Creating Impact Through Giving Episode 7: Ring in Year-end Giving with Us!

Dan Martel: You're listening to Creating Impact Through Giving, a podcast brought to you by the Oklahoma City Community Foundation providing you with the stories, techniques, and tools around impactful giving. On this show, we'll talk to donors, professional advisors, nonprofit leaders, and our team of experts to identify charitable strategies that have resulted in some of our most impactful gifts.

Dan: I'm Dan Martel, and welcome back to the Pod; to our last episode in 2020. Hard to believe that we've been doing this all year and here we are at the end of the year. When we started out this podcast, we wanted to bring you topics, guests, and tools around charitable giving and help you understand a little bit better what we do here at the Community Foundation. I certainly hope that we're able to accomplish that over these first few episodes, but if you have any specific topics you'd like us to cover, please don't hesitate to reach out to us via email or social media, or by leaving us a review on your podcast platform of your choice. We do appreciate that.

Also our 2020 annual report is hot off the press. By now you should have received a copy in the mail. If you haven't, we're happy to send you an extra copy. It's full of impact stories, people, and good causes that have shaped us over the last several months. So you'll want to look for our 2020 annual report as well.

We're rounding up 2020 by bringing back an expert from the very first episode Mr. Joe Carter. So glad to have you back. Today, we're talking about different charitable giving vehicles, fund types, and important year-end giving advice. This episode is really directed toward people that want to make an impact either toward the end of the year or at some point in the future. And to set people up for success, we want to explore different fund types and avenues to contribute to your favorite charitable causes while also maximizing your tax benefits. Joe, around this time of year, what are some of the important deadlines for people to remember?

Joe Carter: I think when it comes to charitable giving from a personal standpoint, being cognizant of how gifts get to charities, when charities record them, and when those tax deductions actually take place. So I think for somebody making a cash contribution towards the year-end, they just want to make sure that if they are sending it via mail, that it is postmarked by December 31st. For anybody considering making contributions of appreciated stock, especially from a wirehouse or brokerage account, I would be inclined to say that you probably need to have those done by December 21st, if you can the 18th even better.

As it relates to any other type of property that you may gift, obviously if you're doing real estate or something tangible like that, the sooner the better. But the bottom line is especially for cash gifts and using the mail just make sure that you have the postmark on the envelope December 31st. Even if the charity doesn't receive it until January 4th or 5th, it will count towards 2020 contributions. For donors that already have funds with Oklahoma City Community Foundation and are looking to provide grants to those organizations, we would really prefer that you have those requests in by December 16th.

Dan: It sounds great. So while we have you, I want to explore some different giving options that we have here at the Community Foundation. I know that we've had a lot of people on the pod that have been on the receiving end of those gifts, and we've never had actually talked about the different ways that you can leave a legacy. So give us a little one-on-one, if you will, on some of the different fund types and the varying benefits that each one might have.

Joe: The majority of the donors that come our way actually come in through our charitable organization endowment fund program, in which we have about 380 plus charitable organizations that have an endowment fund here, which in more layman's terms, that is a permanent fund that provides sustainability support for those organizations. As it relates to individuals who want to come in and establish something on a larger scale, either for tax benefits or state planning, or just outright charitable giving, we've got a couple of funds that are most used in that arena. The first is what's called a gift fund. It's a total spendable fund, meaning that anything that you put into it, you have the ability to grant out the totality of that on your own timeline. So if you put a contribution in, in December, you're going to get the full market value of that contribution as far as the deduction. And then you have any time in the future to spend those dollars out; whether that be 1 year, 5 years, 10 years, 40 years.

The second type of donor-advised fund that we have is called a legacy fund. That is more permanent in its nature, meaning that you'll transfer an asset into us and it becomes a permanent fund of the Oklahoma City Community Foundation. However, it grants out 5% of the market value of that fund each and every year in perpetuity. So if you transfer in $20,000 today, it works off a 5% spending policy. So next year you'll be able to grant out a thousand dollars and then the next year, hopefully through investment performance and what have you that will have grown to $20,500 or $21,000. Now all of a sudden, rather than granting out a $1,000, you can grant out a $1,050.

So over time it becomes a very valuable tool, both for your giving and maximizing your impact and certainly for those charities on the receiving end. People often ask, well, which is better the gift fund or the legacy fund. The answer is, there's really no right or wrong answer on that. Both do their jobs. The gift fund, I would say, a lot of times we use that in tax planning, especially this time of the year when somebody is needing that last year or year-end contribution, but they're not really sure what charities they want to support. They can establish a gift fund, get their tax deduction, and then decide later on where they're going to make those gifts. The legacy fund is often used in estate planning or for individuals that are looking for that private foundation look or looking to start their legacy earlier during life.

