Professional advisors are in a unique position to help increase the philanthropic resources of the community by working with the Southeastern Illinois Community Foundation. Whether your clients are interested in tax advantages, building a family tradition of giving, or finding an effective alternative to a private foundation, we can help.
Through a variety of gift planning options, we can be a resource for you and your clients when developing bequests, Donor-Advised Funds and Charitable Remainder Trusts. SICF makes good financial sense for your clients. Some of our advantages include:
- Substantial Tax Savings. Because our Community Foundation is a nonprofit, tax-exempt 501(c)(3) charitable organization, all gifts to it are tax deductible to the maximum extent allowed by law.
- Low Administrative Costs. As a public charity, SICF is exempt from excise tax and is free of many of the administrative costs and restrictions placed on private foundations. Therefore, more of your clients' dollars can be used to address charitable needs in the community.
- Professional Stewardship of Assets. Preserving and growing charitable dollars to meet the ever-changing needs of communities is our goal. Regular performance monitors, a diversified investment portfolio that minimizes market risk, internal and external audits, independent counsel, and utilizing the latest accounting software systems are just some of the ways SICF demonstrates the highest levels of professional financial stewardship.
- Permanent Support of Charitable Interests. SICF provides a variety of fund options for donors. This is particularly appealing to donors who have many charitable interests, as well as those who wish to have varying degrees of involvement in making decisions about charitable contributions. Grants from funds at the Community Foundation can be made in the donor's name, and multiple generations can be involved in the grant making process.
Consider SICF an important resource that will work with you to develop recommendations for your clients. For more information, contact us at (217) 342-4988.
Philanthropic estate planning using community foundations
By Dennis J Jacknewitz, originally printed in the September 2011 edition of the Illinois State Bar Association Trust & Estates Newsletter
Community Foundations can be an important vehicle that may be employed by attorneys in estate planning for clients who have charitable intent. Whether an attorney practices in Chicago, in Springfield or Belleville, community foundations in one’s particular area can be useful for a client’s charitable planning.
This article will explore what community foundations are; the differences between community foundations and private foundations; as well as how an attorney can utilize community foundations for particular client charitable needs.
A community foundation is an independent tax exempt public charity created by and for the people in a particular regional area. Community foundations help build funds through gifts of assets contributed by donors to the foundation. Community foundations can be used for short-term charitable needs or for needs in perpetuity. As a public charity, community foundations are subject to more liberal deduction rules for federal income tax matters than private foundations.
Most public charities provide direct and specific service through educational, human service programs or other types of charitable purposes. A community foundation fulfills its charitable purpose primarily as a grantmaker rather than a direct service provider. Individuals, family’s and businesses establish component funds at community foundations. Through donor advised funds, designated, field of interest funds and scholarship funds, these donors work with the community foundation’s board of directors to distribute grants to qualified non-profit institutions that advance the charitable goals set forth in the donor’s fund agreement with the community foundation.
The basic differences between community foundations and private foundations lie in the following four areas:
1. Community foundations do not pay excise taxes based upon investment income; however, private foundations pay a 2% excise tax yearly for the net investment income of such foundation computed under a complex formula under Section 4940 of the Internal Revenue Code.
2. Private foundations also are required to distribute 5% yearly of the gross value of total assets in the private foundation for charitable endeavors based upon a complex formula under the Internal Revenue Code. Community foundations do not have this 5% yearly distribution requirement.
3. Gifts to private foundations are typically subject to charitable deduction limits of 30% of adjusted gross income (AGI) for gifts of marketable securities for individuals versus a 50% and a 30% deduction limit for individuals for gifts to community foundations under Section 170 of the Internal Revenue Code.
4. Private foundations typically incur annual fees for accounting, tax and legal expenses, which are not incurred by a donor with a component fund at a community foundation.
