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, despite a rich history of community support and robust fundraising efforts, the books were just not quite balancing from month to month.
During the economic downturn, there was a lot of competition for resources and many nonprofits were serving people who needed food or a place to live.
Ours took a backseat to those more critical needs. We also found larger nonprofits had 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 some 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: These take immediate income and gift tax deductions. The IRS.gov webpage “EO Select Check” can 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: This 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 reduce capital gains tax. You give up ownership and take the deduction, and you may even advise the charity, in a nonbinding 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: This specialized entity 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.
A new or existing life insurance policy: These may be gifted to a nonprofit, which becomes both owner and beneficiary, and you may claim a tax deduction for the cash value; or simply make the nonprofit a beneficiary for part or all of the 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. Promote your involvement to encourage others to do the same. Get your employees involved. And pass the word. Someone else also may want to rescue a charity. Do you know for sure your favorite isn’t one of them?
Kenny Gott is a certified financial planner and executive vice president of Piatchek & Associates. He can be reached at kgott@pfinancial.com.[[In-content Ad]]
