Are you ready for Giving Tuesday? Kicking Off Year-End Giving

As the leaves finish falling from the trees here in New England, and coffee #GivingTuesdaycups of green, red, and blue appear alongside cranberry sauce and stuffing, we are turning our sights to year-end giving and a recurring theme of gratitude. Many donors have been working diligently on their giving lists all year, making gifts of various sizes and complexities. Others use the holiday time to come together with family and focus on what gifts they plan to make or what service activities they would like to do together. As in the past, we share a few year-end giving ideas that can make the holiday time more meaningful, and spread the season of giving throughout the year.

The #GivingTuesday Movement

Giving Tuesday is being celebrated this year on November 27, 2018, the Tuesday after Thanksgiving in the United States. Now in its seventh year, this “global giving movement” was founded by the 92nd Street Y in New York as a way to focus on giving during the days following Thanksgiving that had been more typically known for in-store and online shopping. It has evolved into a significant online global social movement. In 2017, #GivingTuesday resulted in 2.5 million online gifts which raised $300 million, along with over 2 billion social media impressions for the field of philanthropy and for participating organizations.

Some may want to share #MyGivingStory2018 this year and join this movement. Others may want to share in the spirit by drawing inspiration from the stories of others.

Impact of the Tax Cut and Jobs Act

Much has been written on the potential impact of the Tax Cut and Jobs Act of 2017 on charitable giving. While the full picture might not be known until the data on 2018 tax returns emerges, some studies published since the new law was enacted predict an overall drop in 2018 charitable giving of as much as $22 billion (a 5% drop from 2017 levels). Some reports from the first two quarters of 2018 appear to show a significant drop in charitable giving as compared to 2017. Opinions differ on whether changes in legal tax incentives are truly driving, or will drive, changes in charitable giving patterns, and on whether there will be a significant reduction in charitable giving for the year overall. For example, 2017 was a record year for charitable giving, in part because many tax advisors urged donors to make large charitable gifts at the end of 2017, at least in part to offset the higher 2017 tax rates. A corresponding drop in charitable giving in early 2018 might be a natural consequence of these efforts. Other potential donors may be temporarily holding off on giving in anticipation of “bunching” contributions in future years, or may otherwise be delaying the timing of their gifts, even if they intend to maintain past levels of giving in the aggregate.

My colleague Brad Bedingfield writes in great detail here about these issues, and it’s worth a read as you consider your year-end planning.

Disaster Giving

For many donors, Disaster Giving has become a regular part of their annual giving. From wildfires in California to other natural disasters locally and globally, planning for the unanticipated is now part of the picture. We often turn to strong local partners – including community foundations and pooled giving funds – when disaster strikes. The Center for Disaster Philanthropy is a go-to resource that compiles and vets charities working to provide immediate and long-term disaster relief.

Read more about disaster giving here: How to Help Neighbors and Communities in Time of a Natural Disaster.

Community Service

Serving together: Many individuals and families feel compelled to volunteerism, particularly at this time of year. Coming together in service to give back to those in need can help the next generation feel connected to the more abstract concept of “philanthropy” in a very tangible way. Volunteering at a local soup kitchen, organizing a food drive, or filling a family’s holiday gift wish list are simple activities where those of all ages can make an immediate impact. That can then spark conversations about important community issues, particularly with younger family members.

Implementing Your Giving Plan

We hope this time of year brings you happiness and a feeling of being connected to your community and issues you care about, whether local, national or global and wishing you peace and joy throughout the year. Giving can take many shapes and forms, and we hope this inspires you to do more during the holidays and beyond.

About the Author

Gioia PeruginiGioia Perugini is Associate Director, Family Office and Philanthropy Services at Hemenway & Barnes. She works with individuals, families, advisors, charitable trusts and foundations to provide a range of philanthropic and client services. Read Gioia’s full biography.

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Is this the Year to Create a Donor-Advised Fund?

Donor-Advised Funds are the fastest growing vehicles for charitable giving in the United States, and for good reason. They combine the high tax deductions of gifts to public charities with much of the personal involvement and customization enjoyed by those who have their own private foundations. Since 2012, contributions to DAFs have doubled, accounting for more than $7 billion in 2017, and they are set to keep growing.

The Higher Standard Deduction May Eliminate Tax Benefits of Charitable Contributions

Part of that new expected growth is related to a new set of tax rules that came into effect on January 1, 2018. In exchange for eliminating a bunch of other tax deductions, Congress has increased to $12,000 the so-called “standard deduction,” the amount that each person can deduct from her income each year if she chooses not to “itemize” her deductions. The key itemized deductions are the home mortgage interest deduction (now much more limited than it used to be), the state and local tax deduction (now capped at $10,000 per person), and the charitable deduction. A person who has more than $12,000 (or $24,000, for a married couple filing jointly) of these tax deductions will itemize – otherwise, she’ll take the standard deduction. As many as 20 million more Americans than in previous years will not have enough itemized deductions to exceed the new, higher standard deduction – for those taxpayers, their charitable contributions will no longer provide any tax benefit at all.

Strategies for Maximizing Tax Benefits of Charitable Gifts

There’s a relatively easy way around this, a strategy known as “bunching.” Imagine that someone regularly gives $5,000 per year to charity, and has $5,000 of other itemized deductions each year. Because the $12,000 standard deduction is higher, those itemized deductions do no good. However, imagine instead that the same donor gives $25,000 to charity in one year, and nothing for the next four years. She still gives the same aggregate amount to charity – however, in the year of the gift, she has $30,000 in itemized deductions, which exceeds the standard deduction, while claiming the $12,000 standard deduction in the other years. By “bunching” her contributions in this way, she gets a total of $78,000 in deductions over a five-year period, rather than $60,000 for claiming the standard deduction alone each year, which restores at least some of the tax benefits of making charitable gifts.

