a donor s guide to charitable giving dedicated to the idea that anyone can be a philanthropist

Transcription

1 a donor s guide to charitable giving dedicated to the idea that anyone can be a philanthropist we advance community philanthropy

2 The creation and printing of this Guide was made possible by a generous gift from the Leighty Foundation.

3 TABLE OF CONTENTS WAYS TO GIVE 1 Benefits of Working with the Pikes Peak Community Foundation 1 Outright Gifts 2 Gifts by Will 2 Charitable Remainder Trusts 3 Wealth Replacement Trusts 3 Life Insurance 3 Charitable Lead Trusts 4 Gift Annuities 4 Deferred Gift Annuities 4 Qualified Retirement Plans & IRA Benefits 5 Gifts of Real Estate PUTTING GIFTS TO WORK 6 Donor Advised Funds 7 Scholarships 7 Fiscal Sponsor Funds 8 Field of Interest Funds 8 Special Interest Endowments 9 Supporting Organizations (from a Foundation within a Foundation ) 10 Services to Private Foundations 10 Organization Endowments 10 Planned Giving Services 11 Comparison of Private Foundations & Community Foundations 12 Charitable Deductions & Percent Limitations

4 1 WAYS TO GIVE Benefits of working with the Pikes Peak Community Foundation For many years, citizens in the Pikes Peak region and around southern Colorado have chosen the Pikes Peak Community Foundation (PPCF) as a vehicle to make their philanthropic giving as effective as possible. We are a public charity with the flexibility to manage virtually any type of gift for any charitable purpose. Our active Board of Directors works hard to ensure PPCF s integrity for generations to come, and provides effective governance and monitoring of all strategic goals and accomplishments. Simple, Personalized Service Here at PPCF, we strive to help you achieve your charitable goals. We work with you and your family, along with your professional advisors, to design charitable funds tailored to your values, interests, and objectives. We help you achieve the satisfaction of creating your own charitable fund. You retain the flexibility to remain active in its grant-making, but avoid the complexity and administrative burdens of a private or family foundation. Family philanthropic funds give older family members a unique way to pass on family values and to introduce the joy of giving to younger generations. An endowment, or family donor advised fund, created in your or a family member s name (or to honor a loved one) becomes a permanent legacy that will be remembered far into the future. Remember that you also have the ability to create a fund anonymously due to the charitable structure of PPCF. Geographic Areas Served The primary focus of PPCF is to serve people who live in the Pikes Peak region. We make board-directed, discretionary grants to nonprofit organizations predominantly within this area where we have particular expertise in assessing community needs and designing innovative solutions. While we focus locally, donor advisors who have created a fund within PPCF can certainly recommend grants to qualified charitable organizations located anywhere in the country, with the full supporting services of PPCF. Tax Benefits As a public charity, PPCF offers the highest level of tax benefits for charitable giving. Donors can give a wide variety of property cash, stocks, closely held securities, real estate, or personal property and receive maximum tax benefits. Permanence You can be assured that your original charitable intent will always be honored by PPCF. An individual charity may change its mission over time, or even cease to exist. But permanent endowment funds at PPCF will benefit the community in the name of the donor, for the purposes they specify, forever. If the original purpose of the fund becomes obsolete or impossible to achieve, the Board of PPCF has the legal authority to redirect the fund to the nearest possible use without lengthy court proceedings. Though circumstances may change, a donor s primary wishes will continue to be respected and carried out. Investment Management PPCF professionally manages its investments using the services of the foremost investment consultants in our community. We employ both investment pools as well as individually managed funds assigned to specific investment management firms. Our Finance Committee constantly monitors these managers for performance and compliance with PPCF s investment goals. Depending on your charitable goals, you may recommend investing your fund either with a specific investment manager or in one of our investment pools. Outright Gifts This is one of the most common and familiar forms of giving. You can make an outright gift to PPCF to

