An Era of Heightened Scrutiny Arising for Donor Advised Funds?

One of the lesser known aspects of a donor advised fund (DAF) is the advisory privilege on investments.1

Presently there are no regulations under sec. 4966 of the Internal Revenue Code (Code) providing guidance. The practice of charities sponsoring DAFs has been to maintain legal ownership and control of the assets after receipt. Failure to do so risks the deductibility of the contribution.

A case winding its way through the United States District Court of the Northern District of California (Court) might ultimately decide when the advisory privilege has crossed the line and endangers the deductibility of a contribution. In December of 2017, the Fairbairns contributed $100 million of lightly traded public stock to the Fidelity Charitable Gift Fund (Fidelity). They were concerned about liquidating all the stock representing 10 percent of the company especially in light of Fidelity’s policy to “sell as soon as practicable.”

Fidelity sold all of the stock during a short period of time. The value of the gift turned out to be closer to $70M.

Fairbairns sued, alleging that they were encouraged to contribute to Fidelity on its promises to employ state-of-the-art techniques to liquidate large blocks of stock and allow them to advise on a price limit.

Fidelity argued that the Fairbairns’ claiming of a charitable income tax deduction on the 2017 return bars them from directing the timing of and the amount of the gifted shares to be liquidated. Fidelity argued that the Fairbairns’ claim of misrepresentation would mean it did not have the exclusive control over the gifted asset as required under Sec. 4966 of the Code.

The Court rejected Fidelity’s argument characterizing the Fairbairns’ instructions as conditions issued prior to the time of the donation and not subsequent to the donation. The Court further noted the legislative history accompanying the codification of the DAF under Sec. 4966 of the Code does not distinguish between a legally enforceable promise made at time of contribution and one made after the donation. Nor did a 2011 Treasury Report to the Congress on Donor Advised Funds.2

The danger to the donor of a lost or diminished income tax deduction arises when the right of advise¬ment becomes interpreted as a legal right of direction able to be legally enforced. While that argument of Fidelity was dismissed during its hearing on its motion for summary judgment, the Court’s order doesn’t preclude it from being raised at trial. The risk to the Fairbairns is winning the argument of enforceable promises that a court interprets as preventing Fidelity from ever having dominion and control. While that may not be a likely or even a correct result, it would be a Pyrrhic victory for the Fairbairns.

For a more detailed discussion of this case, please see my article in the April issue of Trusts & Estates entitled Fairbairn v. Fidelity Investments Charitable Gift Fund: Plaintiffs’ Day in Court Still Possible But Will Victory be Pyrrhic?
 

By Professor Christopher Woehrle, Chair & Professor of Tax & Estate Planning Department, College for Financial Planning, Centennial, Colorado

 

 
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1. Internal Revenue Code, sec. 4966 (d) (2)(A)(iii).
2. See The Joint Committee on Taxation, Pension Protection Act of 2006, Title XII: Provisions Relating to Exempt Organizations, 2006 WL 4791686 and www.treasury.gov/resource-center/tax policy.Documents/Report-Donor-Advised-Funds-2011.pdf. at p. two. The 2011 report notes “In the case of a DAF, the donor is explicitly permitted to advise the sponsoring organization about how the donated funds should be invested and/or disbursed to other charities, but such advice is subject to the DAF sponsoring organization’s ultimate discretion and control.” Notice there is no distinction for when these rights of recommendation exist.

Opportunities to Give

Congress recently passed the unprecedented CARES Act, a $2 trillion stimulus package aimed at helping the American economy and its most vulnerable businesses, small businesses and individuals recover from the repercussions of the COVID-19 pandemic.

Included in the stimulus package is a direct payment of $1,200 to millions of individuals, with an additional $500 for each child. For many Americans, this direct cash payment is a lifeline of support to help keep afloat during a time when many are losing their jobs, having trouble paying rent or are unable to keep food on the table.

There are, however, many Americans who received these funds who are not as negatively affected financially by the coronavirus pandemic. Many are able to work from home or have continued to work in both essential and nonessential capacities and now find themselves with some extra money and a wonderful opportunity to help out those who have been less fortunate.

