Giving Advice Summer 2010
An Advisor eNewsletter from Madison Community Foundation
In This Issue
Madison Community Foundation will be hosting an Economic Outlook event on Thursday, October 14, 2010 from 8:00 a.m. to 10:30 a.m., at the BioPharmaceutical Technology Center in Fitchburg. The speaker for this event will be Michael Strauss, Chief Economist of Commonfund, one of the investment advisors for Madison Community Foundation.
For more information, email
Darcy Kobinsky, Officer Manager, or call (608) 232-1763.
Increasingly, you may be encountering clients who seek to maximize positive social impact in all aspects their investments, including their philanthropy. The Madison Community Foundation partnership with Walden Asset Management, a leader in socially responsive investing, can help you meet the needs of those clients.
Socially responsible investing (SRI) is a growing trend in philanthropy, now encompassing an estimated $2.71 trillion out of $25.1 trillion in the U.S. investment marketplace today.* Consideration of environmental, social and corporate governance join standard financial analysis as criteria for financial decisions. SRI may also be referred to as “responsible”, “mission”, “ethical”, “sustainable” or “green” investing. Institutional investors, such as Madison Community Foundation, represent the largest and fastest growing segment of the SRI world.
Since 1975, Walden has been a leader and innovator in social investing, delivering positive results on both financial and social investment objectives. Walden is a division of Boston Trust and Management Company, itself employee owned and managed. The company maintains an investment philosophy that emphasizes careful consideration of asset allocation and portfolio diversification along with a focus on financially strong companies. With an aim to achieve superior long-term investment results, Walden invests in companies with strong social, environmental, and governance records and works with those companies to strengthen corporate social responsibility.
Madison Community Foundation donors traditionally choose their portfolio focus at fund inception. For those individuals who advocate for social accountability and positive social change, the Walden SRI portfolio is the option.
To find out more about helping your clients make the world a better place with all aspects of their philanthropy, email
Amy Overby, Vice President, Donor Relations, or call (608) 232-1763.
*
Social Investment Forum, “Socially Responsible Investing Facts”
After the Senate for the third time failed to advance the American Jobs, Closing Tax Loopholes, and Preventing Outsourcing Act of 2010 (H.R. 4213), also known as the “extenders” package, Senate Majority Leader Harry Reid (D-Nev.) said he would put aside the measure so that the Senate can focus on other legislative proposals, including an amendment which would reinstate expanded unemployment insurance (UI) benefits (which expired at the end of May). On June 30, the Senate officially adjourned for the recess but did not pass an extension of expired UI benefits. Sen. Reid remained optimistic that the unemployment insurance benefits bill will pass in the Senate after the Independence Day recess, which ended July 12. Completion of action on the unemployment bill could then put Senate Democrats in a position to resume consideration of the tax extenders legislation. It is hoped that the Senate will return its attention to the extenders package relatively quickly after an unemployment bill is cleared.
H.R. 4213, would extend the IRA charitable rollover and a number of other charitable-giving incentives that expired at the end of 2009, among other provisions. The IRA provision proposes to extend tax-free distributions from individual retirement plans for charitable purposes. Specifically, the bill would extend through December 2010 the provision that permits taxpayers age 70 ½ or older to make tax-free charitable contributions of up to $100,000 per taxpayer, per taxable year from an IRA.
To follow the status of this bill, or other legislation impacting philanthropy, check out the Council on Foundations’
public policy updates.
This is the year your clients can take advantage of rule changes for converting a traditional IRA to a Roth IRA.
Beginning in 2010, the adjusted gross income level of $100,000 is no longer a limit on eligibility for a Roth conversion. Higher income taxpayers now have the opportunity to convert money into a Roth IRA for tax-free growth at retirement. If the client is over the phase out limits of the Roth IRA, however, they may not contribute new money to a Roth. New money can, however, be contributed to a non-deductible IRA and then immediately afterward be converted to a Roth IRA to avoid tax consequences.
The conversion will be treated as a taxable distribution, creating a tax liability which must be weighed against the benefits of tax-free distributions from the IRA in the future. Clients who make a conversion in 2010 will have the choice of recognizing the income entirely in 2010, or reporting 50% in 2011 and the remainder in 2012.
If you and your client conclude that a Roth conversion is a good strategy for their situation, they may find themselves in a considerably higher than usual tax bracket. Strategic charitable giving can be used to offset some of the additional taxes that will result. Madison Community Foundation can help you and your client structure a charitable fund(s) to support their charitable giving well beyond 2010.
For detailed information on the conversion rules, go to the
IRS website.
The ACGA (American Council for Charitable Gift Annuities) has approved a slight increase in CGA rates for the first time in seven years. The new rates were effective July 1, 2010.
“If you have older clients who have been on the fence about creating a gift annuity,” says Ann Casey, Madison Community Foundation Vice President of Finance & Planned Giving, “now might be a good time to encourage them to take action to lock in the higher rates.
In general, the new rates for immediate CGA’s are 0.1% - 0.2% higher for donors in the 65 to 90 age range. . The ACGA has also increased the rates for deferred gift annuities
Persons Who Might Benefit From a Gift Annuity*
Most gift annuity donors are retired, want to increase their cash flow, want the security of guaranteed payments, and seek to save taxes. A charitable gift annuity could be right for your clients in any of the following circumstances:
- The interest rates on their CDs and other fixed-income investments have declined, and they would like to increase their cash flow.
