Year-end tax planning makes December a popular month for charitable giving. Donors want to maximize their tax benefits, and nonprofits make a big push to capture their share of the last-minute philanthropy. But tax planning for wealthy individuals extends beyond annual considerations, often involving estate planning that can benefit nonprofits. It’s an opportunity that a lot of charitable organizations don’t consider when building relationships with major individual donors, but planned giving has significant benefits for both nonprofits and individuals.
Planned giving typically refers to donations of property for which the donor receives a tax deduction during his/her lifetime, but the recipient organization doesn’t receive the property until after the donor’s death. A charitable remainder trust is a common mechanism for wealthy individuals with income-producing property. The donor can gift an apartment building to a charity and receive a tax deduction for the current value, but the donor keeps the rights to the rent income from the property during his/her lifetime. The charitable organization often has little or no control of the donated asset during the donor’s lifetime. Other financial assets that can be gifted in the way include stock, life insurance and valuable artwork. A donor may also list a charitable organization in their will, in which case the tax deduction and transfer of property happens at the time of the donor’s death. It can be a comfort for charities to know these assets are in their future, but sometimes difficult since it’s impossible to know exactly when.
Organizations occasionally receive donations of financial assets for which they have no use. Would your organization be able to use a gift of 20 acres of undeveloped land? If not, you may face property taxes, legal fees and costs associated with selling the property. Is it worth the hassle? A gift acceptance policy is often a good idea to avoid having to tell donors you don’t want their gift. You can simply point to your written gift acceptance policy that contains language about the types of property your organization cannot accept. See our prior article about a gift acceptance policy here.
Keep up with tax rules related to charitable giving so you can make timely and accurate communications to targeted donors. The charitable IRA rollover was an opportunity for certain individuals with a Traditional IRA to transfer funds to a charity tax-free rather than the usual taxable treatment of the same distribution. This treatment was allowed by the IRS on a temporary basis, but has been retroactively extended each year for several years. It’s unclear whether the tax-free transaction will be allowed for 2015, but it’s a good idea to stay tuned and ready to send communications to donors as soon as a decision is announced.
Weigh the cost against the benefit of planned giving since it can be time-consuming for organizations to learn enough about charitable tax planning opportunities to educate donors. Concentrate your efforts on wealthy donors who care deeply about the organization’s mission. Even if you don’t have donors who can offer your organization planned giving donations or you don’t have the resources to focus efforts on planned giving asks, don’t discount regular donations from smaller supporters. Sometimes a larger donation base is more beneficial than a smaller base of large donors.
Most importantly, remember to thank all of your donors! The best way to maintain relationships and encourage further donations is to show appreciation. If you aren’t sending donation acknowledgement letters at the time of each donation, be sure to send them to donors by who gave during 2014 by January 31, 2015.