5 establish a personal fund, called a donor advised fund. Unless you choose to remain anonymous, your generosity is recognized by both the beneficiaries and the community as a whole. You can have the enjoyment and satisfaction of turning your charitable dreams into reality as your philanthropic dollars go to work. An outright gift accomplishes three important tax objectives: A charitable income tax deduction in the year of the gift The reduction of the your gross estate for future estate tax purposes Avoidance of capital gains taxes (on the increase in value over your basis) for gifts of appreciated property You can create or add to your fund over time with gifts of cash, publicly traded or closely held securities, real estate, and other assets. Clearly, all gifts are subject to deductibility limitations as determined by the IRS for different types of gifts made to public charities. Gifts By Bequest or Through Your Will A testamentary gift is often the simplest way for you to make a significant, lasting gift to the community. After the needs of a spouse, children, and other loved ones have been addressed, many individuals find it satisfying to know that a portion of your resources will go toward the common good. A charitable fund creates a permanent legacy in the donor s name or the name of a loved one that will serve the community for generations to come. When you are involved in the estate planning process with your professional advisors, make sure you ask yourself a simple question, Are there any charitable interests I should support through my will? Your professional advisors, working with charitable gift planners at PPCF, can find the best ways to make that happen. A testamentary gift also can significantly reduce the potential federal estate tax burden as well as any state tax due at your death. A bequest to create a named fund at PPCF qualifies for the maximum charitable deduction allowed by law. A testamentary gift can create a dramatic tax savings for the estate, and enable you to make a significant charitable gift at a relatively small cost to your heirs. If your exact charitable wishes are made obsolete or impossible to achieve by the passage of time, PPCF retains the ability to redirect grants to the next nearest purpose. Even though community needs may change over time, or specific organizations may no longer exist, we continue to honor your intentions to the highest degree possible. A philanthropic fund at PPCF can be created through a specific bequest of cash or property, a percentage bequest, a residual bequest, or a contingent bequest. Charitable Remainder Trusts (CRT) Charitable remainder trusts provide powerful estate planning tools. For example, you can place assets in trust and specify that either a fixed dollar amount or a fixed percentage of the trust s value will be paid to a beneficiary (usually you, your spouse, and/or children) for a period of years or for the life of the beneficiary. [Important Note: We recommend an asset level of $250,000 or more for CRTs; for lesser amounts, we recommend a charitable gift annuity.] At the same time, you can specify that the remaining principal, at the end of the trust term, will go to charity. Remember that in general, PPCF can serve as the trustee and/or custodian of these kinds of trust agreements, as long as the charitable remainder creates a fund within PPCF for the benefit of the community. Example of A Gift by Will 2

