Each member of our WASHBURN & McGOLDRICK team is working with clients on a daily basis to help them navigate the many challenges they face as a result of the Covid-19 pandemic.
Senior consultant Eileen Donahue, the author of this blog and a gift planning specialist, is providing clients with one-on-one support, customized strategies, and staff training centered on the tax law changes in the CARES Act.
As we continue to move forward together, educational institutions are seeking to provide critical funding to meet the needs of students, faculty, academic programs, and other priorities. The recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act offers opportunities to enhance charitable contributions in 2020.
While certain aspects of the Act will require further clarification, it is important to understand how the new law might shape giving strategies and communications with your donors in the months ahead.
Which provisions of the CARES Act could impact charitable giving in 2020?
The most significant changes affecting individual taxpayers include:
- Allowing non-itemizers (taxpayers who claim the standard deduction) to deduct cash contributions to public charities, not including donor advised funds (DAFs) or supporting organizations (SOs) up to $300.
- Raising the limit on cash contributions to public charities (not including DAFs or SOs) by those who itemize deductions to 100% of adjusted gross income (AGI) if a special election is made.
- Waiving required minimum distributions (RMDs) from most retirement plans for 2020.
How might the new deduction for non-itemizers affect annual fund and special emergency fund donations through the end of the year?
It is not clear that the “above the line” $300 deduction will provide sufficient incentive to increase overall giving in 2020. An analysis recently published by economists at the Penn Wharton Budget Model estimates that the new deduction will do little to spur giving: https://budgetmodel.wharton.upenn.edu/issues/2020/3/27/charitable-deduction-the-cares-act
That said, as your institution continues to broadly communicate with donors about the critical importance of contributions to your annual giving programs and to funds that address needs specifically related to Covid-19, you should be prepared to provide donors with information about the potential tax benefits of those donations.
What approaches should be considered around individual gift conversations?
Reaching out to inquire about the well-being of your donors and their families is, of course, the first priority.
Gift officers should also review their portfolios to identify individuals with open multi-year commitments or who are considering making significant new gifts in 2020 or 2021. For taxpayers who itemize their deductions, the ability to deduct up to 100% of their AGI (and pay no income tax) may provide incentive for them to accelerate or increase their giving this calendar year. Board members, principal gift donors, and other high net worth individuals who are closest to your institution may be particularly motivated to take advantage of this opportunity.
As always, donors should consult their own professional advisors to determine the potential impact of the CARES Act provisions on their individual tax planning.
What are broad based strategies for communicating with donors and volunteers about the tax implications of the CARES Act?
- Update your website to include a sensitive, informative (and not too technical!) summary of the charitable giving provisions of the CARES Act. Include examples of how gifts could have a direct and immediate impact on supporting the mission of your institution and its students and faculty during the Covid-19 crisis.
- Provide specific, easily accessible contact information for staff members who are knowledgeable and readily available to answer donor questions and offer assistance. Be sure to update contact details for those working remotely, if necessary.
- Consider developing a presentation for trustees and key volunteers to help them understand the new tax law changes.
What is the potential impact on bequests and other planned gifts?
This unprecedented health crisis is causing many people to consider their mortality. Similar to the period following 9/11, it has prompted a significant rise in inquiries related to estate planning. Your donors and/or their advisors may reach out to you for information needed in the preparation of wills or trusts such as:
- The legal name of your institution
- Confirmation of your institution’s charitable status and tax identification number
- Suggested bequest language
These details should be clearly displayed on your website, along with the contact information for individual staff members who can assist.
Given the volatility of the financial markets and extremely low interest rates, charitable gift annuities (CGAs) can offer donors the opportunity to make a current gift and receive a secure stream of income, either immediately or at some point in the future.
Qualified charitable distributions (QCDs), also known as charitable IRA rollovers, remain an option for donors age 70 ½ or older, although the temporary suspension of RMDs for 2020 may cause some donors to defer making a QCD this year.
Grants from donor advised funds have increased sharply since the start of the pandemic. Donors who regularly give to your institution through a DAF may be willing to consider an additional or larger gift to address your current and most compelling needs.
Despite the many uncertainties ahead, the opportunity to enrich our relationships with donors and prospective donors is clear. We know from previous economic downturns and social crises that donors don’t stop giving – they turn their focus and attention to those organizations to which they feel closest. A clear strategy, effective communication, and empathetic listening will keep your donors engaged and ensure their continued support.