For those who are philanthropically motivated, there are ways to use the stimulus check to make a difference. There are local food banks as well as funds for restaurant workers, health care employees and other vulnerable populations who could immediately benefit from even a small donation. There’s even a trending hashtag on social media where people can share their stimulus check donation story.

For example, Cameron Crockett chose to give directly by offering his check via Facebook to anyone who was struggling and randomly drew a person’s name to donate to. Or there’s the anonymous “regular” who left a $1,200 tip at a Pine Bluff, Arkansas, steakhouse. There’s also the more traditional route of donating directly to the many organizations who are on the frontlines of COVID-19 relief or making an additional gift to a favorite charity.

If donating your entire check seems daunting, don’t forget you can also help in smaller yet equally effective ways. You can buy gift certificates at local restaurants or hair salons or any other service you would normally use to support your favorite local businesses during this difficult time.

Thankfully, there are as many organizations whose mission it is to help as there are ways to help out, and many individuals have embraced this opportunity to contribute when so many are facing such great uncertainty.

Unsurprisingly, the philanthropic spirit and the willingness to help others is alive and well among Americans.
 
By Grant Miller, Sharpe Group Editor
 

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The CARES Act

The CARES Act creates two incentives for 2020 individual giving:

  • One allows an itemized charitable deduction for up to 100% of adjusted gross income for cash gifts paid in 2020 to qualified charities. The donor must elect this provision. The IRS will instruct taxpayers how to make the election.
  • The other allows a $300 above-the-line (non-itemized) charitable deduction for cash gifts paid in 2020 to qualified charities.

Which charities qualify?

Public charities other than donor advised funds and supporting organizations.

Colleges, hospitals and religious organizations qualify, for example.

What are cash gifts?

Cash gifts include money, checks paid in due course and credit card donations.

But note, there are other forms of cash giving, such as paying a charity’s debt (considered a cash gift to charity).

Unreimbursed volunteer expenses are another example.

Credit card gifts—a date-of-gift problem

A credit card donation is not deemed paid to charity until the charge is posted to the donor’s account as shown on the donor’s credit card statement.

This rule can cause 2020 year-end problems for charities and donors.

What about gift annuities and charitable remainder trusts?

If an individual establishes a cash-funded gift annuity in 2020, does the itemized charitable deduction for creating the gift annuity come within the CARES Act?

Arguably YES, because the cash is paid to charity.

What about a cash-funded charitable remainder trust (CRT)? The CARES Act on its face doesn’t apply because the cash isn’t paid to a charity … it’s paid to the CRT.

What about qualifired charitable distributions (QCDs) from IRAs?

The CARES Act does not change the QCD rules.

The CARES Act, however, does eliminate the requirement of a required minimum distribution (RMD) for 2020. And, remember, the SECURE Act increased the RMD age from 70 ½ to 72 years for individuals who attain 70 ½ years after 2019.

Where do the cash-giving opportunities lie?

I expect most of the 2020 reported cash gifts will be of the $300 non-itemized type.

Large 2020 cash gifts, I believe, are most likely to come from individuals who receive big chunks of cash from selling appreciated assets and face 2020 gain.

Cash QCDs, which have been a good way to give in prior years, continue to be a good way to give.
 
By Jon Tidd
 

CARES Act Communication

In response to the health and financial crisis caused by the coronavirus global pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act has been enacted. The law presents a plan for the government to aid Americans and businesses during these uncertain times. Among the charitable giving provisions, it includes a temporary, partial “above the line” charitable deduction for cash gifts (up to $300) in 2020 to encourage gifts by taxpayers who are unable to itemize under current tax law. The legislation also modifies the limitation on qualified charitable gifts of cash to 100% of AGI for itemizers in 2020.

To help you communicate these provisions with your donors, Sharpe Group has created a new brochure, The CARES Act: Good News When We Need It Most, which outlines all provisions affecting charitable giving in an easily digestible format. This brochure makes an ideal and welcome message to all current and prospective donors, especially in a targeted soft appeal to your gift planning prospects. It can also serve to educate your board, volunteers and staff.

Click here to learn more.
 

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Should Nonprofits Accept the PPP Money?

