • $250 or more per donee — you need a timely written acknowledgment from the donee
  • Total deductions for all property exceeds $500 — you need to file IRS Form 8283
  • Deductions exceeding $5,000 per item — you need a qualified appraisal completed by a qualified appraiser

Gifts of $250 or more per donee

Let’s focus for today on gifts of $250 or more per donee. Specifically, the income tax charitable deduction is not allowed for a separate contribution of $250 or more unless the donor has written substantiation from the donee of the contribution in the form of a contemporaneous written acknowledgment.

The $250 threshold

Note this $250 threshold is applied to each contribution separately. So, if a donor makes multiple contributions to the same charity totaling $250 or more in a single year, but each gift is less than $250, written acknowledgment is not required. [Unless the smaller gifts are related and made to avoid the substantiation requirements].

Written acknowledgment

The written acknowledgment must indicate:

  1. the name and address of the donee;
  2. the date of the contribution;
  3. the amount of cash contributed;
  4. a description of any property contributed;
  5. whether the donee provided the donor any goods or services in exchange for the contribution; and, if so;
  6. a description, and a good faith estimate, of the value of the goods or services provided or, if the only goods or services provided were intangible religious benefits, a statement to that effect.

Contemporaneous acknowledgment

The IRS definition of contemporaneous is that the acknowledgment must be obtained by the donor on or before the earlier of:

a. the date the donor files the original return for the year the donation was made; or

b. the return’s extended due date.

A donor cannot amend a return to include contributions for which an acknowledgment is obtained after the original return was filed.

Responsibility lies with the donor

Interestingly, the responsibility for obtaining this documentation lies with the donor. The donee (the charity) is not required to record or report this information to the IRS on behalf of the donor.

If this sounds like a lot, know you don’t have to navigate these requirements just by yourself. Contact me at any time to discuss your situation and charitable giving goals. We’ll figure out the best course of action together.

blue and tan present

Thanks for reading the 25 Days of Giving series! Plan on coming back to the blog every day from now through Christmas Day.

In December there is gift giving with wrapping paper abound, but when it comes to charitable giving the important assets (like your retirement assets) don’t need ribbons or bows. Let’s first focus on a major retirement asset giving tool, the IRA charitable rollover.

IRA Charitable Rollover

This federal law allows donors age 70½ and older to make direct distributions of up to $100,000 from his/her IRA each year to any qualified charity. The donation is not treated as taxable income and, moreover, counts toward the donor’s required minimum distribution for that year.

At the end of 2015, Congress made the IRA charitable rollover a permanent giving tool, unlike the year-to-year renewal basis they had operated on since the introduction of the IRA charitable rollover in 2006 (as part of the Pension Protection Act).  The result? Tax savvy IRA account holders can now plan charitable giving in a more reliable way.

Other Options

There are two other accessible ways to direct retirement benefit plan assets to your favorite charity:

  • Gifts at death via beneficiary designations.
  • Withdrawals over age 59½ followed by outright deductible gifts that can effectively result in tax-free retirement plan gifts.

Keep in mind, too, that the IRA charitable rollover applies only to IRAs. These two options — gifts at death via beneficiary designations and withdrawals by those older than 59½ — will work with virtually all qualified retirement plans, including 401(k)s and 403(b)s. baubles on a green tree

Naming your favorite charity as beneficiary

Donors considering charitable bequests may not realize that they can make a meaningful gift simply by naming their favorite charity as the beneficiary of an IRA, 401(k), 403(b), or other retirement plan. Giving retirement assets in this way is easy, and does not require drafting or amending a will or trust. A donor simply has to contact his/her financial institution holding the retirement benefit plan and request a change of beneficiary form.

Note, however, that if the account holder is married, the spouse should be informed and may have to consent to the gift. The plan assets may also be left to a charitable or marital trust[s]. In the latter case, professional advisors should be consulted. (Hint: call me!).

Give now!

Donors could also choose to make current gifts using funds withdrawn from their qualified retirement plans. Individuals over age 59½ may generally withdraw funds from retirement plans without penalty, make a gift with these funds, and then claim an offsetting charitable deduction. In most cases, a gift made in this manner will be a “wash” for tax purposes.

Let’s take a quick example. Rebecca (age 64) wants to make a very generous donation of $10,000 to her favorite charity. She can withdraw $10,000 from her IRA or 401(k) account, and make that donation. Assuming she itemizes her tax deductions, the $10,000 donation should leave her “even Steven” with regard to taxes – the $10,000 in income is offset by the $10,000 charitable deduction, resulting in zero net income taxes.