6 3 Advantages of a Charitable Remainder Trust Although the assets do not go to charity until the end of the trust term, you receive an immediate charitable deduction for the discounted present value of the remainder gift, thus reducing current income taxes. The trust assets usually are removed from your estate, saving estate taxes at death. Since a charitable remainder trust is tax-exempt, the trust does not pay capital gains taxes on the sale of donated appreciated assets. Thus, you can often increase your annual income while diversifying your financial assets. In this way, you have the satisfaction of knowing that the remainder of the trust assets will be used to benefit the community as you have specified. The charitable remainder trust is an ideal vehicle for: Someone who has appreciated, but low-yielding, assets Someone who wants to increase current income without incurring capital gains taxes Someone who wants to reduce estate taxes and maximize the estate passed on to heirs Someone who wants to make significant future charitable gifts Wealth Replacement Trusts A wealth replacement trust uses life insurance to replace the amount being transferred to charity via a charitable remainder trust. This strategy can provide benefits for your heirs along with significant tax advantages. Advantages of the wealth replacement trust Cash from insurance for heirs-outside of your estate Gift to the community through PPCF Life insurance Life Insurance Many people find that when their children have grown and educational costs have been met, they no longer need all the life insurance they did when they were younger. The most common, simple, and straightforward gift of life insurance is the outright gift of a paid-up, but unneeded, policy to PPCF. You can receive a charitable deduction equal to the replacement value or your cost, whichever is less. Younger donors who are earning a moderate income but have not yet accumulated substantial assets can also use life insurance to make significant gifts. They purchase insurance, naming their philanthropic fund at PPCF as owner and irrevocable beneficiary. Each year they pay the premium, which is fully deductible as a charitable contribution. At their death, the proceeds of the policy pass to the fund free of estate taxes. Charitable Lead Trusts A lead trust is essentially the inverse of a charitable remainder trust. That is, you place assets in trust and specify that a fixed amount or fixed percentage of the value of the trust each year will be paid to charity for a period of years. At the end of the trust term, the principal of the trust passes intact to a named individual beneficiary (or beneficiaries) or even back to you in a tax-advantaged way. Qualified Non-grantor Lead Trust Under a qualified non-grantor lead trust, the trust assets pass to someone other than the donor at the end of the trust term. The donor receives a gift tax deduction at the time the trust is created. The appreciated value of the lead trust passes to the beneficiaries at the end of the trust term, with the growth in the trust assets being transferred free of gift or estate tax. The non-grantor lead trust is best suited for Someone who can afford to live without the income from a portion of his or her assets Someone who has accumulated significant assets and wishes to pass a portion of them to heirs Someone who is concerned about estate taxes, gift taxes, or generation-skipping taxes in transferring property to heirs Qualified Grantor Lead Trust Under a qualified grantor lead trust, the trust assets revert to the original donor or their spouse at the end of the trust term. The donor qualifies for a charitable in-

7 come tax deduction in the year the trust is created for the present value of the gifts to charity during the trust term. If the donor funds the trust with tax-exempt assets, he or she also may avoid tax on the trust income. The grantor lead trust is most appropriate for Someone who can afford to live without the income from a portion of his or her assets for a period of time Someone with unusually high income in a particular year who wishes to accelerate an income tax charitable deduction for future gifts Gift Annuities A charitable gift annuity is a simple contract between a donor and PPCF. In exchange for a donor s contribution, PPCF promises to make fixed, guaranteed payments for life to one or two annuitants (often the donor). The amount paid is based on the age of the annuitant at the time of the gift, in accordance with PPCF s regularly updated software for gift annuity rates. This gift provides a unique opportunity for you to enjoy lifetime income and tax benefits, while also being able to choose nonprofit organizations that will benefit from the remainder interest. The minimum amount to set up a charitable gift annuity is $10,000. When the gift annuity ends, the money remaining, up to the original gift amount, will be used to create a permanently endowed fund at PPCF to benefit a charity chosen by the donor. Deferred Gift Annuities Be aware that you may elect a deferred gift annuity by which you receive larger annuity payments, but beginning later in life. With this gift instrument, you receive a larger income tax deduction than for a current gift annuity. A deferred gift annuity works well for people in a high tax bracket who expect their income to decrease in the future when they retire. Qualified Retirement Plans & IRA Benefits [Important note: Rules and regulations about these assets have been subject to changing federal legislation in recent years. Please contact our staff for the latest information on IRA rules.] Qualified retirement plans and Individual Retirement Accounts (IRAs) may often be the largest part of your estate. While you and your spouse are living, rules generally require the distribution of a certain portion of these accounts annually. When both husband and wife are deceased, a combination of estate taxes, income taxes, and generationskipping taxes may reduce the account value up to 70%. Faced with these burdensome tax rules, many people prefer to make more of these assets available to family members or to charity, rather than see the majority of the assets consumed by taxes. One way to greatly reduce estate and income taxes is to use these assets to satisfy charitable desires after your death. In Example of a gift funded by retirement benefits: A local business owner who is 60 years old and married has substantial assets in a qualified retirement plan. After his death, his wife will be the beneficiary of the retirement plan benefits. He and his wife have other assets, and it is unlikely that they will need all of the assets of the qualified plan. They are very much charitably inclined and want to give a portion of their assets to charities in the Pikes Peak region. It appears that taxes will consume approximately 70% of the assets in the retirement plan after both the husband and wife are deceased. The couple s children will be the ultimate beneficiaries. Their attorney, after consulting with the staff at PPCF, determines that the retirement plan is the best place to get funds to make charitable gifts and suggests the following actions: A recommendation that they withdraw a portion of his plan assets each year. In the same year that funds are withdrawn from the retirement plan, the client contributes the withdrawn funds to a Donor Advised Fund at PPCF. They receive an income tax deduction for the gift and avoid income tax on the annual withdrawal. The Donor Advised Fund becomes an on-going vehicle for the entire family to recommend charitable gifts and carry on the parent s charitable interests. If they decide that they need the retirement plan assets to provide income to them during their lifetimes, they could make PPCF the beneficiary of the assets of the retirement plan after the death of the client and his wife. PPCF will receive the plan assets free of estate and income taxes, thereby eliminating most of the taxes that would otherwise be owed if the retirement plan is made payable to the children. In this way, they can still accomplish their charitable goals. 4