In the last few weeks, we’ve been reading press reports that both for-profit companies, like the national restaurant chain Ruth’s Chris Steak House and the NBA’s Los Angeles Lakers, and nonprofit institutions applied for—and received—the allocated resources for small businesses under the Paycheck Protection Program (PPP).

It is likely many organizations with fewer than 501 employees quickly filed an application with their banks to ensure their place in line when the funds were first announced to be available. Now that these resources have been allocated and depleted, and further monies will be made available, we need to consider the implications and demands surrounding the compliance of accepting these funds.

Question 31 of the “Paycheck Protection Program Loans Frequently Asked Questions” is:
“Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?”

The official answer to that question is that borrowers “must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

We were curious to see what some of our nonprofit colleagues were doing. After speaking with many nonprofits on this matter, we learned:

  • Three decided they did not qualify due to their number of employees.
  • Three applied, received the resources and have subsequently decided to return the funds.
  • Nine applied and decided they should keep it.

What’s the risk in keeping the funds? There are really three risk factors for nonprofits to consider:

1. Your nonprofit should examine their reserves and financial position and ask themselves:

  • Do we have access to a meaningful line of credit or other resources?

    If yes, then the nonprofit should take additional steps and analysis to ensure that reserves are for other specific purposes or that the nonprofit still qualifies as a need for ongoing operations prior to acceptance.

    If no, proceed to the next question.

  • Has our revenue (and/or net revenue) been reduced by COVID-19?

    If yes, proceed to next question.

    If no, consider additional analysis on whether the nonprofit truly qualifies for funding ongoing operations with PPP money.

  • Do we believe we have a good time frame to enable us to recover?

    If yes, consider how much may be needed to recover, and make sure your board signs off on your documentation and analysis.

    If no, begin making plans to use the money, and make long-term decisions that will be necessary to ensure your organization’s sustainability.

Looking at your nonprofit’s unrestricted net assets in comparison to payroll and operational expenses should provide some good direction on the necessity of the funds to help cover costs in a manner that satisfies the “significantly detrimental to the business” question. (Even nonprofits with sizable reserves may still qualify if those reserves have been allocated for purposes other than operational.)

Key takeaway: Your nonprofit should document their reasoning and basis for making the certification.

2. The second thing to consider is reputational risk. For entities like Ruth’s Chris and the Lakers, the negative attention they received in the media may be financially detrimental. The true cost of reputational damage can’t be easily quantified, which is why it is so critical to be prepared—and proactive—when articulating your organization’s need for the funds. Both Ruth’s Chris and the LA Lakers have subsequently returned the money they received.

3. Does accepting government money provide any interference or oversight that could impede the mission of the nonprofit? This question is also likely a board matter in determining the role of the nonprofit and its partnership with the government to accomplish its mission.

Key takeaway: Communication with your board and key donors is vital. If you believe your organization qualifies and warrants the funds offered through PPP, let your leadership and constituency know why, giving them good reason to trust and understand your stewardship of funds received from all sources.

 
By Bob Mims, Sharpe Group CFO, and Tom Grimm, Sharpe Group Senior Consultant
 

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Navigating Times of Change: Part V – Completeness

There’s a place down by the ocean
Where I take my mixed emotions
When my soul’s rocked by explosions
Of these tired times
Where love sings to me slowly
Even when I feel low and lonely
Even when the road feels like
The only friend of mine

One light, one goal
One feeling in my soul
One fight, one hope
One twisting rope
I’m ready to run where the ocean meets the sky

Where all I need is the air I breathe
The time we share and the ground beneath my feet
All I need is the love that I believe in
Tell me love, do you believe in me?

Tell me love, ’cause you’re all I need
Switchfoot (All I Need)

Think of a time in your past that changed who you are. It could be the day your child was born or the moment you received priceless advice from a mentor. It could also be the tragic experience of losing a loved one or the disappointment of being told “no.” Life events—whether big or small—change us, and, hopefully, even the bad ones can shape us and help us grow.

World events can have the same impact. The Coronavirus Crisis of 2020 will definitely be on the list of events that have changed us personally and professionally.

Putting it all together

Because the effects of the pandemic have been ongoing, we are psychologically creating daily memories of the crisis and its effects on our world and the world at large. It’s unlike almost any other world event unless you lived during the Great Depression. We have had more time to contemplate the impacts on us personally, on our workplace and on our organization’s mission.

