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For Professional Advisors

Sound Advice: Financial advisors partnering with community foundations can help philanthropists make a bigger impact

Tucked within more than 4,000 pages of legislation recently passed by Congress are several new ways for generous people to amplify their charitable impact, while also receiving potential tax and financial planning benefits.

These changes offer a prime opportunity for attorneys, accountants, and wealth advisors to add value and expertise in advising clients who are interested or engaged in charitable giving.

Incorporating a philanthropic focus into client conversations can set you apart, especially if you have developed a close working relationship with a community foundation that has expertise on local nonprofits and community needs.

The new legislation, the $1.7 trillion Consolidated Appropriations Act of 2023, includes the SECURE 2.0 Act aimed at comprehensive retirement plan reform. Several provisions that are part of SECURE 2.0 have the potential to benefit philanthropists – while generating a positive ripple effect for the organizations and causes they support.

Specifically, there are three key changes related to the Qualified Charitable Distribution (QCD) that deserve attention.

  1. Taxpayers can now make a one-time $50,000 QCD transfer to a charitable remainder trust (CRT) or other split-interest gifts, such as a charitable gift annuity (CGA). These are known as the “Legacy IRA” provisions. It’s important to note the law effectively mandates that the CGA or CRT be created solely for the purpose of receiving a QCD because the new statute requires that the vehicle contain only IRA assets.
  2. The annual per-taxpayer $100,000 QCD cap is now slated to be indexed for inflation, allowing taxpayers to give even more from their IRAs directly to charity.
  3. The required minimum distribution (RMD) age (currently 72) increased to 73 starting on January 1, 2023. The age will increase to 75 on January 1, 2033. While this provision is not directly tied to charitable giving, it will nonetheless impact your clients’ overall financial plans and potentially affect the timing and strategy of their philanthropy. As a reminder, “required minimum distribution” (RMD) refers to the mandated amount that a taxpayer must withdraw from qualified retirement plans, which include IRAs as well as 401(k)s and other tax-deferred retirement accounts. While an IRA distribution can’t be made to a donor-advised fund, community foundations have other fund-type options that can support charitable giving.

Clients with a philanthropic focus are likely to be eager to learn how they can maximize the difference they can make through their charitable activities. And they expect their advisors will be ready to help them strategically structure and plan their giving. Indeed, for years, research has shown that a proactive advisor who offers options for incorporating philanthropy into financial and estate plans inspires client loyalty, even across client generations.

Working with a community foundation can add a strong local component to helping your clients make an impact. Often there are significant needs close home and community foundations have the expertise to provide clear guidance on the most effective way to direct giving. Here at the New York Community Trust, our team works with local nonprofits every single day, giving us insight into what their pressing needs are – and how they can be met.

Beyond that, community foundations are unmatched when it comes to flexibility and responsiveness, providing customized service built around your clients’ needs, while always respecting your role as their primary advisor.

For instance, a client can establish a bequest to a fund at a community foundation through a will or trust, or through a beneficiary designation on a qualified retirement plan or life insurance policy. The community foundation can offer support throughout the process, including providing proper bequest language.

Time and again, advisors have shared with us that they were surprised to discover the many ways the community foundation can help their clients, especially compared with national donor-advised fund programs affiliated with brokerage houses or financial services firms.

Together, we can help your clients make philanthropic moves that can make a lasting difference in the place they call home.

Marie D’Costa is vice president and chief development officer of The New York Community Trust.

This material was developed for the use of professionals by The New York Community Trust. It is published with the understanding that neither the publisher nor the author is engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert assistance is required, you should speak to your own tax or other legal or accounting advisor.