8 some cases, this approach is combined with the use of lifetime distributions from the account to fund the purchase of life insurance. The life insurance then replaces the assets that would otherwise pass to your children and other family members were it not for the burdensome tax environment for qualified plans and IRAs. From a tax standpoint, those of you who have already decided to make charitable gifts often find that it is prudent to withdraw funds from a qualified plan or IRA, rather than to deplete other assets which are not taxed as heavily at death. In some situations, a donor can receive a distribution from the qualified plan or IRA (which is subject to income tax) and make a charitable contribution in the same year without negative income tax consequences. This strategy allows you to make the charitable gift while living and to preserve other assets that will be taxed least at death. Combining Charitable Remainder Trusts With Retirement Plans or IRAs at Death The owner of a qualified retirement plan or an IRA may name a charitable remainder trust as the beneficiary of the plan. After the death of the account owner, payment of the plan assets to a charitable remainder trust can avoid the income taxes that would otherwise be assessed, while providing income to your spouse or children, and reducing estate taxes. Gifts of Real Estate Real estate gifts often involve a variety of special considerations. Potential environmental hazards, marketability assessments, easements, split interests, liens, debts, and other factors often encumber a potential gift of real estate. For these reasons and others, PPCF established the Pikes Peak Real Estate Foundation (PPREF), as a foundation within a foundation at PPCF. Board members have been recruited for their special knowledge and expertise in real estate matters. Please contact the staff at for current policies and procedures related to gifts of real estate. A Remainder Interest in Your Home or a Farm or Ranch Given the changes in property values over the past few decades, it is not unusual for people to have a substantial portion of their net worth tied up in their home. A life estate contract can allow you to increase current cash flow by virtue of the current charitable income tax deduction, remain in your home during your lifetime, and provide a substantial gift to charity after your death. Through a life estate contract, you can commit a primary residence, vacation home, or farm to pass to charity at death (giving the charity a remainder interest) while retaining use of the property during your lifetime. The life estate contract has value for: Someone who could use an up-front charitable deduction for the remainder value of the property, thus increasing current cash flow Someone who seeks to reduce estate taxes by removing the property from their estate Someone who would like to relieve their heirs of the burden of disposing of the property As with the charitable remainder trust, you can use a portion of your increased current income to purchase life insurance to replace the value of the property for your heirs. Example of a Real Estate Gift and Life Estate Plan 5