We’ve discussed the advantages of being thoughtful, or some might say “mindful,” about how we fundraise and how we invest dollars in the development of the donor lifecycle. How we utilize those dollars is a different matter.

Many nonprofits think of using their dollars in budget cycles of 12 months, and the vast majority are incredibly efficient in their spending of those dollars to maximize each program’s effectiveness. In this environment, it would serve us well to contemplate how to best use fundraising budgets in relation to the health of our mission and organizational strength.

Here are some questions to ask yourself:

  • Should we have a long-term budget (multiple years adjusted annually)?
  • Should we measure budgets in terms of current and long-term cycles where the long-term cycles would include investment in planned giving and investment returns?
  • How can we rethink how we use planned giving maturities?
    • Are they used for current operations?
    • Are they put into an endowment?
    • Are they split into some thoughtful patterns?

A great way to begin this dialogue is to ask some “what would you do?” questions:

  1. What would you do if you received $1 million today?
  2. What would you do with $20 million?
  3. What would you do with $200 million?

Answers may vary and create lively debate for your executive team, all of which is healthy. Many nonprofits we work with are merely thinking about surviving the short term and tyranny of the urgent. Our clients, however, receive the benefit and understanding of thinking through about what the future will look like, leaning into more than 50 years of gift planning experience and expertise.

(This is Bob speaking.) A good friend of mine was formerly a CFO of a very large nonprofit. During the 1960s and ’70s, this nonprofit decided to put 100% of its planned giving maturities into endowments for conservation. At the time, this was a painful but temporary decision; today, however, that trend left a legacy that built a $2 billion endowment.

Due to the vision and legacy of prior leadership’s vision, on January 1 of each year his organization has north of $200 million in investment revenue for their mission. All because my friend and his organization made a decision based on the future. In other words, leave your legacy right where you are, and you can begin right now.

The experts at Sharpe Group can share our experiences with what has worked over the last 50+ years with our clients as we’ve served them through the good times and bad. We’re here to help you begin creating a legacy for future generations.
 

By Bob Mims, Sharpe Group CFO, and Tom Grimm, Sharpe Group Senior Consultant
 

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Working Together While Staying Apart

For every dark moment in our history, there are countless tales of everyday people coming together to accomplish extraordinary feats. This pandemic is no exception. Manufacturing equipment meant for making legos and baseball uniforms is being modified to produce personal protective equipment for hospitals facing shortages. Countless homemade masks are being sewn and donated by individuals and companies all across the world. Thanks to stay-at-home orders, there are animal shelters with an incredible problem–they are empty! Zoos, aquariums and museums are hosting virtual field trips for quarantined students. Each and every act of kindness matters, and “in the total of all these acts will be written the history of this generation.”

Today, we wanted to again share some of the many encouraging stories of individuals and organizations who are working toward a brighter tomorrow for all.

 

 

 

Stories to Make You Smile

Thanks to Sheltering in Place, Animal Shelters Are Empty

Staff and volunteers at the Palm Beach County animal shelter celebrate that their kennels are empty.
Photo: CNN

13-Year-Old Boy Who Made Bow Ties to Help Animals Get Adopted Is Now Making Masks for Coronavirus

‘All The Internet’s A Stage’ for Quarantined Shakespearean Actors

A 96-year-old WWII Vet Donned a Mohawk to Intimidate the Germans. He Did it Again to Spread Cheer During the Pandemic.

Whidden said, if the virus has one upside, it’s that everybody has started to come together, just like during the war. And if his new silver mohawk can help keep folks’ spirits up, well, that’s a win for the home team.

Memphis Zoo Olympics, aka Memphis ZOOlympics, Is Underway Online

The Cincinnati Zoo’s Fiona the Hippo Is Now Accepting Zoom Calls

College Student Makes Masks for the Deaf & Hard of Hearing

Ashley Lawrence (left) poses with her mother wearing masks made for the deaf and hard of hearing community.