Advice is Priceless

The decision to want to give to you favorite causes this season is easy. Knowing exactly where to start with smart giving can be a little more complex. If you have questions about the IRA charitable rollover or any other giving strategy, don’t hesitate to reach out via email or by phone (515-371-6077). My firm’s mission is to maximize charitable giving in the state of Iowa and I want to help YOU maximize your personal charitable giving (in a way that is also tax efficient).

hourglass in sand
Here on the GFLF blog we talk a lot about the transfer of property made at the time of death through estate planning tools like a will, disposition of personal property document, or a trust. Everyone needs an estate plan to most effectively and seamlessly transfer real property (think land and real estate) and personal property (think jewelry, art, all of your “stuff”) to the people and charities you care most about. These are all called testamentary gifts. (Think “last will and testament” if that makes it easy to remember.)
As you probably know all too well, you can also make gifts to other people during your lifetime. These are called inter vivos gifts if you want to be lawyerly with it. This one’s easier to think about because you’ve been giving gifts for holidays, birthdays, weddings, and anniversaries regularly. You can also make gifts while living of cash, real estate, land, stocks/bonds, and other non-cash assets to charitable organizations.
One specific type of inter vivos gift doubles down on the Latin–it’s called a gift causa mortis. This type of gift is made by the donor while they’re alive in the event of impending death. Causa mortis in Latin translates to “because of death.” Sometimes this type of gift is referred to as a deathbed gift. The most common kind of gifts causa mortis tend to be small, valuable and/or meaningful gifts like a wedding ring.
To make this more salient, consider the scenario where Abe was in a severe accident and is aware that he is going to pass soon. Abe turns to his son Bob, who rushed him to the ER, and tells him that he wants him to have his watch. He takes it and gives it to his son Bob and then gets rushed into surgery. This is a simple example of a gift causa mortis.
Now, with out amateur Latin lesson complete, let’s dive into the elements of the rules related to gifts causa mortis.
woman blowing on a dandelion

Elements of Gifts Causa Mortis

A valid inter vivos gift involves:

  1. intent by the donor facing imminent to donate;
  2. delivery of the gift; and
  3. acceptance by the donor.

Delivery of the Gift

The gift must be delivered to the recipient. That’s easy if it’s something handheld like jewelry that you’re wearing, but what about anything that the donor doesn’t have on them personally? So long as the “delivery” is sufficiently symbolic, that will suffice if physical delivery at the time of the gifts is impractical.

woman giving white rose

Another Hypothetical

Let’s say a donor wanted to make a gift causa mortis of an antique piece of furniture to their niece. At the time the donor was residing in a hospice facility and very clearly toward the very end of her terminal illness. It would be impractical for the law to expect the dying donor to physical deliver the furniture to her niece. As long as the donor gave the niece a symbolic representation of the gift, such as writing out the details of the furniture’s location and details in the presence of a witness, it would likely be found valid upon the donor’s passing.

Another example that applies arose out of a case where a donor’s delivery was found to be valid where she signed the back of her car’s certificate of title to gift the automobile to her brother.

Can I Get a Witness?

To avoid post-mortem litigation by other heirs-at-law or the decedent’s estate’s executor, it’s preferable if the delivery of the gift is witnessed by a third party who can attest to the validity of the gift. Additionally, if there is an option for a piece of writing to be made out detailing the gifts and signed in the presence of a third party, that’s even better.

Revocable  & Conditional

Gifts causa mortis are revocable, which means that the donor (the gift giver) can revoke the gift at any time (while still alive). This revocation can be completed unilaterally, with only the donor. This is different than an inter-vivos gift, which when completed, is completely irrevocable.
person giving wedding bands
Gifts causa mortis are also conditional on the donor’s death, meaning the gift giver actually has to perish before the donee’s ownership is valid.
Taking it back to our story with Abe and his son Bob: if Abe gave his watch to Bob before surgery with the imminent expectation of dying soon, but ended up living through the surgery, the gift is no longer valid and automatically revoked. Of course, Abe could choose to make an inter-vivos gift to Bob if he decided to do so.
Additionally, if the recipient dies before the donor, then the gift is revoked and the beneficiary’s estate has no claim to the property.

Imminent Death

tombstone close-up
For a valid gift causa mortis, the donor has to die imminently…what constitutes “imminent death?” This has been debated in different cases. What’s clear is the gift giver doesn’t have to die immediately, like seconds after the gift is given. But, the donor must pass away from the danger or condition that was present at the giving of the gift. Plus, it doesn’t “count” if the donor has a fear that they might die at some vague point in the future.
Intervening Recovery
Additionally, there must be no intervening recovery between the gift and death.
Back to our hypothetical: let’s say Abe goes into surgery and survives from the injuries relating to his accident. At this point the gift of the watch is invalid. Abe may unfortunately go on and pass away from a different condition a few months later, but the previous gift causa mortis of the watch is not suddenly valid just because Abe eventually died.