9 PUTTING GIFTS TO WORK Donor Advised Funds A donor advised fund is one of the most commonly selected options at PPCF because it is simple, easy to establish, and offers great flexibility. You can set up a donor advised fund without naming any specific charity as beneficiary, and receive a full charitable deduction in the year the fund is created or increased. For tax reporting purposes, you only need to document your gifts to the fund. As its name suggests, you advise the Foundation about grants to be made to charitable organizations from the fund. Your spouse or children may also advise on grants from the fund. From a fiduciary perspective according to the IRS, the final decision must be ratified by PPCF s Board of Directors. As part of its donor services, PPCF can help you sort through the hundreds of charitable organizations serving the area and identify worthwhile projects to support in a particular field of interest. As an added safeguard, the Foundation oversees grants from donor advised funds to ensure that all recommended recipients are legitimate charities. You can recommend grants to any tax-exempt charity in any geographic location, and are not limited only to nonprofit organizations in the Pikes Peak region. Specific Types of Donor Advised Funds Donor advised funds allow you to simplify and consolidate all your charitable giving without the legal and administrative burdens of running a private or family foundation. There are two types of donor advised funds. Permanent donor advised funds are funds that are maintained as endowments with distributions cal culated to preserve principal. Non-permanent (also called pass through ) donor advised funds are funds that allow you to recommend grants from both the income and principal of the fund. The entire fund could be exhausted by charitable grants if you so wished. A donor advised fund should be considered for: Someone who wants maximum flexibility to give to various charities or to change beneficiaries over time Someone who wants to involve a spouse or children in charitable giving Someone who currently makes cash gifts to numerous charities but would save income taxes by giving appreciated property instead Someone who is considering creating a private or family foundation but would like to avoid the cumbersome and complicated IRS requirements of operating such a foundation (such as the minimum annual distribution requirement, submitting the challenging Form 990 tax return, administrative responsibilities, avoiding jeopardy investments, and annual excise taxes) Someone who wants to maintain a steady level of charitable giving but whose income fluctuates Someone who has an exceptionally high income year in which they would like to make a tax deductible gift but who would like to defer making grants to individual charities until later Someone who would like anonymity in the creation of the fund and/or in making some or all of the grants from the fund Someone who knows what kind of charitable grant they would like to make at a certain time each year, but prefers to let PPCF handle the details. Using a Donor Advised Fund as Part of an Estate Plan 6

10 Creating a Donor Advised Fund is Easy A donor advised fund can be established with a simple agreement. The agreement lists the name of the fund, the advisors to the fund, and the initial amount of the gift. Additional contributions may be made at any time. Scholarships PPCF administers a wide variety of scholarship funds, which may be established by individual donors, families, organizations or corporations. Scholarship funds can be targeted to students from a particular geographic area or school, to students studying a specific field of interest, or for a designated career focus. Scholarship recipients are selected on a competitive basis and criteria generally include academic and nonacademic factors as well as demonstrated need. The Foundation staff will work with you to set up a scholarship fund that meets your charitable objectives. Fiscal Sponsor Funds A Fiscal Sponsor Fund may be established to support a worthwhile charitable effort or community project that does not have a permanent administrative organization in place. This type of fund is usually temporary. PPCF acts as the fiscal sponsor, receives gifts from multiple donors, and makes payments for all related expenses. For example, the Stop Family Violence Coalition set up a Fiscal Sponsor fund to support a variety of community activities connected with the prevention of domestic violence. In another example, a group of citizens in Manitou Springs created the Fountain Creek Restoration Project fund. Discretionary endowments Discretionary endowments are permanent funds that are designed to fund the most pressing needs of the community. Those needs often change over time and may fall into several categories, including health, human service, education, environment, and the arts. The Erikson Fund, benefiting visually impaired and blind citizens, serves as a good example of a discretionary endowment that was created by the Board of Directors of PPCF. The Board of Directors exercises its discretion in distributing the income from these funds. The general endowment of PPCF is the Foundation s least restricted endowment. Income from this endowment is used to make discretionary grants to nonprofit organizations within the Foundation s entire geographic area of service. Nonprofit applicants can find guidelines for grant opportunities policies on the PPCF website at Donors can make gifts in any amount to these endowments. Individuals, families, corporations, or foundations can also create named discretionary endowments. (See example of a gift by will, page 2.) Making a gift or bequest to a discretionary endowment is one way to create a living legacy-- one that is able to grow and be responsive to the changing needs of the community. Discretionary endowments are best suited for Someone who wants to give maximum flexibility to PPCF to meet community needs as they arise. Gifts to such discretionary endowments recognize that no single person can foresee the future concerns of the community, or the best ways to address them 20, 50, or 100 years from now Gifts of Closely-held Securities 7

