July 2024 Nonprofit News: DIY millionaires and summer tipsSelf-made: Charitable motivations of do-it-yourself millionaires
A recent study sheds light on how high net-worth people who’ve made their own money tend to approach philanthropy. As it turns out, self-made millionaires are more likely to give to charity than those who inherited their wealth–a whopping 93% reported doing so. People with legacy wealth are still likely to be philanthropic, but only 74% reported that they give to charity.
So what does this mean for your fundraising and stewardship practices, especially as you strive to build your endowment fund at the community foundation? As you’re building donor engagement strategies and expanding your roster of supporters, don’t just focus on “old money.” Consider three strategies to jumpstart your endowment-building efforts by engaging self-made donors:
Track local companies. In every community across America, local entrepreneurs have started enterprises from scratch. In addition, more and more of your donors are investing in private markets instead of simply limiting their strategies to stocks listed on the exchanges. (Indeed, the number of publicly-traded companies has declined significantly since the mid-1990s.) The result of these two trends is that a large portion of many donors’ wealth is represented by closely-held stock in businesses they’ve started or in which they are investors. Make sure local companies and the people involved in them are on your prospect list.
Talk the talk with entrepreneurs. Pay careful attention to the messages you use to engage entrepreneurs and people who own their own companies. These donors are likely to appreciate the investment characteristics of endowment gifts because they understand that an endowment’s long-term value is human-centered and not simply a financial strategy. Stay close to local companies and their owners as potential major donors, especially for long-term endowment giving.
Understand gifts of closely-held stock. The team at the community foundation can help you tap into the increased popularity and tax benefits of donors giving closely-held business interests to support favorite charitable causes such as your organization. We can help you navigate a thoughtful stewardship process to encourage a closely-held business owner to consider a gift of ownership interests to your endowment fund at the community foundation, whether during the owner’s lifetime in anticipation of a future (but yet-to-be-determined) exit, or upon death in the form of a bequest.
We look forward to discussing the ways self-made millionaires can help your organization thrive for generations to come. Please reach out anytime to strategize with our team. We are here for you!
Estate tax exemption sunset: A broken record you need to know
We’re giving you fair warning that the team at the community foundation is not going to stay quiet when it comes to emphasizing the importance of understanding at least the basics of the estate tax exemption sunset. Yes, we will be that broken record!
As a reminder, the estate tax exemption is the total amount a taxpayer can leave to family and other individuals during life and at death before the hefty federal gift and estate tax kicks in. This exemption is scheduled to drop big time after December 25, 2025. For 2024, the estate tax exemption is $13.61 million per individual, or $27.22 million per married couple. (Later this year, the IRS will issue inflation adjustments for 2025.) For 2026, without legislation to prevent it, the exemption is scheduled to fall back to 2017 levels. Adjusted for inflation, this would total roughly $7 million per person.
Of course, no one will know for sure that the estate tax exemption is sunsetting until it actually sunsets. Certainly the upcoming election could impact the likelihood that Congress will intervene and extend the tax cuts from 2017 that increased the estate tax exemption in the first place.
In any event, it is essential that you and your team understand what’s going on here so that you can be prepared to encourage your donors to discuss planning options with their advisors over the coming months while the issue is in limbo. You want your donors to know that you are on top of it!
The net-net here is that a lot more people–including many of your donors–could be subject to estate tax in the not-too-distant future. This, in turn, means that your endowment fundraising strategies could get a shot in the arm as your donors work with their advisors to plan gifts and bequests to decrease their taxable estates through the charitable deduction.
At the very least, the estate tax exemption is a fantastic conversation piece for your donor meetings, regardless of whether the sunset actually occurs at the end of next year. Potential tax increases tend to get donors’ attention, and you want to be right there in the mix to ensure that gifts to your endowment fund are on the radar. Please reach out to the community foundation team! We’d love to help you seize this opportunity.
Doubling down: Summer development tips
Even with many of your donors traveling or taking time off, summer is not the time for stewardship and fundraising to move to the back burner. Especially because endowment gifts and complex charitable giving structures take time to establish, mid-year presents an excellent opportunity to double down on development efforts.
For example, always remind your donors to give appreciated stock instead of cash. Absolutely it feels like you are a broken record! You mention the benefits of giving appreciated stock all the time in your donor communications. But it really can’t be overstated. Donors are so tempted to reach for the checkbook or credit card for charitable giving.
Emphasize to your donors that not only will transfers be eligible for a charitable deduction at fair market value, but also your organization won’t pay income tax on the capital gains (if the donor held the shares for more than one year). This means the donor will be making a much bigger gift than if the donor had sold the stock, paid the tax, and supported your organization out of the proceeds.
The community foundation is always happy to help you process gifts of appreciated stock, especially when a donor wants to give a large block of a single stock to support your organization as well as others.
And keep talking about QCDs! Donors who are 70 ½ or older absolutely must consider giving from an IRA. Certainly you mention this a lot in your discussions with donors, but sometimes donors are not ready to hear it, especially if they are on the cusp of reaching 70 ½ but aren’t there yet. They will listen differently when they’ve actually hit the age. As you know, a QCD allows a donor to direct $105,000 from an IRA to your organization, penalty-free. If a donor is subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. That means the donor can avoid income tax on the funds distributed to charity. The community foundation is happy to help you work with donors and their advisors to determine whether a QCD is a good fit to help maximize charitable giving.
This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.