British Veteran Raises $25 million by Walking for Health Service

Factory Team Clocks Out After 28 Days of Live-in Work Making Coronavirus Protective Material

Poplar Springs Celebrates Seniors

Tic-Tac-Toe 3 in a Row: Mother and Daughter Surprise Seniors During the COVID-19 Period

Mother and daughter Addyson and Danielle Garver brought some blue tape and put it on the windows at Winfield Senior Living. The ladies outside and the residents inside each used dry erase markers to play.

 

Helping Hands

Irish Help Raise $1.8 million for COVID-hit Navajo Nation, Repaying $170 Sent During Potato Famine

The tribes had suffered greatly and had very little, but when the Choctaw nation heard about the Irish people’s suffering during the potato famine, they pulled together a donation of $170—$5000 in today’s dollars—to send to Ireland.
Photo: (BBC) Kindred Spirits, a sculpture in the Irish town of Midletown

Salvation Army Helping to Provide Childcare for Essential Workers

Medtronic Makes Ventilator Design Specifications Available to Public to Accelerate Efforts to Increase Global Ventilator Production and Gives $1 Million in Product Donations to Insulin for Life to Support COVID-19 Relief Efforts

‘Parks and Recreation’ Special Has Already Raised $3 Million for Feeding America

CBU Engineering Is Producing Face Shields for Healthcare Professionals

CBU was able to purchase additional 3D printers — including small models that could be located in students’ homes.

#ShareMyCheck: Social Media Users Reveal Where They’re Donating Stimulus Money

Memphis Auto Repair Business to Deliver 950K Masks to Aid First Responders During Outbreak

Across the World, Museums and Educational Institutions Are Rising to the Challenge to Offer Children Incredible Virtual Field Trips

Four Seasons Hotel Offers New York City Medical Workers Free Rooms so They Don’t Infect Their Families With Coronavirus

With Theaters Closed, N.J. Costume Maker Now Sews Innovative Masks for Doctors

Sarah Romagnoli, costume maker at McCarter Theatre Center Costume Shop, making face masks at home.

Publix Is Buying Excess Milk and Produce From Farmers — and Donating it to Food Banks

San Diego Zoo Offering Free Classes for Middle and High Schoolers, Teachers

Vanderbilt University Prepares Hundreds of Rooms for VUMC Medical Workers Fighting Global Pandemic

Nike Donates 30,000 Shoes to Front-line Workers Fighting COVID-19

Nike partnered with Good360, a nonprofit specializing in efficient distribution of product donations, to help deliver the shoes to workers in Chicago, Los Angeles, Memphis, and New York City and within the Veterans Health Administration.

University of Memphis Uses 3D Lab to Print Face Shields for Healthcare Workers

Authors and Celebrities Are Reading to Kids Online During Quarantine

Lego Is Producing 13,000 Face Visors a Day for Healthcare Workers Amid Coronavirus Pandemic

MLB Jersey Provider Fanatics Creating Masks and Gowns for Medical Workers

Rubin said Fanatics has completely halted production on anything other than the masks and gowns, and the company plans to make one million of each to be immediately donated and distributed across Pennsylvania.

Museum of Science and Industry Staff Use 3D Printers to Make Masks, Face Shields for Local Hospitals

How Sports Teams, Players Are Helping Arena, Stadium Workers Affected by COVID-19 Outbreak

The National Parks Conservation Association Is Bring Moments of Beauty and a Few Fun Facts to Park Lovers Stuck at Home

The Rich and Famous Donating Fortunes to Combat COVID-19

John Krasinski Hosted a Star-studded Virtual Senior Prom for the Class of 2020

John Krasinski DJs virtual prom for class of 2020
Photo: @johnkrasinski Instagram


 

Tell us your good news too, and we’d love to share it with others!

At Sharpe Group, we are still here and ready to help you. Our mission says it all: Serving Those Who Serve Society.

-Your Sharpe Group Family

 

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Charitable Remainder Annuity Trusts … Youngsters Need Not Apply

As the saying goes, “age may have its privileges,” but in our current environment of low interest rates, don’t even try to establish a 5% charitable remainder annuity trust (CRAT)—the lowest payout rate permitted—unless:

  1. The donor is at least age 76. (For a two-life trust, at least one of the income beneficiaries must be age 79, while the other can be a youthful age 78.)
  2. You are using the May 2020 §7520 rate of 0.8% with annual payments.