But when it comes to right and wrong, this is the way I describe it. The legacy fund allows you to have maximum impact for a long, long time. So for example, if you had a gift fund and you made an outright gift of $20,000 from your gift fund to a charity, they'd have $20,000 and they may or may not spend that within a week's time or a month's time or even a year's time. If you had a legacy fund and you wanted to provide support to them, but you were looking at something on a more permanent scenario, if you put $20,000 into a legacy fund that then supported that same charity, historically it's taken a little over 13 years for that charity to have received the total of that $20,000. However, the fund would now be worth $44,000. After 50 or so years, that charity would be receiving a distribution each year equal to about $20,000.

Dan: My understanding, Joe, is that you've got some funds here right now, though, that have been with the foundation, as you said, maybe up to 40 - 50 years that are actually reaping quite a benefit, you know, at the end of the year, is that correct?

Joe: Absolutely. So for donors that are thinking about sustaining that support for a charity or a purpose, legacy fund is a fantastic opportunity. For other donors, the gift fund, they're utilizing more as a tax tool and it's just efficient and effective, then it's certainly the right tool for them. So there's no right or wrong answer. It's just a matter of, are you looking at short term results? Are you looking at long-term results?

So those are the two donor-advised funds we do have for individuals that really want to get their family engaged. We have family affiliated funds. They look and smell an awful lot like a private foundation from the standpoint is they meet at least once a year, have family meetings and then issue grants out.

Dan: Is that a permanent fund, Joe, the family?

Joe: That is, too.

Dan: Okay.

Joe: So it works basically off the same principles. It does give a little more flexibility to the donors as far as the spending policy. Whereas our legacy fund has a fixed 5% spending policy. Our affiliated funds are really determined by the committee and that could be, you know, income only. It could be 4%, 4.5%, 5%. It does allow for a little additional opportunities that the donor may want to build in.

Dan: Well, that's a really nice distinction between the gift fund and the legacy fund. So I appreciate you jumping on that. I know later we're going to be speaking to someone who's successfully built and used a donor-advised fund, right?

Joe: That's correct. Herb Martin will be coming in, great guy. He has utilized this fund over the last few years that he's had it. I think he will probably admit that it's been a very easy transition to use the Community Foundation. The support he receives from Laura Moon who's in our donor services that works directly with Herb has been a great help to him and his wife.

Dan: Excellent. I look forward to meeting them. So let's say you're not ready to start your own legacy fund right now. What other tools do we offer for people that want to make an impact or gain a tax advantage in a short term, let's say?

Joe: Well, I think that's where we'd really get back to looking at the charitable organization endowment funds. They can accept any dollar amount. Oftentimes that's one of the best ways whether you're thinking about through estate planning, or if you're thinking about current giving, they can leave a small or a medium-sized gift, or even a large gift to any one of our charitable organization endowment funds or any of our scholarship funds. All those ways. You can have an impact.

Dan: So a lot of things have changed as far as the charitable law and things like that. So let's discuss some of the new laws that may affect donors, especially now that we're moving toward the end of this particular year.

Joe: So 2020 has been a year filled with all kinds of uncertainties, and as it relates to Legislation and Congress, they're always good at enacting laws it seems like, and changing the situation. But for 2020, they actually aided charity with a couple of things. One was the Cares Act that was passed this year. So for any donor that doesn't itemize, there's a provision in there that allows for a $300 charitable contribution to be realized above the line on your tax return. When you say above the line, that essentially looks and smells like a tax credit.

For people who make charitable gifts, think that when you make a $300 charitable gift, that you get a $300 tax savings, and that's not really the way it works. Tax deductions are based on your income tax bracket. So that's a good thing to always know, because I work with a lot of donors that say, well, I made a $300 gift, so I get a $300 deduction off my income tax. That's really not accurate. This particular opportunity, this $300 gift is above line, which actually lowers your adjusted gross income, which also lowers your taxable income. So totally different than a charitable contribution. So as long as that is made to any 501(c)(3), that is a valid deduction for this year.

A couple other things they did is a lot of people in the past have utilized their RMD to make direct charitable rollovers. Well, for this year, you are not required to take the RMD. So we've lost...several of our donors who in the past have made their RMD gifts to us, they've been able to keep that money in their IRA and allow it to continue building, which fortunately the market's been good this year. So a lot of those IRAs have gone up, but beginning January 1st, they're going to be able to go right back to utilizing their RMD for charitable gifts.

