April-May 2022


Letter from the President

Spring is Here!

Spring is upon us and the newness of the season is refreshing. This is my favorite time of year. The blooming flowers, trees sprouting leaves, and frequent rain showers all remind us that change has arrived. Well, the seasons are much like what happens in an organization. Whether the changes are from an internal source, outside influences or another scenario, being flexible is key. That flexibility is exactly what the Chesapeake Planned Giving Council (CPGC) credits to navigating the past two years of constant change and flux for many of us.

CPGC continues to bloom in the region and beyond, thanks to the continued support of our committed sponsors. It is an honor to partner with such wonderful organizations - as we continue to bring educational programs to our members and supporters, and opportunities to network with professionals virtually (in-person soon).

Also, CPGC has an awesome board – their diligence, hard work and sacrifice are unrivaled. They make every effort to provide members and supporters with rich opportunities for educational learnings, networking with peers, and to ensure that CPGC is the go-to professional resource.

The members of CPGC have continued to be supportive while our organization has weathered the everchanging landscape of the past twenty-four months. We are grateful for the support. The work of CPGC revolves around providing educational programing that keeps members and others - informed and aware of the latest trends and happenings in charitable giving.

In March, we had our Lunch and Learn: Perspectives on Philanthropy, presented by Dave Smith, Founder & CEO at Heaton Smith Group. He presented the results of the Giving USA: The Annual Report on Philanthropy 2021, and highlights from the Giving USA: Leaving a Legacy Report published in November 2019. The information focused on trends in giving by individuals, corporations, and foundations and how the data can impact fundraising efforts.

If you are interested in increasing bequests and learning about a creative way some organizations have excited their donor base about legacy gifts, join us on May 18, our first in-person event since 2019. Our presenters will be Senior Vice President, Philanthropic Planning & Services for The Associated Jewish Charities, Michael Friedman, and Senior Director of Gift Planning at Johns Hopkins University & Johns Hopkins Medicine, Ann Doyle. Visit our website for updated information and to register.

Let me know if you have any comments, ideas for programming, or to would like say hello – send an email to Info@ChesapeakePlannedGiving.org. The season has changed, and things are blooming! Join us for CPGC’s Spring gathering – hope to see you there.

Sincerely,

Aquanetta Betts, J.D.
CPGC, President
LinkedIn @AquanettaBetts

Planning for Your Donor Advised Fund Giving
By: Elise Saltzberg

With tax season upon us, charitable giving is on many people’s minds. One type of tax-deductible donation, which has been growing in popularity, is to a Donor Advised Fund (DAF).

DAF’s are easy to set up and manage. For many donors, the biggest advantage is the ability to receive a tax deduction now and decide down the road exactly which charity or charities will benefit from the gift. It’s like a savings account for charitable donations.

DAF’s can play an important role in Planned Giving. If funds are not distributed during the donor’s lifetime, the balance can be left to designated charities or passed to an heir who will decide where to donate the money. Or the estate can assign the DAF trustees responsibility for the funds.  Another benefit of DAFs is that large assets, such as property or valuable artwork, can be put in the DAF and transferred to multiple charities in the form of cash.

DAFs have a long history. The first was created in 1931, to allow donors to the New York Community Trust to support charitable causes they were passionate about, rather than leaving giving decisions to the trustees. DAFs were the purview of community trusts and foundations until 1991, when Fidelity Investments became the first commercial DAF sponsor. From that point on, DAF contributions have grown astronomically. 

Before deciding to open a DAF, donors should consider where they want their money to go and have a general plan for distribution. For example, some donors give away some or all their funds to favorite charities at the end of the year, while others save up and make large gifts every few years. Still others may choose to build a DAF during their lifetime, with the intension to donate it as part of their estate.

Making a distribution plan is important – because it addresses the downside of DAFs. Federal regulations do not require that DAF assets be given away. This means that donations can sit in accounts literally forever. Money that’s intended to benefit charities may end up having no benefit at all (except to the managing organizations that collect fees). To offset the potential for “warehousing” DAF donations, some financial organizations do require their DAF holders make periodic donations. But it’s more satisfying for many donors to make their own plan.

While most people in the charitable giving sector would agree that DAFs are beneficial, the concern about non-distribution has led to an organized push for government regulations that would address this issue. Another issue that has come to the attention of regulators is the fact that private foundations can skirt their requirement to donate a percentage of assets by shifting money to DAFs instead. Then it can be distributed without the transparency that is required of private foundations that have to file IRS form 990’s every year.

