Steps for Successful Year-End Giving and Beyond

The end of one year and the beginning of another always marks a busy season for those engaged in charitable gift development activities. Recent tax law changes and economic factors give us more reasons to make our “to-do” lists.

“To do” at the end of 2019

  • December 31 falls on a Tuesday this year. Have staff on call to help expedite gifts of stock or other noncash assets donors wish to make before the end of the year for credit on their 2019 returns. Donors may be inclined to bunch deductions or prepay pledges for this purpose.
  • Keep a watchful eye on discussions of possible tax policy changes. Your donors and their advisors will be following the news, and you’ll want to know what is being talked about and what might be proposed in Washington.
  • Remind donors age 70½ and older of the option to give directly from their IRA. This important incentive may offer an attractive way for some donors to make a new gift or fulfill a prior commitment before the year ends. IRA gifts must be received by December 31 to count as a qualified charitable distribution (QCD) for 2019.
  • Watch stock market valuations and be prepared to remind those who have made gifts of securities in the past, as well as other donors who have made larger cash gifts, they may wish to take advantage of market conditions to complete gifts of appreciated securities prior to year-end. Some donors may wish to make a larger gift this year in order to itemize, instead of taking the standard deduction.
  • Offer to be of help to last-minute donors. Many of your best donors may not stop to think about additional gifts this year until the week between Christmas and New Year’s Day. Let them know you’re there to help in this final, busy week of the year. Make sure your online giving portal is easy to find and use.

After the year-end giving season, be prepared to hit the ground running in January. You may find the things you do early in the new year will help ensure the results you need next December and beyond.

“To do” early in 2020

  • Thank your donors for their 2019 year-end gifts as soon as possible. A phone call or visit to select donors can set the stage for discussions about their giving for 2020.
  • The winter months are historically a good time to remind donors about the importance of estate planning. The recent holiday season may have brought loved ones to mind, making this a good time to communicate about ways to make gifts to provide for others.
  • The early months of the year can also be a good time to remind donors about using their IRAs to make their gifts. Each donor is limited to $100,000 and the “early birds” may get more “worms.” Consider informing loyal older donors of the advantage of this type of gift before they take IRA withdrawals or direct gifts elsewhere.
  • Consider sending a “Giving Guide” or tax guide to larger donors as the tax season starts.

SHARPE newkirk consultants can help you plan your fundraising for 2020 and beyond. Contact us to start a conversation at 901.680.5300 or info@SHARPENET.com.

How Should Gifts Be Counted?

I get this question a lot.

The answer isn’t provided by tax law, because the tax law is unconcerned about gift counting.

Nonetheless, the tax law applies to the date of gift, for example. As a result, a counting decision in some situations — say, when to count a year-end gift — may wind up being based on the tax law. May.

Let’s take a different tack. Every charity should have a written gift counting policy that has been approved by the Board. Such a policy is needed for a capital campaign, of course. Such a policy also may be needed to measure a fundraiser’s performance.

Lots of big-league charities, however, either have no gift counting policy or have a woefully inadequate gift counting policy.

Given this fact, here are my general prescriptions for gift counting in certain situations in which the charity receives something currently:

  1. Cash gifts: Count the amount of cash received as of the date of receipt. Easy, except in the case of credit card gifts, which we’ve discussed.
  2. Stock gifts: Count the value of the stock (average of high and low) as of the date of receipt.
  3. Life insurance: If a charity is given ownership of a life insurance policy, it should count the cash surrender value of the insurance policy.
  4. Gift annuities: I’d count the charitable contribution amount as calculated by the charity’s software. It’s not necessarily the best way to count, but it’s simple and precise.
  5. Something the charity is going to sell as soon as possible: Something such as a small collection of figurines. I’d count the sale price.

These prescriptions are not based on law, just on common sense.

More next time.

by Jon Tidd, Esq

Get IRA Checkbook Gifts in Early

As we approach the end of the year, many nonprofits experience their highest level of donations. This rush of individual gifts, and holiday vacations, can sometimes slow down organizational processes of depositing and receipting gifts. For almost all types of gifts, this delay has no tax consequences.

For example, if a donor mails a check to a nonprofit, that donation is deductible the moment the mail carrier picks up the letter. Gifts from credit cards are transferred nearly instantly and are also immediately deductible. However, this convenient timing circumstance is not true for a relatively new type of gift: The IRA checkbook QCD gift.

QCD stands for Qualified Charitable Distribution. This is an ideal gift for donors age 70½ or older. These donors are forced to take required minimum distributions (RMDs) out of their IRAs or face a 50% penalty. These RMDs count as income. But, a QCD transfers funds directly from the IRA to a charity, counts against the RMD, and doesn’t count as income. A donor can give up to $100,000 per year this way, even if their RMD is much less. For many reasons, having no income (via the QCD) is better than having income and a deduction.

The IRA checkbook is a growing phenomenon where financial institutions allow account holders to have a checkbook for their IRA account. Instead of requesting a transfer from the IRA custodian, the account holder simply writes a check whenever funds are needed. Combining these two tools is the IRA checkbook QCD gift. The donor simply writes a check to the charity from an IRA checkbook. That gift can qualify as a QCD. The IRA custodian reports the distribution on Form 1099-R, counting towards the RMD. The donor reports the distribution as a non-taxable QCD on the donor’s tax return. This is a convenient way for donors to make QCD contributions throughout the year.

