Keeping You Up To Date
Stay current on legislative changes that affect donors, nonprofits and advisors.
The CARES Act is a $2 trillion economic relief package containing provisions to help nonprofits that are strained as a result of the COVID-19 pandemic. We've highlighted a few key sections that directly relate to the needs of nonprofit organizations, as well as donors that support them.
SECURE Act: The effect on charitable giving
Retirement funds have long been an effective asset for charitable giving, particularly for planned giving. While family members must pay income tax when withdrawing funds, charities do not, so giving directly to nonprofits results in more impact.
The Setting Every Community Up for Retirement Enhancement Act, which became law on December 20, 2019, made several changes that make charitable planning with retirement assets even more appealing.
Impact of Tax Reform on Charitable Giving
The Tax Cuts and Jobs Act, signed into law on Dec. 22, 2017, includes several provisions that may impact charitable giving. We've highlighted and summarized these provisions, which take effect Jan. 1, 2018.
IRA Charitable Rollover
On Dec. 18, 2015, the IRA Charitable Rollover was passed by Congress and signed into permanent law by President Obama, allowing taxpayers age 70 ½ or older to transfer up to $100,000 annually from their IRA accounts directly to charity without first having to recognize the distribution as income. Most distributions to charities will qualify for the IRA charitable rollover; however, distributions to Donor Advised Funds or Supporting Organizations will not qualify.
For donors who are interested in partnering with FFTC, IRA rollover distributions can be made to FFTC’s Operating Fund or to Designated Funds and Scholarship Funds, as well as to Field of Interest and Unrestricted Funds that support FFTC’s community grantmaking. Qualified charitable distributions can also be made in direct support of the Robinson Center for Civic Leadership or for specific civic leadership initiatives addressing the critical problems and issues affecting our region.
Personal charitable commitments
IRS regulations pertaining to Donor Advised Funds require that all final decisions about distributions from a DAF be made by the managing charity's board (e.g., the FFTC Governing Board). Grants from DAFs may only be made to 501(c)3 public charities. Grants may not be made to satisfy an individual's legally binding pledge, nor may they be used to pay tuition or membership fees or tuition.
Also, grants from a DAF may not be made to a charity that will provide goods or services to an individual in return for the grant, such as gala dinners, benefit tickets, sporting events tickets, alumni fees, or goods bought at charitable auctions, etc. In instances where the value of goods or services associated with the DAF grant does not equal the full grant amount, current IRS regulations are unresolved as to whether grants from a donor advised fund are permissible for the “charitable” portion
Grants for Pledges or Memberships
Pledges. Under current guidance from the IRS, it may be possible to use your FFTC Donor Advised Fund to fulfill a pledge in certain circumstances. In general, if you have made a pledge (whether or not it is legally binding on you under applicable law), a grant from your DAF should be permissible if the three requirements discussed in Section 4 of IRS Notice 2017-73 are satisfied. These requirements are: (1) nothing more than incidental benefits will be received by you, your family or business, (2) the grant from your DAF does not reference the existence of a pledge, and (3) you do not attempt to claim another charitable deduction for the grant from the DAF satisfying the pledge.
It is preferable, however, in instances when you know you want to use your FFTC Donor Advised Fund for a “pledged” gift, that you complete the pledge form carefully stating your commitment only to “recommend a grant of $XXX from my FFTC Donor Advised Fund.” Alternatively, you might consider contacting your FFTC relationship manager to set up recurring grant recommendations from your FFTC Donor Advised Fund for the annual giving you regularly intend to your favorite nonprofits.
Memberships. You can use your FFTC Donor Advised Fund to pay for membership dues at a charity (e.g., a museum or house of worship) if two requirements are met:
- The charity must be verified by FFTC as a qualifying 501(c)3 public charity.
- The membership must be 100% tax-deductible and provide only incidental benefits.
To be “incidental,” the value of membership benefits cannot exceed the LESSER of $110 or 2% of the recommended grant. If the value of membership benefits is too high to qualify as incidental, you must waive the membership benefits in order to recommend a grant from your FFTC Donor Advised Fund to pay the membership dues. Note: many nonprofit organizations will not accept grants from donor advised funds for membership dues because of this issue, so we recommend consulting with the organization before recommending a grant from your DAF.