Creating Impact: A Cleveland Foundation Resource for Professional Advisors Thank you for another year of continued partnership with the Cleveland Foundation, and welcome to "Creating Impact," our e-newsletter for professional advisors.
While some charitable sectors have suffered the effects of this difficult year more than others, the charitable giving trends we are seeing at the Cleveland Foundation leave us confident that our community will remain strong and resilient.
With donors still contemplating their personal and charitable legacies, this is a good time for you to speak with your clients about year-end giving. What strategy best suits your client? Here are some client “cues” that suggest specific giving techniques:
Does your client...||
Have a traditional IRA with “excess” funds (and the client is at least age 70½)?||
A Qualified Charitable Distribution (QCD) to donate in a tax-efficient manner.|
Give to several charities using appreciated stock?||
A Donor Advised Fund (DAF) to simplify giving.|
Make significant charitable gifts, but his or her non-charitable itemized deductions fall below the standard deduction (currently $12,400 for single/married filing separately or $24,800 for married filing jointly)? ||
“Bunching” multiple years’ worth of charitable contributions this year to enable the client to itemize for 2020 (and paired with a DAF, the client can still spread out distributions to charity over multiple years).|
For more ideas, please keep reading, or contact our Gift Planning Team for assistance with helping your clients develop a charitable giving strategy.
Meet Our Gift Planning Team
Year-end grant distributions
We are grateful for your clients who have existing Donor Advised Funds with us or who wish to set up a DAF this year with the Cleveland Foundation.
Please note, the deadline to recommend grant distributions from a DAF is Dec. 15, 2020.
Cleveland Foundation Donor Advised Fund activity increases during the pandemic
Donor Advised Funds (DAFs) remain a popular tool for donors seeking a tax-efficient way to benefit charity. Many donors fund DAFs with long-term appreciated stock, thereby avoiding capital gains tax on such assets while making a charitable impact. Others donate to DAFs by utilizing a strategy of “bunching” donations (for example, doubling up donations in a single year), so they can itemize in a particular year. DAFs can also help donors manage significant liquidity events, such as the sale of a business, in a tax-effective manner.
While contributions to a DAF can provide immediate tax benefits, another key advantage of a DAF is that the donor decides when to recommend grants from the DAF to charity, allowing for thoughtful and strategic giving.
In fact, distributions from DAFs held at the Cleveland Foundation have increased significantly during the COVID-19 pandemic. In Q3 2020, we saw a nearly 100% increase in dollars distributed to charities from DAFs held at the foundation compared to Q3 2019. Through Sept. 30 of this year, the amount distributed from Cleveland Foundation DAFs to charities was close to 26% higher than last year during the same period. The number of grants from our DAFs has also risen compared to 2019.
Donors who funded DAFs in better economic times are now leveraging this flexible giving vehicle to satisfy current, critical needs.
Consider IRAs as a tax-wise asset for lifetime and testamentary charitable giving
A Qualified Charitable Distribution (QCD) can be an effective way to make a lifetime charitable gift while also satisfying an IRA owner’s Required Minimum Distribution (RMD). By making a gift now with a QCD, a donor can exclude the distribution from his or her income and see the impact of his or her charitable gift.
Donors age 70½ and older may make QCDs from their traditional IRAs. This is true even though the SECURE Act (effective January 2020) increased the starting age for RMDs to age 72 for IRA owners not yet taking RMDs, and the CARES Act suspended all RMDs for 2020. A QCD is a direct charitable gift from an IRA to an eligible public charity, up to $100,000 annually, which is excluded from the donor’s taxable income even if the donor doesn’t itemize. A QCD counts toward fulfilling a donor’s RMD, when applicable.
While DAFs are not eligible to receive QCDs, a donor may use a QCD to establish a Named Fund that will create a lasting charitable legacy. A Named Fund can benefit specific, designated charitable organizations or support broader “fields-of-interest” favored by the donor, such as arts and culture, education or health care. Named Funds can also be funded with testamentary gifts, including IRA beneficiary designations.
Donors are also considering ways to use IRAs to benefit both charity and family upon death. Donors may use a Charitable Remainder Trust (a CRT or “give it twice trust”) to help “stretch” distributions from an IRA upon the owner’s death. A CRT can enable the donor to create an income stream for family beneficiaries for a period longer than the 10 years generally permitted under the SECURE Act for inherited IRAs, while leaving the balance to charity when the CRT ends.
Charitable giving incentives under the CARES Act
Year-end giving conversations between donors and advisors are a timely occasion to revisit the CARES Act, which includes provisions to encourage charitable giving during the COVID-19 crisis. Regarding smaller, one-time charitable gifts, the CARES Act allows non-itemizers to take a $300 above-the-line deduction for qualified charitable contributions (cash gifts to public charities), in addition to the standard deduction, for the 2020 tax year.
The CARES Act also allows itemizers to deduct up to 100% of their 2020 Adjusted Gross Income (AGI) for cash gifts to public charities (not to DAFs, for example), up from 60% last year. This provision may especially benefit donors who realized significant capital gains, income or a windfall in 2020 and wish to offset that income with a charitable deduction that leverages this temporary 100% AGI limitation. This provision of the CARES Act is set to expire at the end of 2020.
Greater Cleveland COVID-19 Rapid Response Fund launches Phase II
In September, philanthropic partners across Northeast Ohio announced the creation of Phase II of the Greater Cleveland COVID-19 Rapid Response Fund for continued support to nonprofit organizations dealing directly with the ongoing effects of the pandemic in Cuyahoga, Lake and Geauga counties. More than $3.3 million has already been secured to support ongoing recovery efforts, and more than $1.5 million has been awarded in the first three rounds of grantmaking. Since the Fund’s creation in March, the community has now provided more than $10 million to frontline organizations during this unprecedented public health crisis.
Friends of The Bail Project – Cleveland launches operations fund at Cleveland Foundation
In August, the Cleveland Foundation board of directors approved a $200,000 grant to support the launch of the Friends of The Bail Project – Cleveland operations fund at the foundation. As the first Friends of The Bail Project group in the country, the funds will go to support the local team working in Cleveland to reduce the Cuyahoga County Jail’s pretrial detention population and provide wraparound support services to those defendants released from jail.