However, a timing problem can arise at the end of the year. This is a QCD gift must qualify under both the normal charitable deduction rules and the QCD rules. These QCD rules require action by the custodian, not just the account holder.

What happens if the donor writes a check to the charity from an IRA checkbook and the charity doesn’t cash the check until January? The IRA custodian does not act in the earlier year. The 1099-R Form issued by the custodian will not include the QCD in the earlier year. The IRS can penalize the donor for 50% of the undistributed RMD in the earlier year. Although the QCD will count in the later year when the check is finally deposited, this is small consolation to a donor who has to pay the 50% penalty. In order to avoid the penalty, the charity should deposit the check in enough time so that the funds will transfer out of the IRA prior to the end of the year.

Notes. See IRC §§ 408(d)(8)(C), 408(d)(8)(B)(i)

By Russell James

What Are the Most Common Problems in Gift Planning? Part IV

Last time, we looked at credit card gifts and some of the problems with these gifts…including the credit card fee.

We left off with an equation for figuring the amount Doris should charge to her credit card so that after the 2.5% credit card fee, the charity winds up with $10,000:

X – .025X = $10,000

Solving for X is easy. Combine the terms on the left-hand side of the equation: X – .025X = .975X. This means .975X = $10,000. Which leads to: X = $10,000/.975 = $10,256 (to the nearest whole dollar).

If it were up to me, I’d make this approach part of my organization’s gift acceptance policy.

It’s not clear, by the way, how much Doris gets to claim as a charitable contribution. Can she claim $10,256 (the amount with which she parts) or $10,000 (the amount the done organization receives)? The tax law doesn’t say. The amount she should claim is the call of her accountant or other tax return preparer. If I were in Doris’s shoes, I’d claim $10,256, on the grounds the tax law is unclear.

So much for credit card gifts.

What are some other tricky gifts?

Answer: Any gift can be tricky. You would come to this conclusion if you were in my shoes.

Actual case: Donor mails a $20,000 check to Charity to set up a gift annuity. Charity’s bank presents the check to Donor’s bank for payment. The check is returned…NSF. Charity’s bank again presents the check for payment.  Again the check is returned…still NSF. Donor gets wind of this and transfers plenty of money to his checking account. Too late, too bad. Charity’s bank will not present the check for payment a third time. Donor’s intended gift fails.

Lesson learned: Gift planners should beware!

by Jon Tidd, Esq

What Are the Most Common Problems in Gift Planning? Part III

Last time, we looked at credit card gifts…and some of the problems with these gifts.

There’s one more problem, a common problem, with credit card gifts, which arises when the donor wants to establish a gift annuity with a credit card.

Let’s take the case of Doris, aged 79, who wants to set up a $10,000 gift annuity with a credit card. Doris calls Charity’s PGO, makes an agreement over the phone (later to be reduced to writing), and promptly charges her card $10,000 in favor of Charity.

The problem is, Charity isn’t going to receive $10,000 for the annuity. (I know, a lot of charities eat the fee, which I don’t like.) Charity’s going to receive $10,000 less a 2.5% fee. (I know, not all CC companies charge the same fee…we’ll use 2.5% just for discussion purposes.)

This means Charity is only going to receive $9,750…a bad deal for Charity, in my opinion.

The question is: How much should Doris charge to her card so that Charity receives a net amount of  $10,000?

This is a first-year algebra problem. In algebra, the unknown amount is always X. That’s the amount Doris should charge.

A 15-year-old freshman algebra student writes:

X – .025X = $10,000

The student writes this equation because [a] she knows to convert the fee from a percentage to a decimal number, and [b] she knows that this equation produces a figure for X that allows Charity to net $10,000.

I’ll give the answer for X next time (meanwhile, solve for X yourself), and then we’ll look at some other problem assets.

by Jon Tidd, Esq

What Are the Most Common Problems in Gift Planning? Part II

Last time, we looked at some problems related to the donor.

Now we look at problems related to the asset the donor wants to use to make the gift.

The discussion here could fill a two-volume gift planning reference service. The assets range from credit card gifts, to gifts of partnership interests, to gifts of mutual fund shares — and everything in between.

Let’s take just one asset, a credit card gift. Which is common, especially at year’s end.

IRS has said a credit card gift is complete for federal income tax purposes on the date the charge is posted to the donor’s credit card statement.

This means that if the donor in late December calls the development office and supplies her credit card information, intending to make a year-end gift, the gift is likely to wind up being a January gift for federal income tax purposes.

Furthermore, the donee organization may not know for sure how to issue a correct gift receipt until and unless it sees the credit card statement on which the charge for the gift is posted.

What a mess!

This matter is probably something to address on a charity’s website. But care must be taken on the website to avoid the appearance of giving tax (i.e., legal) advice.

We’ll look at some other problem assets next time.

by Jon Tidd, Esq

What Are the Most Common Problems in Gift Planning?