11 Someone whose motivation is to give back to the community in general, rather than to direct support to a particular organization or cause Someone who has broad charitable interests or someone who is considering creating a private foundation for broad charitable purposes Requirements to Create a Named Discretionary Endowment Fund A gift of $5,000 or more is required to set up a named discretionary endowment fund. Additional gifts may be made at any time to augment an existing fund. All named funds are listed in the annual report of PPCF. Field of Interest Funds A field of interest fund, as the name implies, allows you to address a cause or special interest without being locked into naming a specific charity. With this option, you name the purpose of the fund such as meeting the needs of children, or providing affordable housing, or helping with open space easements and PPCF identifies and recommends the projects that can most effectively accomplish that goal at any given time. Field of interest funds are most appropriate for Someone who has an interest in a particular charitable cause, rather than specific organizations Someone who may be considering a private foundation to support a cause Someone who recognizes that specific charitable organizations change in mission and effectiveness over time Someone who wishes to establish a memorial to an individual by recognizing the individual s interest in or accomplishments in a given area of concern Requirements to Create a Field of Interest Fund A minimum of $5,000 is required to create a new field of interest fund. In addition, contributions of $5,000 or more may have a named fund within an existing field of interest fund. Each named fund is listed in PPCF s annual report. Special Interest Endowments A special interest endowment names a particular charity or charities of your choice to receive annual income. The specified charity benefits from PPCF s investment management capabilities and organization. You have the assurance of knowing that the principal can never be invaded, and that the charity you ve selected will continue to receive funding. If for any reason the named organization should cease to exist, PPCF s board will redirect the fund to a charity that most closely meets your original intent. The special interest endowment is ideal for Someone who wants to make an endowment gift to a charity that does not have extensive investment management capability Someone who wishes to support a particular charity but wants third-party oversight to ensure that principal is preserved or that the gift is used as he or she specified Someone who wants to make an endowment gift to a new, small, or struggling charity Someone who wants to support several named charities through one substantial gift Creating a Special Interest Endowment 8

12 Requirements for a Special Interest Endowment You can choose to contribute to one of the many existing special interest endowment funds, or you can create a new endowment with a minimum gift of $5,000. One example is the Venture Fund at PPCF that helps support innovative solutions to community challenges and opportunities. This fund provides resources for special initiatives selected by the Board. Supporting Organizations A supporting organization (sometimes referred to as a foundation within a foundation ) is a charitable organization with its own separate board of directors. Typically a nonprofit corporation, the supporting foundation has a separate identity and makes its own decisions regarding charitable grants. However, the supporting organization is organized and operated to carry out the purposes of a supported public charity. By using PPCF as the parent organization, the supporting organization maintains maximum flexibility because of the broad mission of PPCF. A supporting organization provides many of the advantages of a private foundation, but is treated for tax purposes as a public charity. Such public charity tax treatment has many advantages over a private foundation including: The ability to deduct the fair market value of donated real property or closely held assets, rather than the cost basis of such assets donated to a private foundation Raising the adjusted gross income limitations of the donor for charitable deductions when compared to gifts to private foundation from 30% to 50% for cash gifts and from 20% to 30% for gifts of appreciated property Avoiding private foundation prohibited transaction rules Avoiding the 1% or 2% annual excise tax applicable to private foundation investment income In the case of PPCF, a supporting organization must serve the same purposes as PPCF, which means making charitable grants for the benefit of the community. PPCF staff supports the administrative needs of the supporting organization, and may assist by reviewing grant requests, if desired. Other services can be customized as needed. A supporting organization should be considered for Someone who wants flexibility to give to varying charities, prefers dis tinct visibility in grant-making, prefers more autonomy in grant decisions than afforded in other PPCF funds, but desires public charity status rather than private foundation status for some or all of the tax reasons stated before An existing private foundation that wants to access the administrative support of PPCF (such as tax re porting, investment management and, perhaps, re search of grant requests) Someone who may be considering creating a private foundation but who finds that his or her charitable objectives can be achieved more easily with the public charity status of a supporting organization How a Supporting Organization Can be Effective 9