The key problem with this “bunching” strategy is that the donor may not want to give $25,000 in one year and nothing in other years – there may be good reasons why she wants to spread out her gifts evenly. That is where donor-advised funds come in.

Establishing a DAF

A donor-advised fund is a discrete account set up within a public charity. It can be named after the donor (for example, the “Mary Donor Charitable Fund,” or in some other fashion. While the charity controls the fund, the donor has the ability to provide advice regarding where contributions should go. For example, she can make that $25,000 gift to the fund once every five years, but then recommend that the fund spread that out in $5,000 annual payments to her favored charity, just as she was doing previously. And unlike a direct $25,000 gift to her favored charity, using a DAF also gives her the opportunity to recommend redirection of future year gifts to different charities if she decides that the funds will be better used elsewhere. As advisor to the DAF, she can continue to remain connected and engaged with her favorite causes and charities.

Now is the Time to Act

Establishing a donor-advised fund is easy – however, it is important to coordinate establishment and funding of the DAF with your personal tax and cash flow situation. The new tax law creates one reason for setting up a donor advised fund, but, as noted above, there are others.

If you think you might want to establish a DAF before the end of the year, you should begin this process as soon as possible – many DAF sponsors have tight deadline requirements (beginning as early as November in some cases) for those who want to establish DAFs and complete gifts before the end of the year.

About the Authors

Brad Bedingfield is counsel at Hemenway & Barnes LLP. Brad works extensively with nonprofit organizations, navigating tax, regulatory, and governance matters, guiding charities and other nonprofits through formation, reorganizations, mergers, affiliations, and dissolution, and advising on innovative use of charitable assets, including social impact bonds and other forms of impact investing. Email Brad

Andrea Richmond serves as a Family Office Advisor at Hemenway & Barnes. She concentrates her practice on a wide range of complex Family Office and Philanthropic Services relating to trust and estate planning, tax planning, investment management, philanthropic giving, nonprofit advising, and nonprofit administration. Email Andrea

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Engaging the Next Generation in Family Philanthropy: Getting Started by Gioia Perugini

In a recent webinar hosted by the Family Office Exchange, my colleague Nancy Gardiner and I presented on the topic of engaging the next generation in family philanthropy. This is an area we address almost daily in our practice, fielding questions from clients about what the right time is to engage their children or grandchildren in the practice of the family’s philanthropy, how to get started, and what they should do to get the next generation “ready.”

Room for Growth as Foundations Age and Mature

We know from the National Center for Family Philanthropy’s 2015 trends survey that nearly 70% of family foundations were created after 1990 – so they are still relatively “young” entities. Two thirds of family foundations still have founding donors actively involved, with fewer than 10 percent of foundation boards comprised of a majority of third- and fourth-generation family members.

As the age of the foundation increases, the number of third- and fourth-generation family board members will increase accordingly, so we can see that this generational change in leadership is coming to family foundations.

While the NCFP study also tells us that 56% of family foundations report engaging the next generation, as it currently stands, only 9% of foundation board members are under age 40, compared with 18% for public charities. Clearly there is room for growth here, as foundations age and mature.

Getting Started with a Needs Assessment

So given all of this, what can or should a family do to get started? We often start the conversation with a needs assessment. Just as you might start with understanding a client’s goals for investments or estate planning, we like to start with a discussion about the family’s goals in terms of size and scope of their giving “footprint.” Sometimes, this is clear; a family member has had a health event or formative experience that makes the focus of the family’s philanthropy crystallize. They might come to you already caring deeply about an issue, and having some sense of how they want to tackle it.

At other times, and frankly, more frequently, the goals are less apparent. In this case we begin by asking questions to elicit interests and potential scope. Conversations with other advisors often happen at this phase as well. The accountants and estate planners will often work together to determine how much, when, and what the best vehicle is to use for the family’s specific circumstances and financial needs. This would be the time to determine what vehicle or vehicles make most sense.

Then we can begin to address substantive questions:
• What are the issues about which you feel most strongly?
• What did your parents or grandparents value? How closely do we need to or do you want to adhere to their wishes?
• When is it appropriate to deviate?
• What is the geographical reach of your giving and how do you want to approach it (direct services, policy, advocacy, etc.)?
• How hands-on do you want to be in the process?

Defining and Developing Family Roles

After the needs assessment gives you a rough outline of your goals, we turn next to defining and developing family roles and sharing the eligibility criteria. Not to oversimplify, but it is important to clarify who will do what, both within the family and with outside advisors. As you can imagine, this part of the conversation varies, depending on the stage at which we meet the family.

Here are some of the questions we typically start with in helping families define roles: Is the founder still “in charge”? Would the family like to create a broader group of participants? Are there family members who do not want to, or should not, be part of the plan? How do spouses fit in? Are there specific eligibility requirements?

Developing clearly articulated family roles, and ensuring everyone knows them and agrees to abide by them, sets a level playing field on which to engage in shared family philanthropy.

Flexibility is Key to Engagement

How you approach this work is often as important as what you do. Maintaining flexibility is key to the success of multi-generational engagement. Given their different ages and stages, we know that different generations approach life with different outlooks. Many of us are familiar with the profiles and habits of Baby Boomers, Generation X, and Millennials, but do you know how to engage Generation Z? See our previous blog post on Igniting Generation Next for some insight.

Every generation is different. Just as every generation evolves and changes over time so does every family. The right idea is often the one for which those assembled are most ready and on which the group can agree. The “perfect” idea, if the group is not fully committed to it, will not succeed.

Stay Tuned…

We look forward to sharing more of our thoughts on this topic over the coming months. In the next installment on this topic, we will cover what you can do to get the next generation ready, including some successful activities to bring the family together and focus on their joint giving.

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