For Professional Advisors
WAYS TO ESTABLISH A FUND
There are many ways for individuals, families, and corporations to make gifts to The Community Foundation of Middle Tennessee. Just as The Foundation has several fund types to help your clients achieve their specific charitable giving objectives, we can also help integrate charitable giving with financial and estate planning.
The following is an overview of the types of gifts your clients might consider and some of the financial vehicles available for the delivery of a gift.
Outright gifts:
Your clients can continue to support their current favorite charities during their lifetimes and in perpetuity through the creation of a fund at The Community Foundation of Middle Tennessee. Unless donors choose anonymity, The Foundation will recognize their generosity to the recipients and the community as a whole.
Giving through The Community Foundation offers donors important tax benefits: (1) a charitable income tax deduction in the year the gift is made, and (2) the reduction of future estate taxes. If you clients use stocks or other appreciated property to make their gift, they also (3) eliminate capital gains taxes on the property, and receive the full, fair market value of the gift as their charitable deduction.
Funds can be created with a gift of cash, publicly traded securities, closely held stock, real estate, real property, insurance policies, limited partnership interests, retirement plan assets, and variations or combination of the above. Cash gifts are usually in the form of currency, checks or money orders. Cash gifts are deductible up to 50% of the donor's adjusted gross income with a five-year carryover for any excess. Checks or money orders should be made payable to The Community Foundation of Middle Tennessee.
Appreciated securities and real property:
Donors who contribute long-term appreciated securities to the Foundation get a double federal tax benefit. The capital gains tax on the stock’s appreciation (the difference between the property’s cost basis and its present fair market value) is completely avoided.
Gifts of appreciated securities or real estate may allow a donor to make a more substantial contribution and also gain important income tax advantages. Gifts of appreciated securities are deductible at their full market value if held longer than 12 months. In most cases, the donor may deduct the fair market value of the gift up to 30% of the donor's adjusted gross income with a five-year carryover, if needed. Donors of publicly traded securities can have their brokers contact The Community Foundation of Middle Tennessee for disposition instructions.
The Community Foundation of Middle Tennessee allows the donor to claim a deduction based on the market value of the securities at the time of the gift.
There is a vast amount of tax law concerning the deductibility of donated appreciated property. The Community Foundation strongly encourages donors to consult with their tax advisors and Foundation staff before making such a gift. Donors should also be aware that the IRS has strict substantiation requirements for non-cash gifts.
Real Estate:
Gifts of real estate can be made to The Community Foundation through The Community Foundation of Middle Tennessee Properties, LLC. Your client may want to donate a house or personal residence, farm, vacation home, commercial buildings, and income-producing or non-incoming producing land. Gifts of real estate, if held more than one year, are deductible for up to 30% of the donor’s adjusted gross income in the year of the gift with a five year carry-forward period, if needed.
For real estate held less than one year, the charitable deduction is limited to the property’s cost basis.
Gifts of real estate require certain procedural steps, including the following :
- A site visit to the property
- An environmental assessment (paid for by the donor)
- A qualified appraisal
- Evidence of clear title
- Determination as to whether the property has a mortgage or is subject to other liens
- Indemnification for carry costs incurred by The Foundation until the property is sold.
Gifts of real estate may be contributed as outright gifts, as a retained life estate with the remainder to The Foundation, or to a charitable remainder trust, or real estate may be gifted to The Foundation through a donor’s will.
Tangible Personal Property:
Gifts of tangible personal property include property such as art, antiques, collectibles, jewelry, rare books, stamps and coin collections and so on. When gifted to a public charity, such items are deductible at full fair market value as determined by a qualified appraisal if the use of the contributed property is related to the tax-exempt purposes of the charity. For example, a gift of a painting to a museum or a gift of a rare book to a library would be deductible. IF the use of the contributed property is unrelated to the tax-exempt purpose of the charity such as a gifting a stamp collection to The Foundation to sell and use the proceeds, then the donor is entitled to a charitable deduction for his or her cost basis in the property.
Mutual Funds:
Mutual funds can be excellent assets to contribute to The Foundation. The fair market value of a mutual fund share is its public redemption price on the date of the gift. Gifts of mutual funds are deductible at their fair market value up to 30 percent of the donor’s adjusted gross income, with a five year carry-forward, if needed.
Life Insurance:
Gifts of life insurance enable donors to make a future major gift to The Community Foundation of Middle Tennessee at a relatively modest cost. Donors may name The Foundation as the owner and beneficiary of existing policies that the donor no longer needs. Alternatively, donors may purchase new policies and name The Foundation as the owner and beneficiary. Donors generally are entitled to a federal income tax deduction for the value of the policy in the year the gift is made and for contributions to The Foundation to cover any ongoing premium payments. Gifts of life insurance are a particularly attractive way for younger donors to make charitable significant gifts. Gifts of life insurance are also an attractive way for those whose families no longer need the security of significantly large death benefits.
Closely Held Stock:
Donors may also choose to contribute closely-held stock to The Foundation. This may provide an opportunity for them to increase the liquidity of their assets for charitable giving.
Closely held stocks are shares in a privately owned business. The shares are usually owned by family members, top management, and the corporation itself.
The stock can be contributed outright to The Foundation and the donor is entitled to a deduction for the appraised fair market value. The donor also avoids the potential capital gains tax on any appreciation in the value of the stock. Subsequent to the gift, The Foundation may sell the stock to the corporation or to other shareholders for cash. There can be no prior agreement between the charity and a potential buyer before the gift is made.
The donor is entitled to a deduction for the full value of the stock up to t30 percent of the donor’s adjusted gross income. Other considerations may apply if the stock is in a sub-chapter S corporation.
Qualified Retirement Plan Assets
Retirement plan assets (such as IRAs) can make excellent charitable gifts. Qualified retirement plan enjoy favorable tax treatment prior to retirement, but are severely taxed at the death of the plan participant. Qualified plans may be subject to income and estate taxes, which, in some cases, can total 75 percent or more of the value of the plan. In many cases, it may be advantageous to leave other assets to heirs and to name The Foundation as the beneficiary of the retirement plan. Estate tax and income tax can be avoided if the plan participant makes a gift to charity at death by beneficiary designation.