13 Requirements to Create a Supporting Organization A supporting organization may be an excellent alternative for someone who is considering a significant charitable gift. It may also be a good choice if your objectives cannot be achieved through any other means at PPCF. Both PPCF and the Internal Revenue Service must approve the legal documents establishing a supporting organization. Services for Private or Family Foundations PPCF can design customized services to meet the specific needs of a corporate, private, or family foundation. Types of services might include: Sophisticated grant management software Investment management and oversight Expert consultation on community issues Administration of a grants program or scholarship fund Other services such as grant screening, review, field trips, and evaluation of nonprofit organizations are available on request Please be aware that fees vary based upon the types and complexity of services requested. Organization Endowments An organization endowment is designed to strengthen nonprofit organizations by providing sophisticated, longterm investment management of endowment funds. PPCF can provide endowment services to all charitable entities in PPCF s regional service area. By using PPCF s expertise, a nonprofit can focus its talents on its primary mission. How an Organization Endowment Works A nonprofit organization makes a gift of endowment funds to PPCF. These funds are set aside for the benefit of the non-profit organization. PPCF conservatively invests these funds, based on close consultation with the charitable organization establishing the endowment. Then once a year, the Foundation distributes funds from the endowment to the nonprofit organization. Annual distribution amounts can vary, but generally equal about 5% of the value of the endowment. Rules for distributions out of endowments are established through a specific fund agreement. Organization endowments are monitored through the Foundation s annual audit and fiduciary tax returns. As the endowment fund grows over time, both through appreciation of assets and through additional gifts, the nonprofit benefits from increased cash flow. Under current IRS regulations, nonprofits can reserve the right to request the return of some or all of the principal. Planned Giving Consulting Services We work closely with professional advisors, with nonprofit organizations, and with individuals and their families to provide accurate information and forward-looking scenarios for charitable gift planning. We use sophisticated software with always-current updates from the IRS. Our staff will meet with interested people to help create a custom plan that helps accomplish both charitable and financial goals. This service is free. For nonprofit organizations, we can provide advice, consult, serve as trustee or custodian for planned gifts, or simply help educate about the complexity of planned giving. These services are carefully tailored to the needs of the nonprofit and their clients or donors. Give us a call to learn how we might strengthen your knowledge of these important charitable giving strategies. Creating an Organization Endowment 10

