Think Local: Why Transferring Donor-Advised Funds to CFWG Makes Sense

Thank you to so many of you who have reached out recently with questions about charitable planning strategies for your clients. The Community Foundation of West Georgia team is always here as a sounding board for you and other attorneys, CPAs, and financial advisors navigating philanthropic opportunities.

In our latest update, we're highlighting two tried-and-true strategies that can help your clients make the most of their charitable giving—especially when it involves closely held business interests or donor-advised funds.

–Many of your clients likely own their own businesses, and most of those clients are likely supporting charities in the community. That’s why it’s really important to know the benefits of giving closely-held business interests to a fund at the Community Foundation of West Georgia, as well as understand how to avoid pitfalls and mistaken assumptions that using a private foundation is the best move. 

–As you work with charitable clients, you may discover that they’ve established a donor-advised fund at a national commercial provider. It’s easier than your clients (and you!) might think to transfer this donor-advised fund to a donor-advised fund at CFWG, which offers the same tax benefits plus the benefits of local connection. Learn how it works, step by step, and how the community foundation can help.  

As always, we’re honored to be your first call whenever the topic of charitable giving arises. Our goal is to help your clients make a difference, especially during these uncertain times. The Community Foundation of West Georgia is here for you, for your clients, and for our community. 

Kim Jones

President

CFWG

Donating business interests: Why a fund at the Community Foundation of West Georgia is the ideal recipient

If your client base includes business owners, you probably weren’t surprised by this observation in a recent Wall Street Journal article about the “stealthy wealthy”: “Behind a paycheck, the largest source of income for the 1% highest earners in the U.S. isn’t being a partner at an investment bank or launching a one-in-a-million tech startup. It is owning a medium-size regional business.”

What’s more, the chances are very good that most of your business-owner clients are charitably-inclined. Indeed, more than 90% of small business owners have supported charities and community activities in the last year.

This means that you and other tax and estate planning advisors ought to have at least a basic level of knowledge about the benefits and mechanics of giving closely-held business interests to charity. When properly executed, this technique can be extremely effective to achieve the client’s financial and philanthropic goals.

Here are three very important components of this strategy:

Stop before you use a private foundation.

Some of your business owner clients probably have established a private foundation. But the private foundation is not the ideal recipient of private business interests. Donating closely-held stock to a fund at the community foundation is generally more tax effective than giving it to a private foundation due to several key differences in how the IRS treats these gifts. When your client donates closely-held stock to the Community Foundation of West Georgia, your client can typically deduct the full fair market value of the stock, up to 30% of adjusted gross income and also avoid paying capital gains tax on any appreciation. By contrast, if your client donates the same stock to a private foundation, the deduction is limited to cost basis up to only 20% of AGI, which is a significantly less favorable tax outcome.

Mind the timing. 

Encourage a business owner client to start planning for a gift of closely-held stock before putting out feelers to potential acquirers and absolutely before any part of a deal is inked. This is crucial because a gift to charity will avoid substantial unrealized capital gains that have accrued in the business over the years only if the gift and the sale are genuinely separate events, avoiding the step transaction doctrine. Careful planning will help ensure that the client’s fund at CFWG will receive 100 cents on the dollar for the portion of the stock it owns and the deduction won’t be thrown out. 

Respect the rules for valuation. 

Counsel your clients about securing a proper valuation for charitable deduction purposes at the time the business interest is contributed to the fund at CFWG. Valuation has always been a critical factor in any type of tax or estate planning strategy. Recently, the additional wrinkle presented by the Supreme Court’s decision in Connelly v. United States makes things even more interesting. The Connelly decision impacts the way business interests are valued for estate tax purposes. In Connelly, the Supreme Court held that life insurance proceeds indeed ought to be included in the value of a company without offsetting the redemption obligation. This could translate to higher taxable estates for your business owner clients, creating further incentive to leave a portion of closely-held stock to charity. The decision is also a reminder that careful planning can potentially avoid pitfalls.