Then just the other thing that they've done for 2020, is for anybody making cash gifts, typically in the normal cycle of planning, you're limited on cash gifts up to 60% of your AGI. Meaning, that you can only get a tax write-off for 60% of your AGI using cash gifts. For 2020, they've extended that to a 100% of your AGI.

Dan: Oh, that's interesting. Okay.

Joe: So if you are an individual that has the means, and you don't need any income for 2020, you could actually donate 100% of that income this year to charity, as long as it's a cash gift and you would have zero income this year. You'd still have to file taxes, but obviously, it would show that you had zero income on the year. So it's fantastic. We have had a couple of donors that have been fortunate enough to be able to utilize that. Again for cash gifts this year, you can donate up to 100% of your adjusted gross income

Dan: And Joe, because our podcast is titled Creating Impact Through Giving, what has been your favorite impact story in 2020 or a particularly creative giving solution? Has anything come to mind?

Joe: Well, so there is a couple solutions that have come out, there, again from some of the acts that have been passed through Congress last year, too. One of those that's probably the most creative is, for individuals in the past when you passed away and you had an IRA, those would pass to your heirs and they had the opportunity to do what's called a stretch beneficiary IRA, or an IRA stretch beneficiary. Meaning that your kids would inherit that IRA. They could take the income stream off of that during their lifetime, just as you have with your own IRA. Well, they passed a law a couple of years ago, which actually limited that IRA now to 10 years. So the beneficiaries now have to take full distribution of their inherited IRA over a 10-year period.

Well, a creative solution that we've done for that is utilize what's called a charitable remainder trust. You could leave an IRA or 401(k) or 403(b), make the beneficiary of that a charitable remainder trust. Then that charitable remainder trust can there again, pay your kids or whoever your inheritors are over their lifetime. So it eliminates that 10-year window.

Now, the way that works is your estate would receive a charitable deduction for the amount that went into the charitable remainder trust. Then at the end, whenever your inheritors pass, whatever's remaining in that trust will go to charity. So it's a very creative way to do charitable giving, extend the payments beyond the 10-year limitation period. That's there and get back to kind of the stretch look.

Dan: Joe, I understand that people can call you direct, right, if they have any questions on that? What would be the best number for them to reach you?

Joe: So the best way to get ahold of us is call at (405) 235-5603. Just ask for me or anybody in our donor services and they'll be able to help you out on these various things.

Dan: Well, Joe, thanks so much for chatting with me today. Always great to have you back on the pod. We'll look forward to having you back on again and to our listeners. If you have any questions about which fund type best suits your charitable needs, or you just want to explore some options, don't hesitate to give us a call and ask for Joe.

Joe: Appreciate it, Dan, thank you.

Dan: We could talk about different fund types and giving vehicles all day long, but don't take it from us, let's talk to somebody who has established his own fund and has been really successful in building his charitable legacy. Herb welcome.

Herb: Thank you.

Dan: Really glad you are on the podcast today.

Herb: Happy to be here.

Dan: Before we chat about your fund, tell us a little bit about who you are and how you got in touch with the Oklahoma City Community Foundation.

Herb: Well, I'm recently retired from a 35-year career in the oil and gas industry. I'm a geologist by training. My wife, Marynm, and I've been married 37 years and we have three kids, three grandkids, and we came to Oklahoma City, well over 13 years ago, after spending the first 25 years of our life together in Houston.

Dan: Big difference?

Herb: Yes, in very many ways, but in almost every way, we like Oklahoma City much better and we chose to retire here. So, quality of life is outstanding.

Dan: I was going to say the good news is, at least you can get from point A to point B in a decent amount of time versus all that Houston traffic that you were probably stuck with.

Herb: That's certainly not a small factor. You know, everything in the world is available to you in Houston and almost none of it do you want to do because it's such a pain to try to go do it.

Dan: Oh, I understand.

Herb: My wife and I both have a heart forgiving. Our financial advisor said, you know, there's probably better ways that we can give; more efficient, more tax beneficial, and really more beneficial all the way around. We're able to give more because we don't have to be as mindful of sometimes the cost of giving, if you will. So that's how we came to look for a foundation in the first place to get away from what I was doing before, which was writing checks.

Dan: Fantastic. What inspired you to look into funds and how did you go about exploring your different options?

Herb: Well, it was following up a little bit on what we were just talking about. My financial advisor, our financial advisor, you know, recognized that we have a heart for giving and that we maybe weren't doing it in the most beneficial way, that there were ways that we could be as generous or more if we did it in a smarter way that took more advantage of the system. So that's what we chose to do. So we started looking for places to get that done.