What’s the Difference Between Gifts Causa Mortis and Testamentary Gifts?

Typically gifts causa mortis are informally made in the moment, are not planned to the same extent or formally written out like testamentary gifts. In the majority of states, gifts causa mortis are immediately transferred to the recipient’s ownership after death, whereas gifts made through a will or testamentary trust transfer ownership after the probate process is complete. Additionally, gifts causa mortis can only be made of personal property, not real property like your house or farmland.

How do Gifts Causa Mortis Fit into Taxes?

Similar to testamentary gifts, gifts causa mortis are taxed under federal estate tax law. The policy behind this is because the gifts aren’t complete until the donor’s passing. (Note well that the federal estate tax also applies to general inter vivos gifts made within three years of death. This means the value of such gifts is included in the estate in order to calculate the estate taxes.) It’s also worth noting that the federal estate tax applies to so few people now after the passage of the Tax Cuts and Jobs Act, so you don’t really to be concerned about this!
dying bouquet of flowers

Final Words on Gifts  Causa Mortis

Gifts Causa Mortis or not, there is no substitute for an airtight, updated estate plan. If you have such a plan in place, there’s no need to try and meet all the elements and intricacies of gifts causa mortis.

None of us know when our time will come, and we may not have the opportunity to give away our prized possessions via causa mortis right before death. But, we can know that estate plans never expire and can give you peace of mind that your property will be pass to the people you intend without legal contest (which can arise from gifts of causa mortis).

No questions are dumb questions when it comes to the complex world of property and estates. Don’t hesitate to contact GFLF or schedule a free consult to get your estate planning needs and goals in order.

planned gift pink bow

A planned gift is literally what is sounds like. Sort of. The term refers to the process of creating a charitable bequest now that will take effect later. In other words, during your lifetime you plan for a gift that will be given a future date—usually at or upon your death. A planned gift is best accomplished as part of an overall estate plan and it is usually delivered through a will or trust.

While you can make provisions to give a specific dollar amount, there are many different types of planned gifts. You can make a planned gift of real estate, life insurance, and retirement plans, or tangible property (such as artwork). You can also remember organizations with planned gifts of charitable remainder annuity trusts (CRATs), charitable remainder unitrusts (CRUTs), Net Income with Makeup Charitable Remainder Unitrusts (NIMCRUTs), FlipCRUTs.

For now, let’s go over exactly what planned giving is; the benefits of planned giving; the kinds of charities you need to consider when making a planned gift; and the kinds of gifts that qualify for a tax deduction.

Who gives? Donors and benefactors

In July 2018, Warren Buffet donated about $3.4 billion to five charities, including the Bill & Melinda Gates Foundation—itself headed by the country’s most generous philanthropic couple who gave it $4.8 billion. Facebook founder Mark Zuckerberg and his wife, Priscilla Chan, donated $1 billion to their charitable foundation.

It’s fun to read about the super-rich and their bountiful bequests, but you don’t have to be a modern-day Rockefeller or a member of the one percent to donate to charity or create a planned gift. Indeed, ordinary people with ordinary means can bequeath gifts that make an extraordinary difference.

In 2016, a legal secretary in Brooklyn, New York, who had worked at the same law firm for 67 years, bequeathed $8.2 million to, among others, New York City’s Henry Street Settlement and Hunter College to help disadvantaged students. Sylvia Bloom, who worked until she was 96 years old, saved her fortune through frugal living and savvy investing.

People make planned gifts for any number of reasons:

  • Streamline estate planning and closing;
  • Make a meaningful contribution to a cause or organization that reflects their beliefs and values;
  • Create a legacy that will have lasting impact into the future;
  • Gain income and tax benefits.

There are three types of planned gifts:

  • Outright gifts that use assets instead of cash;
  • Gifts that return income or other financial benefits to you in return for a contribution;
  • Gifts payable upon your death.

Who receives? Planned giving beneficiaries

Organizations love planned gifts. After what are known as “major gifts”—the six-figure endowment, the priceless Old Master painting, the stretch of valuable coastline—planned giving makes up the largest chunk of donations a nonprofit receives. Planned giving helps nonprofits weather fluctuations in other kinds of charitable giving and income, such as yearly donations and gift shop sales. It can alleviate the possibility of dipping into an endowment or cutting back on services and programs. Planned giving is also a way to develop and sustain relationships with donors — and in an increasingly competitive giving environment, nonprofits can’t afford to ignore planned giving programs. Even though organizations don’t immediately receive a planned gift, it is worth the wait.