14 Comparison of Community and Private/Family Foundations Pikes Peak Community Foundation Private/Family Foundation Donor Advised Funds Tax treatment of cash gifts Deductible up to 50 percent of Adjusted Gross Income (AGI). Deductible up to 30 percent of AGI. Tax treatment of gifts of appreciated publicly traded securities Full market value deduction up to 30 percent of AGI. Full market value up to 20 percent of AGI. Tax treatment of closely held stock or real estate Full market value deduction up to 30 percent of AGI. Deduction limited to donor s cost basis, up to 20 percent of AGI. Excise taxes No excise taxes. Excise tax of 1-2 percent of net investment income annually. Required payout No required payout. Can accumulate income toward a sizable project or grant. Has flexibility to hold low-yield property. Required to expend 5 percent of asset value annually, whether or not the Foundation s investments earn that amount. Incorporation and tax exemption Automatically covered by Community Foundation. Must create corporation or trust and apply for tax exemption. Privacy Individual donors or grants can be kept private. If donor wishes, Community Foundation can serve as a buffer between donor and grant-seekers. Foundation required to file detailed tax returns on grants, investment fees, trustee fees, staff salaries, etc. These are public records, available on the Internet, and are compiled into directories for grant-seekers. Liability and insurance Automatically covered by Community Foundation s liability and office insurance policies. Director s and officer s liability insurance, employee bonding, and office insurance must be separately purchased. Investment, accounting, audit, and tax returns The Community Foundation handles all investments and accounting, filing an annual tax return and providing an annual independent audit. Trustees must perform, contract, or hire staff for these services. General administration Community Foundation handles all financial and administrative management. Trustees must perform, contract, or hire staff for these services. Grant administration If donor wishes, Community Foundation can assist in identifying potential recipients, investigating applicants, making grant payments, and monitoring performance. Trustees must perform, contract, or hire staff for these services. 11 Costs The Community Foundation s fees for most permanent funds range from 0.9% to 1.75% of the fund balance annually. Private foundations of under $1 million had average costs of 9.5% of assets. For more information visit

15 Cash Charitable Deductions and Percent Limitations for Various Types of Assets Donated to Pikes Peak Community Foundation Type of Asset Short-Term Capital Gain Ordinary Income Property Stocks, bonds, capital assets held less than one year Inventories Agricultural products Oil and gas property Charitable Deduction and Limitation Deduction is typically limited to cost basis and is deductible up to 50% of the donor s Adjusted Gross Income (AGI) in the year the gift is made, if the donor itemizes deductions. Any excess contributions can be carried over the next five years. Example: Mr. Jones has an adjusted gross income of $300,000. He makes a cash gift of $200,000 to the Community Foundation. The first year he may deduct up to 50% of his $300,000 AGI (up to $150,000). The remaining $50,000 of his charitable gift may be deducted the following year. If Mr. Jones decides to give $200,000 to a private foundation instead of a public charity, he will be limited to a charitable deduction of 30% of his $300,000 AGI (a one-time deduction totaling $90,000). From a tax standpoint, donors find it more beneficial to make large contributions to a public charity like the Community Foundation, than to a private foundation. Long-term Capital Gain Property Stocks, bonds, capital assets held more than one year In general, the charitable deduction is equal to the fair market value at the time of the gift, and is limited to 30% of the donor s AGI (50% if taken at cost basis). Any excess contributions can be carried over the next five years. Tangible Personal Property Artwork Antiques Jewelry Coin collections Deductions for gifts of personal property to foundations are generally limited to the cost basis of the gift and are deductible up to 50% of the donor s AGI. Any excess contributions can be carried over the next five years. Special rules may apply to gifts of artwork. Real Estate If raw land without any element of depreciable property is donated, the amount deductible will be equal to the fair market value of the land and the 30% limitation will apply. If the property contains depreciable assets or is mortgaged, a separate calculation is made. Because of the special environmental and other concerns inherent in gifts of real property, the advisors should consult the Community Foundation regarding the specific policy. Closely Held Stock In contrast to gifts made to a private foundation, charitable gifts of stock in a closely held corporation may be made to a fund in the foundation with the same deduction rules as apply to publicly traded securities. Because of the special issues of valuation and corporate privacy inherent in gifts of closely held securities, the advisors should consult the Community Foundation regarding the specific policy. 12

16 Major Projects of the Pikes Peak Community Foundation: Fogino Farms at Villa Tarabino Trinidad, CO Pinello Ranch Colorado Springs, CO 13

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18 730 N. Nevada Avenue Colorado Springs, CO Fax: