All Is Not Lost

Trusted advisors foster relationships with their clients that can last lifetimes and even span generations. As clients’ circumstances change, their lifetime, estate planning and giving priorities may also change. That means that, at some point in the future, the beautifully constructed charitable giving plan or family giving plan you helped your client create may no longer meet their giving objectives.

We regularly work with advisors who are implementing changes to their clients’ giving plans. As you work with your clients on updating their giving plans, we want to share some common situations we see, and the solutions advisors have used to address them.

Situation 1: A client’s need for lifetime income changes

Possible Pivot: If your client planned to make a legacy gift to their selected 501(c)(3) organization through a bequest, but needs supplemental income during their lifetime, consider helping them establish a charitable gift annuity.

CGAs can be great options for clients who want to make legacy gifts to nonprofit organizations (or to funds at MCF established to benefit those nonprofits) while receiving quarterly or annual annuity payments during their lifetimes.

After establishing a CGA, a donor is eligible to take an immediate income tax deduction equal to the estimated value of their remainder gift, which is determined using IRS actuarial tables. The tax treatment of the donor’s annuity payments is determined by the tax attributes of the assets contributed to the CGA.

After the donor’s death, any amount remaining in their CGA will be transferred to the organization or fund they selected.

NOTE: The SECURE 2.0 Act of 2022 allows people to make a one-time transfer of up to $54,000 in qualified charitable distributions to a CGA. Your clients may want to take advantage of this opportunity to create a CGA while annuity rates remain relatively high. Note, however, that the tax treatment of CGAs created using qualified charitable distributions is different than for those funded with other assets.

Situation 2:  A client’s annual giving no longer reaches a level where itemizing makes sense

Possible Pivot: If annual giving no longer provides a tax benefit to your client, consider bunching gifts.

In addition to extending the increased standard deduction under the Tax Cuts and Jobs Act of 2017, the One Big Beautiful Bill Act added an additional charitable deduction of $1,000 for individuals and $2,000 for married couples filing jointly for those who do not itemize, which will become effective on January 1, 2026. The combination of these changes will likely result in fewer taxpayers choosing to itemize their deductions.

However, itemizing may still be beneficial to your clients if they bunch their charitable giving. Instead of giving annually, they could make larger contributions in specific years with the goal of receiving an itemized deduction that is greater than the standard deduction. (In non-bunching years, they may forego making charitable donations or make minimal contributions, opting to use the standard deduction instead.)

Situation 3: A client no longer wants to direct distributions from their donor advised fund  

Possible Pivot: Consider exploring the possibility of authorizing another fund advisor, setting up automatic distributions, or converting the fund to a donor designated fund.

If your client is no longer interested in recommending distributions from their donor advised fund each year, ask the fund administrator what options may be available.

At MCF, we provide donor advised fundholders with a variety of options for addressing this issue. Your client could authorize another person to recommend distributions from their fund. Alternatively, they could request that we make automatic annual distributions to their selected 501(c)(3) organizations during their lifetime. If they wanted to benefit the same 501(c)(3) organizations for the duration of their fund, they could ask to convert their donor advised fund to a donor designated fund

Situation 4: A client no longer wants to take on the work associated with administering their private foundation

Possible Pivot: Consider converting the private foundation to a donor advised fund.

Transferring a private foundation’s assets to a donor advised fund can provide several benefits. Once the donor advised fund is established, the donor or their designated advisors (which can include family members) can continue to recommend grants without taking on the operational and regulatory responsibilities associated with administrating the fund.

Additionally, establishing a donor advised fund still allows the donor to involve children, grandchildren or other family members to participate in the decision-making process, providing them with an opportunity to learn about philanthropy, help direct distributions, and continue the donor’s charitable legacy. This fosters a sense of responsibility and connection to their family’s charitable goals, ensuring that their values and philanthropic mission continue across generations.

NOTE: If you are interested in learning more about converting a private foundation to a donor advised fund, please join us for our upcoming webinar, “Guiding Clients Through Private Foundation Succession, Transition and Sunset,” on October 2 from noon to 1:00 p.m. You can register for this webinar here.

Need additional assistance?

If you or your clients have additional questions about making gifts to MCF, we would be happy to help! Alison Helland, Director of Donor and Advisor Engagement, can assist you or refer you to another member of our Donor Engagement team to serve as a resource for your specific situation. You can reach Alison via e-mail at ahelland@madisongives.org or via phone at 608-446-5937.

Please note that this article 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.