The reality is that nonprofits can no longer simply ask donors to pony up with cash by writing a check. Donors expect and often demand an array of choices when it comes to helping their favorite nonprofits. Many if not most nonprofits have programs in place to accept planned gifts. But if you’re interested in donating an asset your favorite nonprofit isn’t accustomed to accepting, your best bet is to connect it with an experienced nonprofit attorney to make your gift a reality.

Not all nonprofits are the same when it comes to giving

When we talk about “charitable giving,” it is usually when referring to a particular kind of nonprofit organization. Specifically, organizations formed under 501(c)(3) of the Internal Revenue Service tax code.(Click to the IRS website to check if a possible beneficiary is a qualified 501(c)(3).) A 501(c)(3) can come in many different forms: foundations, charities, churches, community organizations, schools. They all have one thing in common in that they are formed to benefit the general public, not individuals, not for the mutual benefit of their members (such as homeowners associations, and not for political coalitions).

Be aware, however, that not every nonprofit is a 501(c)(3) organization. There are actually 29 types of nonprofits in the U.S. federal tax code, but when it comes to planned giving you can only take a tax deduction if you donate to one that the IRS has conferred 501(c)(3) status. Contributions to non-501(c)(3) groups, charities, and organizations can be valuable to recipients and make you feel good as well. It’s just that the federal government is not going to give you a tax break for your donation. Knowing what you can and can’t claim helps you maximize the potential tax savings that the charitable tax deduction to a 501(c)(3) offers.

Before we discuss what kinds of giving qualify for a tax deduction, here are some that don’t qualify:

Promises and pledges

Let’s say you made a charitable pledge of $150 to a 501(c)(3), but only gave $50 that particular tax year. You can only deduct from your taxes the $50 that you actually donated that year. Once you donate rest of the pledge (the remaining $100) you can deduct that amount for the tax year in which this occurred.

Political support

While it is important to be involved in the democratic process, monetary support is not considered charitable giving. Monies given to political candidates, campaigns, parties, and political action committees (PACs), as well as money spent to host or attend fundraising events, or to purchase advertising, lawn signs, and bumper stickers are not considered charitable giving.

Fundraising and special event tickets

I’m sure you can’t count the number of times you’ve bought raffle or lottery tickets, bingo cards, and partook other kinds of games of chance. These classic and popular fundraising methods support charities and are fun to imagine winning, but you can’t claim a deduction for them.

Personal benefit gifts

The IRS considers a charitable contribution to be one-sided. This means if you receive something in return for your 501(c)(3) donation — from a tote bag to a T-shirt, from a side of beef to a three-course meal — only the amount above the fair market value of the item/service is deductible. Let’s say your neighbor’s child is selling popcorn to raise money for a scouting troop. You buy a bag of popcorn for $10 whose retail value is $6. This amounts to a $4 charitable donation. Similarly, you purchase a $75 ticket to a fundraising dinner sponsored a favorite charity. The dinner would cost you $30 at a restaurant, so your charitable deduction would be $45.

Gifts without proof

Cash placed in your church’s collection plate, dropped into the Salvation Army’s Red Kettle, and handed to a student for a cupcake at a bake sale…these are all worthy donations, but you can’t just guesstimate how much you’ve given and deduct the amount from your taxes. Of course, I believe, you gave, but the IRS demands documentary proof of all cash donations, no matter the amount in order for you to claim the deduction. Proof might be bank records such as a canceled check, a receipt from the nonprofit organization, or a pay stub if the donation was made through a payroll deduction. For single cash donations of more than $250, the IRS requires a statement from the organization.

Gifts to individuals

I’ve seen many successful crowdfunding campaigns to support any number of good causes. Let’s say a friend is raising money for her child’s expensive medical procedure through an online site and you make a donation to help her reach her goal. Or, perhaps your nephew is raising money for a mission trip over the summer and you write him a check for $25. Unfortunately, contributions earmarked for certain individuals (despite their economic, medical, educational or other needs) are not deductible according to the IRS. However, if you donate to a qualified organization that in turn helps your friend or nephew, that contribution would be deductible — although you can’t designate your donation to be directed to that person. Again, a contribution can’t be given directly or indirectly to a specific individual and still be tax-deductible.

Bountiful opportunities for charitable giving

It may seem like there are a lot of kinds of giving and plenty of nonprofits that do not qualify for the tax benefits you’re looking for, but don’t worry!  There is a multitude of ways for you to show your generosity and contribute to a charity that can minimize your estate taxes, bypass capital gains taxes, and receive current tax deductions. Of course, planned giving is not the only kind of giving. Unplanned giving is no less a means of showing your generosity and supporting those organizations whose mission and activities you believe in.

I’d love to discuss your charitable giving goals and options tailored to your individual situation. Don’t hesitate to contact me via email or by phone (515-371-60770).