As always, please reach out to the Community Foundation of West Georgia anytime the topic of charitable giving arises in client conversations. We are honored to be your first call on all matters of philanthropy. Most of the time, we can help. If not, we will absolutely point you in the right direction. 

Easier than you might think: Moving a donor-advised fund to CFWG

As you advise clients on charitable giving, you’re likely aware of the growing popularity of the donor-advised fund as a flexible, tax-efficient tool for philanthropy. Many families appreciate how donor-advised funds can streamline giving, foster family engagement, and serve as a launchpad for deeper community impact.

Recently, we’ve engaged with many professional advisors—attorneys, accountants, and financial planners—who work with clients utilizing community foundations in a variety of ways, ranging from contributing to important initiatives, supporting the community’s foundation’s operating endowment, making qualified charitable distributions from IRAs, or participating in foundation-hosted events that address critical local priorities. 

Interestingly, we have discovered that some advisors were not aware that their clients had established donor-advised funds through national financial institutions. Although these clients are familiar with the Community Foundation of West Georgia, they simply did not know that the community foundation could help them in multiple ways, including establishing a donor-advised fund to support favorite charities. 

It’s easier–and more beneficial–than you might think for your client to move a donor-advised fund to the community foundation! Here’s what you need to know:

Tax and administrative advantages are the same

The Community Foundation of West Georgia offers donor-advised funds with the same tax and administrative advantages as national providers, including:

• Online access for clients to view fund balances, contributions, and grant history

• Simple grantmaking process to qualified charities

• Consolidated tax reporting, often with a single year-end letter for all contributions and grants

• Comprehensive back-office support for administration, tax receipts, recordkeeping, and compliance with 501(c)(3) requirements

• Favorable tax deductibility for contributions, including gifts of cash, securities, and other assets

Added value at CFWGUnlike many national donor-advised fund sponsors, CFWG offers a suite of high-touch, locally-informed services that can enhance your clients’ philanthropic strategies, such as:

• Personalized service from staff experienced in structuring complex gifts (e.g., appreciated stock, real estate, closely-held business interests, estate gifts)

• Local expertise on community needs, nonprofit effectiveness, and high-impact grantmaking

• Opportunities for collaboration with other donors and access to educational forums featuring local and national experts

• Deep engagement in specific issue areas, including educational opportunities and hands-on involvement for clients and their families

• Impact measurement support to help clients track and communicate the outcomes of their giving

• Family and corporate philanthropy services to foster long-term, multi-generational charitable engagement

• Administrative fees that are reinvested in the community, supporting local operations and amplifying the community foundation’s mission

• Direct access to local experts who can research and recommend causes aligned with your clients’ goals

• Staff with deep community roots who maintain close relationships with nonprofit leaders and stay attuned to emerging needs

What next?

The steps to transfer a donor-advised fund are surprisingly simple: 

• Work with the CFWG team to establish a donor-advised fund. Our straightforward, easy-to-complete paperwork makes it seamless and fast. Your client can mirror the terms of the existing donor-advised fund, or adjust successor advisors and legacy provisions based on their charitable intentions. Our team will walk through the process with you and your client. 

• Work with your client to request a grant from the national donor-advised fund provider. Depending on the provider, this can sometimes be completed all online. Designate the community foundation (and reference the new donor-advised fund if possible) as the grant recipient.

• Your client may be able to grant the entire balance in one transaction. If not, most of the balance can be transferred to fund the new donor-advised fund, and you can work with your client to transfer the rest later. 

• Before closing the donor-advised fund at the national provider, your client should download grant history and contribution information for future reference and tax documentation. Note that transfers between donor-advised funds are tax-neutral; these transactions and not taxable events. 

We look forward to working with you and your clients to make the most of their charitable giving, especially by establishing a donor-advised fund at the Community Foundation of West Georgia to serve as the cornerstone of the client’s charitable giving plan. With a donor-advised fund as a baseline, your client can begin to tap into all of the many ways the community foundation serves as a home for charitable giving, from strategic grant making to legacy giving and everything in between. 

The team at CFWG is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.