Thus for illustrative purposes only, if an individual had $1,000,000 and set up a private foundation for his or her charitable endeavors, that individual would incur a 2% excise tax for net investment income, a $50,000 required distribution, a 30%/20% charitable income tax deduction limit verses a 50%/30% charitable income tax deduction limit for the community foundation, and an array of expenses associated with normal operations of that private foundation that would not be incurred if a community foundation was used as a vehicle for that individual’s charitable endeavors.
In the final portion of this article, I will discuss some specific examples of how community foundations can be used by individuals and their attorneys in making contributions to a charity of their choice in innovative ways. The following examples are given:
1. A client of mine wanted to benefit a charity in the client’s hometown. The charity had very little assets and could not issue charitable gift annuities in Illinois, because of Illinois’ requirements. The client could not afford, at the time, to make an outright gift of $100,000 to that charity, but desired a charitable gift annuity in order to receive an annuity payable quarterly and to benefit the charity at the client’s death. The client was earning 1% yearly on a CD and because of his age now receives a 6.5% yearly yield on $100,000 contributions paid in equal quarterly installments from the greater St. Louis Community Foundation. This annuity’s designated beneficiary at death is a component fund at the community foundation for the benefit of the charity that did not offer gift annuities. This is an excellent example of how community foundations can aid donors in trying to assist charities with limited assets which are not allowed to issue charitable gift annuities in Illinois and where the donor can not afford to give the property outright without receiving a quarterly return for the rest of his or her life.
2. A client who created a private foundation was required to distribute $50,000 annually in accordance with applicable private foundation rules. The client wanted to utilize these distributions to benefit his alma mater but through a lump sum gift of $250,000 at a later date for a number of reasons. The client fulfilled his required distribution obligation by making annual gifts to a donor advised fund set up at a community foundation. This fund enabled him to accumulate the contributions over a five year period at which time the client made a $250,000 donation in a lump sum to his alma mater from the donor advised fund.
3. A community foundation’s program staff usually knows most of the charities in a community much better than most individuals. The individual used a member of the community foundation’s program staff to find a charity that would do the exact charitable work that the individual wanted to foster, without employing an attorney or accountant to find out which charity met the client’s desires. The community foundation also assisted that individual in focusing other charitable intent into a specific field of interest that gave this individual valuable insight into identifying and selecting other, related, organizations to benefit in that community.
4. Individuals who want to donate privately held corporation stock to a charity have limited sources in order t make that donation and receive a charitable deduction for the full fair-market value of that stock. A variety of methods can be used by a sophisticated community foundation in order to facilitate these closely held stock gifts and get the charitable deduction for the client.
5. Community foundations, through a testamentary designated fund, may carry forward a donor’s legacy to benefit specific organizations and/or a broader community need more effectively than a bank or trust company can. Attorneys can use community foundations as an alternative to a bank or trust company when a client needs a fiduciary with the charitable expertise of a community foundation for these types of activities.
6. Clients who want to create charitable lead trusts want to insure that the assets in the lead trust are not recaptured for estate tax purposes in the donor’s gross estate. Rules surrounding certain lead trusts often prevent grantors from being fully engaged in the charitable activities of the lead trust as a result of the risk of recapture. Those clients can set up a donor advised fund at a community foundation to accept distributions from the lead trust and become engaged in the gifting process through the donor advised fund vs. the lead trust directly. This approach typically avoids inclusion of assets in that client’s estate, if that client should die before the expiration of the charitable lead term.
7. Philanthropic parents can initiate donor advised funds at a community foundation to ensure that after the parents’ death their children can continue making charitable gifts for the family unit. Thus, children who live in different parts of the country have a reason to get together one or more times a year in order to continue their parents’ charitable plans.
These are just a few examples of what community foundations can do for the donor and attorney that may not be able to be done without usage of a community foundation.
As one can see, community foundations can be a resourceful tool for the client who has philanthropic goals.
Jacknewitz, D. (2011). Philanthropic estate planning using community foundations. Illinois State Bar Association Trusts & Estates Newsletter. Vol. 58(3), pp1-4.