The problems often fall into two categories:

  1. problems related to the donor, and
  2. problems related to the asset(s) the donor wants to use to make the gift.

Problems Related to the Donor

The first potential problem here is identifying who is the donor.

The donor is the party holding legal title to the asset proposed to be given. For example, Party A says he wants to give some land near a factory he owns.

This means Party A is the prospective donor, right? Not necessarily. Not if it turns out legal title to the land is held by “Party A Enterprises, Ltd.” And BTW, you might not learn about “Party A Enterprises, Ltd.” until after you’ve prepared and presented an elaborate gift plan. A real mess may be lurking here.

Other potential problems here include:

  • There may be a question as to the donor’s capacity to make a gift.
  • The donor may want to impose questionable conditions or restrictions on the gift.
  • You may not be dealing with the donor. Someone else in your organization may, and he or she may not be giving you all the facts correctly.
  • The donor may say, “Well, Charity X let me do it (whatever “it” is) this way.”
  • You may be dealing with a donor’s representative, who may be trying to put his or her own spin on the gift.

We’ll pick up here next time.

by Jon Tidd, Esq

Why Do Individuals Make Charitable Gifts?

One can’t raise money for a charity without having an insight into this question and its answers.

In my experience, the reasons individuals make charitable gifts include:

  • a strong desire to give back for some service the charity has provided to the donor or to a close family member or friend (a service such as an education or health care);
  • a deep commitment to the charity because of the charity’s mission and how well the charity carries out its mission;
  • an emotional need, such as the need of an elderly childless individual to make a sizable gift to a children’s hospital;
  • a sense of duty, such as the sense of duty that a member of the class of 1959 feels to make a 60th reunion gift; and
  • a sense of gratitude, as I once encountered concerning an individual who was kicked out of a college in the 1950s and who came to understand about 50 years later that that event had had a profound, positive effect on him.

This is, of course, a mere sampling, not an exhaustive list.

Gift planning takes into account why individuals make charitable gifts. But gift planning usually focuses on:

  • how the gift will be made (gift vehicle and funding asset),
  • when the gift will be made, and
  • the purpose for which the gift will be made.

Recognition and crediting are sometimes important. These two items are frequently a matter of back-and-forth.

All very interesting — a confluence of human desire, the law, and the donee organization’s wishes and needs.

by Jon Tidd, Esq

What is an “Estate Note”?

I don’t know.

I’m a lawyer, and try as I may, I cannot, in any law library, find a definition of “estate note”.

It’s a made-up, meaningless term.

There are, however, two instruments wrongfully called “estate notes”:

  1. an enforceable pledge, and
  2. a contract to make a will.

The garden variety enforceable pledge is a naming pledge (always for a sizable amount of $$). The pledge agreement provides that to the extent the pledge is unpaid upon the pledgor’s death, the unpaid balance is an obligation of the pledgor’s estate.

A contract to make a will is a contract. Donor promises to make and keep in force a will that leaves $X to CHARITY. In return, CHARITY provides consideration to Donor, such as a promise to put Donor’s name on an endowment fund.

In most if not all states, a contract to make a will must be executed with the same formalities as a will. Meaning it must be witnessed.

Use of the term “estate note” won’t confuse donors.  But it surely may confuse their lawyers.

It’s far better to think in correct terms and, of course, to employ the correct instruments — an enforceable pledge or a contract to make a will. Either can bear any name. The name I prefer is simply “Gift Agreement”.

BTW, neither an enforceable pledge nor a contract to make a will guarantees that your organization will get a single dime from the donor’s estate. The donor may die broke, for example.

by Jon Tidd, Esq

Three Key Gift Acceptance Policy Provisions: Part III

We left off last time with the fact that the qualified appraisal (Q.A.) rules were revised substantially as of January 1, 2019.

Yes, the Q.A. rules are the donor’s problem. But they become the donee’s problem if the donee receives a copy of the donor’s appraisal and doesn’t send the donor a letter stating that [1] the donee cannot advise the donor as to whether the appraisal is a “Qualified Appraisal” for federal income tax purposes, and [2] as to this matter, the donor needs to check with his or her own tax adviser.

BTW, donors and their advisers think the appraisal is a valuation document. That’s flat-out wrong. It’s a tax law document. Don’t you forget that.

Gift Receipts

Gift receipts are simple, right? Wrong! They are tax law documents. There’s a whole bunch of law on gift receipts in the federal income tax regulations. Lacking the proper form of gift receipt, the donor stands to lose his or her federal income tax charitable deduction on audit.

It gets even worse. For an IRA rollover gift the donor needs a gift receipt. Even though the donor isn’t going to claim a charitable deduction for the gift.

For setting up a gift annuity, the donor needs a receipt stating whether the donor received any goods or services in addition to the annuity. Often, this sort of receipt states that the donor received no goods or services. Wrong! The annuity is goods or services.

Finally

Far too many charities utterly fail, at their own peril, to understand that pledges, appraisals, and gift receipts are exquisite tax law documess.

A charity that pays close attention to pledges, appraisals, and gift receipts is a well-run charity. In my experience, few charities fully meet this standard.

by Jon Tidd, Esq