Helping Your Place of Worship, School, or any Organizations you are Passionate about, While Getting in Front of its Donors

This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

Whether it is the place you worship, the school you went to, or an organization you are passionate about, heartfelt gifting may not only occupy a critical spot in your social life but the very act of gifting is the ultimate measure of self-indulgence.

Now, before you begin a nasty email to me expounding the altruist virtues of gifting -chiding me for suggesting that gifting is in anyway an egoistic behavior, I would like you to think back to the last gift you made and how it made you feel. Didn’t gifting your time or your treasure make you feel better? Has there ever been a time which feeling better has been more important than it is today?

The National Institutes of Health found that when people give to charities, it activates regions of the brain associated with pleasure, social connection, and trust, creating a “warm glow” effect. (1)

A study by Harvard Business School professor Michael Norton found that giving money to someone else lifted participants’ happiness more that spending it on themselves. (2)

Scientists also believe that altruistic behavior releases endorphins in the brain, producing a positive feeling known as the “helper’s high.” (3)

Financial Advisor’s Role

For a number of years, as Treasurer for my Church, the issue of gifting programs was always an agenda item at Trustee meetings. There were many community projects we wanted to work on that needed funding but of course our first priority was the monthly struggle to keep the doors open.

When it came to gifting programs, at each of the Trustee meetings, we struggled with two items; what event, program, or opportunity would we use to raise money, and the bigger question of how we were going to ask.

This is where you as a financial advisor can be a pillar for your church or organization.

Answering “What”

The “what” in gifting programs starts by finding items that bring donors to the table because they involve issues of importance to them and to the community. Not surprisingly, we found that the more we asked for money when passing the basket, the more we were viewed as money hungry – caring only for the account to whom the check was written.

To address this, we added community projects to the annual budget. That way our gifting program not only supported the church, but it supported our community as well. You may find that anything that helps children or animals is a good place to start if you are trying to rally a generally incurious, detached, or flat-out indifferent group of potential donors, as we were.

I always stressed that our discussions with donors must start with the development of trust that if they donate, we could influence meaningful change. We had to be sure that our donors had a clear understanding of our plans, who it effects, and the role that we and their donation played in that change.

We found that it was also a great way to engage the donor not only for the gift we were seeking today, but also for commitments to additional gifts we would receive benefits from sometime down the road.

Answering How to Ask

There are various ways to make a charitable donation. Any size donation will be impactful and will help make your community a better place. Below are some donation strategies to consider that have the potential to not only help your organization, but also get you in front of donors.

A Cash Gift

The simplest way to give is a cash gift. When donating cash, the donor receives a tax deduction equal to the amount of cash they donated, less the value of any goods or services they received in return, and subject to the annual standard deduction.

Using IRA Required Minimum Distribution (RMD)

This is a strategy known as a Qualified Charitable Distribution (QCD).

The Tax Cuts and Jobs Act of 2017 raised the standard deduction to $12,400 for single filers and $24,800 for married couples filing jointly for tax year 2020.  Due to the higher standard deductions, fewer taxpayers are itemizing deductions when filing their returns. This has resulted in some taxpayers not realizing a tax benefit from their charitable donations.

RMDs from a regular IRA are required at age 72 and increase your donor’s income. As a result, this increases their tax bill. If their total charitable giving does not exceed their standard deduction - meaning they are not getting any tax benefits from their donations, you might want to consider a Qualified Charitable Distribution.

A Qualified Charitable Distribution is paid directly from their IRA to your organization. While income tax is normally due on each IRA distribution, they do not need to pay taxes on the amount transferred to your organization. By reducing their taxable income, they may also reduce their tax bill, the amount of Social Security taxes they pay, their Medicare premium, and may also help them avoid the 3.80% Medicare surtax on investment income.

Selling Highly Appreciated Assets:

Charitable Remainder Trust (CRT)

When properly established, a trust known as a Charitable Remainder Trust can allow the donor to sell highly appreciated assets like stocks and real estate and:

· Pay no capital gains tax

· Convert the asset into lifetime income

· Reduce current income taxes through a charitable gift deduction

Once the donor passes away or after a set term, whatever is left in the trust is then contributed to your organization in their name.

Charitable Lead Trust (CLT)

This type of trust is often thought of as the inverse to a Charitable Remainder Trust.

With the CLT, your donor does not pay capital gains tax upon the sale of the asset and they receive a tax deduction.

The inverse part is that rather than the donor receiving income, instead the income goes to your organization. When the term of the CLT ends, rather than the asset coming to your organization, it reverts back to your donor’s estate.

Combining Your IRA with a Charitable Remainder Trust

There may be situations where your donor’s children would get more money together with more steady monthly income if your donor named a Charitable Remainder Trust as the beneficiary of their IRA as opposed to naming their children directly.

Their estate might also get a tax deduction!

While the SECURE Act provided many beneficial aspects for retirees, it took away a major benefit for non-spousal beneficiaries – the ability for your donor’s children to stretch the IRA over their lifetime.

Instead, now your donor’s children or grandchildren must pay income tax on the entire IRA they inherited from your donor no later than 10 years after they receive it. For large IRAs, depending on the maximum federal and state income tax in force at the time, that could be 40% to 50%+ of your IRA disappearing to taxes after the 10th year.

Where do you think they would prefer their IRA go? Is it to the government in the form of taxes? Or is it to your organization?

By naming the CRT as the beneficiary of their IRA and naming their loved ones as the income beneficiaries of their CRT, their family and your organization may receive a number of benefits.

· Since the CRT is a charitable trust, there will be no income taxes when the IRA is distributed to the CRT. This means more assets to generate income from for your donor’s family.

· Depending on the age of their children or grandchildren, this additional income could mean getting more money out of their IRA than if they paid the taxes after the 10thyear.

· In addition, once your heirs pass away, whatever is left in the trust is then contributed to your organization in their name.

There is little question about the substantial help you may provide your organization by taking an active role in their fund raising activities.

How Dunham Can Help?

To receive a copy of a customizable piece that covers all of the information mentioned in this post for your organization to send to their donors with your contact information, please click here.

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This document is provided for informational purposes only by Dunham & Associates Investment Counsel, Inc. solely in its capacity as a Registered Investment Adviser and should not be construed as legal and/or tax advice. Dunham & Associates Investment Counsel, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.