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About the Author

Elise Saltzberg

Elise Saltzberg has more than 30 years of professional experience in fundraising. She has worked exclusively as a Resource Development Consultant since 2000, with dozens of local, state, and national level clients.

Elise specializes in grant-writing, and has written hundreds of grant proposals that were successfully funded. In addition to crafting winning proposals, Elise conducts fundraising and grant-seeking trainings for nonprofit organizations. Her other areas of expertise include strategic fundraising planning, corporate partnerships, annual campaigns, and major gifts.

Elise hold an MA in Psychology from Ball State University and a BA in Psychology from Stony Brook University. She is a Certified Fundraising Executive (CFRE).

About the Author

Russell A. Willis III, J.D., LL.M

Russell A. Willis III, J.D., LL.M., is a tax lawyer and a consultant to other lawyers -- an advisor to the advisor -- on issues arising in connection with wealth transfers. Much of his practice is focused on structuring charitable contributions of closely held business and real property interests.

Among his other engagements, Russ is a manager of noncash research for Charitable Solutions, LLC, a planned gift risk management consulting firm headed by Bryan Clontz. About three years ago, he launched a newsletter, the Jack Straw Fortnightly, analyzing current developments in the law -- both tax and nontax -- concerning the transfer of private wealth in this country.

Russ has a law degree from St. Louis University and a master's degree in Taxation Law from Washington University in St. Louis. His undergraduate degree in English Literature is from Indiana University, Bloomington, and he has a master's degree in English from the University of Chicago.

Lost in the Footnotes
By: Russell A. Willis, J.D., LL.M

Three years ago, seems like forever, I gave a paper at the national conference in Las Vegas on accelerating life income gifts. There were two scenarios, a charitable remainder unitrust and a gift annuity.

In each case, to keep it simple, we looked at single life arrangements and relegated the two-life scenarios to footnotes. There is only so much you can cover in an hour and a quarter. But there were complexities lurking in those footnotes, which maybe should get more attention, especially as we seem to be seeing an uptick in these transactions lately.
Specifically: suppose our settlor, Jane, had named a successor noncharitable beneficiary, Sally, but had reserved a testamentary power to revoke in order to render that gift incomplete. Why testamentary? Because if the reserved power were exerciseable during life we would have a "grantor" trust, which would not qualify as a CRT.

If Jane wants to accelerate the trust remainder to the designated charity, she needs to get Sally on board, because Sally does have an interest in the trust, albeit contingent on her surviving Jane and defeasible by Jane exercising her power to revoke.

And then we have to decide, should Jane release her power to revoke or not?
If she does, this would complete a gift of a future interest to Sally, contingent on her surviving Jane. If the successor were a spouse, the gift would qualify for a marital deduction under Code section 2523(g), despite the fact that it is both contingent and deferred. But if the successor is for example Jane's child, we will be consuming a portion of Jane's applicable exclusion.

Even if Jane does not release her power to revoke, we still need Sally to participate in accelerating the remainder, but she would not be in a position to claim a charitable deduction, as her defeasible interest has no ascertainable value.

Or at least that is the position IRS took thirty odd years ago in a letter ruling, PLR 8805024. No deduction for the holder of the successive interest, in that case a spouse, because there was no "ascertainable assurance" her interest "[would] ever pass to charity." Presumably meaning she might not survive, and/or the settlor might revoke.

But obviously she did hold a transferable interest, albeit of zero value. Absent her assigning this interest to the remainderman, there would be no merger. The trust would continue to pay out over the settlor's life, but directly to the remainder org. And then if she survived the settlor and he had not exercised his power to revoke, she would step into the income stream.

So it is necessary for her to participate in the transaction, and her assignment does "assure" that her interest will pass to the remainder org, not at some future date, but immediately. Nonetheless, the letter ruling limited the taxpayers to deducting the present value of the settlor's life interest only.

Twenty years later, IRS issued another letter ruling, PLR 200802024, approving the workaround suggested above -- the settlor first releases her power to revoke, completing the gift to the successor, and only then do they each assign their separate interests to the remainderman.

We might then have to calculate separately the present values of Jane's life interest and Sally's deferred, contingent life interest, and claim the deductions on separate returns, but these would add to the present value of the two lives combined. If the successor were a spouse, we might still have to state the values separately even on a joint return.

One might ask, is it really necessary to perform this seemingly empty exercise? if we have Sally on board, isn't it clear what everyone intended? Would IRS actually make an issue of this? Hard to say.

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