Dan: And you settled on a donor-advised fund. What is it about that that stood out to you?

Herb: Well, you know, donor-advised funds have the greatest flexibility. You know, they're not necessarily constrained by limitations of foundations or things like that. So we could just make a single donation into the fund. Then as opportunities came up, I mean, we have a few passions that we focus our giving in. But beyond that, we tend to give throughout the year to various things that appeal to us. So having the flexibility of the fund where literally it's as easy as calling Laura or Jennifer and saying, could you help us make a gift here? And that takes care of it. So I think that flexibility of a donor-advised fund and the simplicity of it is what attracted us to that.

Dan: You know, Joe was telling us a little bit earlier that you guys have been kind of having a little bit of fun granting to different organizations. Why don't you tell me a little bit about some of those passions that you have? What are some of those organizations?

Herb: Well, certainly my wife and I focused more than anything else on basic human needs. Things like hunger and long-term things like education. I guess our feeling is, as fortunate as we've been, that we just couldn't live if we weren't trying to make sure everybody doesn't go hungry, at least in our world. Yet long-term when you think about how do we make the world a better place, education is foundational to that. It helps us rationally think and make decisions for ourselves that makes the world a better place. So we have a lot of focus on both education and those foundational fundamental needs like hunger. Outside of that, there's a variety of other things that either friends are involved with or we're seeing something that struck our hearts and made us give in that direction as well? So it's a rather broad-based portfolio of charities we try to support in a small way.

Dan: Well, I mean, just based on what you just said, Herb, it sounds like our city, and our state, and our world would be a better place with more Herb Martin's in it. I'll tell you that.

Herb: You're kind to say that. We try.

Dan: So how has it been working with the Community Foundation throughout the process? You came over, they got you hooked up. Tell me about that process.

Herb: Well, again, I came over with our financial advisor. Who's really, you know, he's more of a friend than anything. He knows us very well. He recognized the inefficiency in the way that we were doing and certainly that we had a commitment to giving. So he figured let's see if we can figure that out. I think he's pretty familiar with the Community Foundation. So he brought us here and we met Joe and Joe talked to us about our various options. We talked about maybe did we want to do a foundation? We also brought a lawyer with us, a lady who helped us do a trust document. She kind of guided us away from a foundation. It didn't seem to fit where we were in our lives, you know, setting up our own sort of a fund.

Dan: Sure.

Herb: Instead going with the donor-advised fund because of the flexibility. Joe described that and we met some of the folks here and it was a pretty easy decision. It was a fit with what we wanted to do, and it was right in the wheelhouse of the Community Foundation. So it just worked out great.

Dan: Good to know. What would you say to donors who are perhaps thinking about leaving a legacy or want to start their own fund, but might be a little bit hesitant to make that leap? I'm sure you've had those conversations.

Herb: Well a little bit. I have and now that we've experienced it, I mean the expertise that's here, the information you can get when you're trying to decide about a new organization that you might want to support, it's wonderful here and the ease. I mean, it's just incredible how easy it is, instead of me in the past, filling out all the forms, contacting people, figuring out how to designate a check. It's literally as easy as an email or a phone call to Laura or Jennifer, someone who can help us.

I don't have to do anything, yet we get all the benefit. It's cleaner and simpler on the taxes. Don't have to keep up with all those receipts. We have one gift we make and we make that gift to the Community Foundation and that's it for tax records. Then everything else is handled on the backside, through the foundation. Also the ease of the knowledge that the people have about the timing of things. When do you want to do them through the year? How about matching funds for various charities? Things like that. The knowledge of the people here and the experience of the people here makes that easy, too, so that I don't have to go do that digging. I don't have to try to figure all that stuff out. I mean, literally, there's not a downside that I've seen at all to our relationship with the Community Foundation.

Dan: I think you've given a lot of our listeners, some great advice on somebody that's actually come in here and established a donor-advised fund. We, again, need more like you. So we love hearing those impact stories, especially the people at the center of our work and donors like yourself. So I want to thank you for being on the show today and we look forward to having you back again.

Herb: Well, thank you for the opportunity.

Dan: Well, that's it from us today. Make sure you're getting our emails to be notified about grant deadlines, nonprofit training sessions, and other upcoming opportunities go to www.occf.org/subscribe to get on our mailing list today. Remember to follow this podcast to get the most up-to-date information every month.

I hope everybody's staying safe. We do appreciate you sticking with us throughout the year. We look forward to in 2021, where we'll have more exciting topics to discuss here at the Oklahoma City Community Foundation. We're glad you're a part of us. Safe holidays, and we'll see you next year.