Granted, a donor establishing a charitable remainder trust can use the §7520 rate from the month of the gift or either of the two prior months, whichever is more favorable. However, even using the April 2020 rate of 1.2% only reduces the eligible ages to 75 for a one-life and 77 for two lives.

Giving Alternatives

There are alternatives for charitable giving in this environment:

  • Rather than a CRAT for the life or lives of the income beneficiaries, donors could use a term-of-years trust of up to 20 years. Even using the 0.8% §7520 rate, a 5% annuity trust with quarterly payments for 19 years satisfies the 10% remainder requirement. For donors in their 60s, a 19-year trust may be an attractive option. (And if the beneficiaries die within the 19-year trust term, payments can continue to other family members).
  • Fund a charitable gift annuity instead of a CRAT. The recommended payout for a 65-year-old annuitant is 4.7%. For two 65-year-olds, the rate is 4.2%.
  • For a donor who is not concerned with having a fixed income, the charitable remainder unitrust (CRUT) may be an attractive alternative. With low §7520 rates, the charitable deduction for a CRUT is higher than with the annuity trust. For example, assuming annual payments, a $100,000 gift, a 5% payout rate and the §7520 rate of 0.8%, an 80-year old donor would be entitled to a charitable deduction of $60,102 for a CRAT. The deduction for a CRUT would be $67,635.

Lower Rates Bring Some Good News

Some gift vehicles are more attractive when rates drop:

  • A gift of a remainder interest in a home or farm is more valuable when interest rates are lower. For example, the deduction for a $100,000 parcel of vacant farmland is $87,011 for a donor age 65 using the §7520 rate of 0.8%. At a §7520 rate of 2%, the deduction would be $71,411.
  • Donors who previously established charitable remainder trusts may wish to make additional gifts to charity by assigning their income interests to the remainderman. This generates an additional charitable deduction, which is calculated using the current rate. The combination of the deduction when the trust was established and the deduction for the gift of the income interest may actually exceed the amount transferred to the trust.
  • In a low-interest-rate environment, the charitable lead trust is the real star. Parents hoping to transfer wealth to the next generation can reduce or even eliminate transfer taxes by establishing a non-reversionary charitable lead trust. Low interest rates enable the trust to zero out gift taxes and last for a shorter period and/or use a smaller payout.

By Kathy Sperlak, Technical Advisor
 

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Navigating Times of Change: Part IV – Mindfulness

Little things I should have said and done
I just never took the time
You were always on my mind (you were always on my mind)
You were always on my mind
Willie Nelson (Always on My Mind)

This is part four of our series of navigating in these times of great change. In the first three, we discussed kindness, togetherness and thoughtfulness. Now, we’ll focus on being mindful in the future.

Development for the long term

You may be a development team of one, or you may have a department with more than 100 staff members. It doesn’t matter. In both cases, you should ask the same two questions:

  • What will the fundraising world look like now?
  • What should I be doing now?

Often it is essential to dive right into the details and get those right the first time. It’s precisely what was needed to coordinate the logistics of working from home so we could get down to business quickly. Action takers took the bull by the horns and quickly established home offices and networks.

Now it’s time to step back for a bit to look at the big picture while pondering some vital fundraising questions that will set the tone of your organization’s future success. Allow me to recommend three action steps that you should be taking now:

  1. Communicate, listen and show you care.

    Development should be focusing on ramping up their communication efforts with their constituents. Newsletters, emails, social media and the all-important phone calls are critical to staying in touch with your family of donors. You care about them, and now is an excellent time to reach out to see how they are weathering the storm and how they might be hurting. The tone of your communication is critical. Now is likely not the time for the hard ask. How you communicate will be remembered for a long time. Show you care.

  2. Think strategically about your gift portfolio.

    Most nonprofits have the following types of philanthropy. Below is a list of the estimated frequency of these gift structures and the impact that COVID may have on these types of gifts.

    The gifts listed above include their impact today on organizations, but the current environment suggests there will be long-term implications on giving as a result of this crisis. A COO of a large nonprofit told us their expectation on the impact of giving is similar to what we experienced during the Great Depression, which will most likely be measured in years, not weeks or months.

    (The philanthropy model above does not indicate how nonprofits are utilizing their development resources or how they plan to use these gifts.)

