Industry Insight

BY: KENNY GOTT

There is no shortage of great causes in the Springfield area…if you want to make a positive difference in the world, you can pitch in time, energy, and resources right here. What may be less understood is the razor thin edge within which many nonprofits live.

When I joined a Board Of Directors for an education-focused nonprofit a few years ago, I was excited to step up for an organization I had long admired, which I knew was transforming lives with dedicated volunteers, a critical mission, and an active, engaged Board. I was surprised to learn that despite a rich history of community support and robust fundraising efforts, the books were just not quite balancing from month to month.

As the past Executive Director recounts, “There is so much competition for resources, and this was during an economic downturn when many nonprofits were serving people who needed food or a place to live, so ours took a back seat to those more critical needs...and also larger nonprofits just have bigger budgets for marketing and advertising.”

In one of my first Board meetings I participated in a surreal discussion of the possibility of the organization being shuttered. I thought, “If only we could find just a few more donors.”

Fortunately the stars aligned just in time for us to seize an opportunity to significantly reduce office space costs and some other expenses, and we escaped disaster. But it was truly a narrow escape.

I learned from that harrowing experience that smaller nonprofits—maybe ones you support yourself right now—operate on budgets slim enough to be toppled too easily.

Here are ways you can be a hero for them, and potentially help yourself or your business from a tax planning standpoint.

Outright gifts of money or other much-needed tangible resources: take immediate income and gift tax deductions; IRS.gov webpage “EO Select Check” will help you verify your target organization is qualified. Keep a good paper trail for your accountant.

Bequests by will or trust: the nonprofit receives the gift, and again, your estate benefits from the deduction. Seek professional legal advice…there are many potential pitfalls but plenty of qualified attorneys to assist.

Charitable trust: this is another special instrument that will require an attorney to set up, but can be arranged in a number of flexible ways. For example income producing assets like dividend-paying stocks held in a “charitable lead trust” can generate income for a nonprofit for a period of time; then the principal returns to a family member or other heir. Conversely, a “charitable remainder trust” pays income to you or others first, then the remaining balance passes to the charity at death. Trusts such as these are great estate planning tools…potentially providing tax advantages along with support for beloved charities and heirs.  

A “donor-advised fund” is an account held at a nonprofit, designed to manage ongoing contributions from individuals or organizations (such as your business). It can hold money, securities, or other IRS-approved items of value, and appreciated assets may receive stepped-up basis to potentially reduce capital gains tax. You give up ownership and take the deduction, and you may even advise the charity (in a non-binding way) on how assets should be used. Not all charities are set up to house donor-advised funds, and there may be administrative costs for you, but under the right circumstances this may be a great alternative.

A “family foundation” is a specialized entity that provides grants to nonprofits, which in turn carry out charitable activities you wish to support. Family members manage the foundation, which may continue indefinitely through successive generations. For families with enough assets to generate momentum and cover administrative expenses, this approach may create a significant and lasting legacy.

Finally, a new or existing life insurance policy may be gifted to a nonprofit, which becomes both owner and beneficiary, and you may claim a tax deduction on the cash value; or you could simply make the nonprofit a beneficiary for part or all of the life insurance proceeds at your death. If you’re donating to a nonprofit anyway, consider using that money instead to fund new or existing life insurance premiums—perhaps for a policy you purchased years ago but no longer need. There may be no better way to leave the world a little brighter than you found it, and a lump sum injection such as this may be the biggest best surprise a struggling small nonprofit could imagine.  

Give. Volunteer. Get your employees involved. And pass the word…you or someone you know right now may want to take one or more of these actions to rescue a charity in need. Do you know for sure your favorite isn’t one of them?

CERTIFIED FINANCIAL PLANNER^TM consultant Kenny Gott is President at Piatchek & Associates and author of the book "Bottom Line Financial Planning". He can be reached at kgott@pfinancial.com.