- They own appreciated stock or mutual fund shares and have considered selling some of the shares and reinvesting the proceeds to generate more income, but they have hesitated because they don't want to pay tax on the capital gain.
- They would like to count on fixed payments, which are unaffected by interest rates and stock prices and which they cannot outlive.
- They want to assure continuation of payments to a surviving spouse without the delay of probate proceedings.
- They would like to provide financial assistance to an elderly parent, a sibling, or other person in a tax-advantaged manner.
Taxation of Gift Annuity Payments
If the gift annuity is funded with cash, part of the payments will be taxed as ordinary income and part will be tax-free. If funded with appreciated securities and the donor is receiving the annuity payments, part of the payments will be taxed as ordinary income, part as capital gain, and part may be tax-free. Madison Community Foundation will send an annual Form 1099-R to the annuitant to specify how the payments should be reported for income tax purposes.
Income Tax Charitable Deduction
Donors who itemize deductions can claim a charitable deduction for a portion of the CGA gift. This deduction can result in significant income tax savings. In short, the deduction is equal to the amount of the contribution less the present value of the payments that will be made to the donor and/or other beneficiary during life. The present value of those payments is determined using IRS tables regarding life expectancy and assumed earnings, and taking into consideration the amount contributed and the gift annuity rate. Madison Community Foundation will provide the donor with a calculation worksheet which can be used by the donor’s tax preparer to claim the deduction for the year the CGA is established.
* “Welcome to the Donor’s Corner”,
American Council on Gift Annuities online, July 8, 2010.
For more information on CGA’s, email
Ann E. Casey - Vice President, Finance & Planned Giving, or call (608) 232-1763.
Clients can’t always appreciate the value of endowments over direct donations and may need help to understand the multiplied power of an endowed fund. Local charity executives with agency endowments held at Madison Community Foundation have much to say about the impact of endowment funds on their organizations.
Access to a designated endowment affords a charity the ability to:
- Provide a predictable level of funding
- Reduce dependence on annual fundraising revenue
- Develop and implement innovative programs
- Raise the profile and reputation of the organization
Rachel Krinsky, executive director of The Road Home Dane County, appreciates the stability afforded by a crucial endowment:
"The Forever Fund is a critical piece of our housing strategy. The regular distributions will cover the difference between the affordable rents we charge our resident families and the actual costs. The Housing & Hope apartments are assured to remain affordable for decades, something we could not guarantee through annual fundraising projections."
Pam Smith, executive director of Dane County Humane Society (DCHS), is acutely aware of the advantages of not relying on fundraising alone for revenue. Distributions since inception of the fund add up to more than 100% of the fund value today. Pam explained:
"The annual distributions from our endowment have certainly helped Dane County Humane Society grow its service level while at the same time expand the number of types of programs offered in support of our mission, ‘Helping People Help Animals’. 10 years ago, DCHS more than doubled expenses as a result of moving to a new facility. Having this fund’s distributions helped offset revenue deficits while the organization restructured and moved to a balanced budget that has been critical to the stability of the organization."
Barb Dimick, Director, Madison Public Library, has depended on endowments for program development:
“Endowment distributions are a welcome addition in providing necessary services in Madison’s community libraries, especially during these times of fiscal constraint. Our endowments at the Madison Community Foundation have enabled us to reach out to various partners in the community to provide needed educational programs for both children and adults, to extend our literacy services to youth, and to add necessary collections, both books and computers, for the entire population. Often, endowment distributions for particular branches enable much-needed upgrades and improvements to the facility, its collections and services."
When donors have the option of providing an endowment gift that will keep on giving well into the future or to fund the needs of the moment such as operations and program funding, they have the assurance that the agency has a comprehensive funding plan and expects to be around for a long time.
Barb Dimick also appreciates the wisdom of multiple funding channels:
"Library endowments make a statement about the value of library services over time, underscoring the importance of libraries to their communities. People who give to endowments know that their gift will keep on giving, preserve services into the future, and maintain an important community asset. I think having an endowment at Madison Community Foundation stimulates more gifts to the Madison Public Library, as it indicates our commitment to leveraging partnership for prudent fiscal management of present and future resources."
Prior to joining Madison Community Foundation in 2007 as Vice President for Strategic Partnerships, Bob Sorge was Executive Director of the Wisconsin Chamber Orchestra. He provided the closing argument for the case of supporting endowments:
"Donors have worked hard for the assets they put into an endowment and expect that investment to carry out the charitable purposes in which they believe. Non-profits are able to benefit by earnings from the assets MCF holds in endowments for them, but they can never access the asset itself. If, for whatever reason, a non-profit ceases to exist, then the asset is used in the way the donor intended when it was given, albeit perhaps through another institution. At Wisconsin Chamber Orchestra it took us a year to come to the decision to hold our endowment at MCF. We needed to get comfortable with the idea that we would never have access to the principal of the fund. And yet, when you look at the intentions of the donor and the credibility of MCF, it was really the right choice. An endowment is forever and that’s the decision we made."
Madison Community Foundation currently holds over 900 funds, 244 of which are agency endowment funds, supporting specific, designated agencies.
MCF Staff is available to meet with you and your clients to answer any questions regarding the fulfillment of their philanthropic goals.
For more information, email
Amy Overby, Vice President, Donor Relations, or call (608) 232-1763