    The graph below shows the varying nature of philanthropy measured on a percentage basis at a group of nonprofits whose names have been removed. It should give the reader a good sense of the demographics of the different types of philanthropy.

  3. Utilize your development resources.

    Measuring and benchmarking development investments are incredibly difficult due, in part, to the varying nature of how nonprofits invest and measure them. It is easy to get bogged down into the details of measurement. Here is some practical advice for allocating your time on development:

    • Develop or review your understanding of your donor base and its demographics.
    • Determine whether your mission can reach other demographics’ desire to give.
    • Invest time and resources in all areas of giving. Events are useful tools for today, and planned gifts could have a monumental impact on your organization’s mission in the future.
    • Think of development as a “donor lifecycle” where you want to communicate and invest in your donor for a lifetime of giving.
    • To ensure balanced success, remember not to ignore any part of your development resources.

Part five of our series will put everything together.

By Bob Mims, Sharpe Group CFO, and Tom Grimm, Sharpe Group Senior Consultant
 

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Too Much of a Good Thing May Be Inefficient, Even if Wonderful!

The COVID-19-triggered financial recession underscores for businesses and individuals the need to hold sufficient cash to ride out the tumult. For individuals with cash, or access to it, there are planning opportunities. With the equity markets well off their highs, now is an especially attractive time to consider a Roth conversion as part of retirement income planning. Those converting almost always have sufficient cash held outside the IRA to pay the taxes attributable to the conversion.

For the converters with philanthropic goals, they may also wish to consider zeroing out their federal income tax liability. The CARES Act allows taxpayers in 2020 to elect to deduct gifts up to 100% of AGI provided those gifts are made with cash to public charities.

Could a donor eliminate their federal income tax liability for 2020 without giving up to 100% of AGI? The short answer will be yes. The most generous charitable donors usually itemize and are also likely to have substantial mortgage interest expense—and perhaps investment interest expense. Their state and local taxes are currently capped at $10,000.

As noted in the chart below, the more tax-efficient strategy would be to contribute up to their taxable income before reducing for charitable contributions. The chart shows giving to 100% of AGI likely will not be needed to eliminate their income tax liability. While any excess contribution could be carried forward, the filer actually parted with more cash than was needed. Now is the time most donors will be looking to conserve cash.
 


 
Financially savvy and philanthropic donors should keep the expanded deductibility top of mind as they are contemplating Roth conversions, which are especially attractive in down capital markets or if they have received a Golden Parachute payment. The goals of guiding others through their giving and seeking charitable support can be compatible.
 

By Professor Chris Woehrle, Chair & Professor of Tax & Estate Planning Department, College for Financial Planning, Centennial, Colorado
 

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Don’t Forget to Write

During this ongoing crisis with COVID-19, many of your donors may be sitting at home as well and could be thinking about their own mortality. Some online planning websites for wills have seen dramatic increases in traffic for those who want to update their plans.

Yet some of your older donors may not be so technically savvy, and they may contact their advisors as soon as this crisis passes. After taking care of loved ones, some people also include a provision for charity in their long-range plans; please let them know that such gifts are sincerely appreciated. A short personal note or card may help your donors remember your organization and how much you appreciate them.

Though phone calls are a key element of keeping in touch when you cannot visit, remember that a handwritten personal note carries much more weight. Why? Because a donor “knows” it took you both time and emotional effort to write the note before mailing it, and they now have a physical piece of paper to carry with them to their advisor(s). They won’t forget your expression of kindness and thanks.

Our older generations (including those as young as the Baby Boomers) grew up with daily mail being one of the most important events of each day. That sense of anticipation and appreciation for personal notes has not waned.

So, don’t forget to write and let your donors know your concern for them!

By Lewis von Herrmann, Sharpe Group Senior Consultant
 

Sharpe Group will continue to post helpful information for you here on our blog and on our social media sites. If this blog was shared with you and you wish to sign up, you can do so at www.SHARPEnet.com/blog.

We can be found on FacebookTwitter and LinkedIn @sharpegroup.

We welcome questions you’d like us to address. Email us at info@SHARPEnet.com and we’ll share your question and our thoughts in this blog and on social media.