Strategic Source Online

Q4 (October - December) 2005

National Philanthropy Day - Orange County

National Philanthropy Day® (NPD) is a special day set aside for the purpose of recognizing the great contribution philanthropy makes to our society -- and to honor individuals and businesses active in the philanthropic community. We believe that philanthropy benefits not only our own communities, but enriches and empowers the global community we live in. National Philanthropy Day® offers an opportunity to reflect on the meaning of charitable giving and the spirit that makes such generosity possible.

National Philanthropy Day - Orange County: Spirit of Philanthropy Awards Luncheon

Wednesday, November 16, 2005
10:45 a.m. Registration & Reception
11:45 a.m. Luncheon & Program

Anaheim Marriott Hotel
700 West Convention Way

Anaheim, CA 92802

Association of Fundraising Professional's Advancing Philanthropy: National Philanthropy Day 2005

Special Tax Deduction Legislation

Katrina Emergency Tax Relief Act of 2005

On September 21, 2005, the Congress passed the Katrina Emergency Tax Relief Act, designed to stimulate charitable giving in response to the calamity in the Gulf region.

Here’s what it does (special rules for use of retirement funds):

 

• The limitation on the maximum charitable contribution deduction for cash gifts made by individuals to public charities has been suspended through December 31, 2005. Previous law capped the income tax deduction at 50% of the taxpayer’s “contribution base”, which for most individuals is the same as adjusted gross income. For corporations, the limitation is 10% of the corporation’s taxable income. Under the new law, and for a brief period of time, individuals and corporations will be able to deduct up to 100% of adjusted gross income for contributions made through the end of this year. For individuals, the requirement is that the contribution be made in cash to any public charity. Note, however, the contribution does not have to be used to fund disaster relief. For corporations, however, the contribution must be given to an organization that is providing relief to Hurricane Katrina victims.
• The mileage deduction for personal travel related to a charitable activity has been increased through the end of the year from 14 cents per mile to 24 cents per mile.
  o Businesses, farms, and ranches that donate food to charities may receive a tax deduction for doing so. Under prior law, C-corporations were eligible to deduct certain inventory contributed to charity. Through the end of this year, contributions of food inventory by C-corporations, as well as by partnerships, S-corporations, and even proprietorships will be deductible. The food must be “wholesome”, meaning consumable by humans.
• Contributions of book inventories to a public school that provide K-12 education, will be eligible for a tax deduction through the end of this year.
• A withdrawal from a qualified retirement plan (including an individual retirement account) before age 59 ½, which is not rolled over to another plan within 60 days, is subject to a 10% withdrawal tax. The 10% penalty is waived if the withdrawal occurs on or after August 25, 2005, by an individual who lived in the Hurricane disaster area defined by the President. The withdrawn funds will be treated as income to the taxpayer ratably over three years beginning with the year of distribution.
• The early withdrawal penalty can also be avoided for certain distributions used to purchase a home in the disaster area, and there are special provisions that will allow a loan to be made to the plan participant who sustained an economic loss due to Hurricane Katrina.

Here’s what it doesn’t do:

 

• The legislation does not include contributions to a private foundation, supporting organization, or a donor advised fund. Nor is it available for contributions to charitable remainder trusts or other split-income gift arrangements.
• This is not the long awaited charitable rollover plan that has been approved by Congress several times over the last few years, but never enacted because of differences in the proposals. Under the rollover plan, withdrawals from a qualified plan by an individual over a prescribed age would not be considered income to the retiree if contributed directly to charity. That legislation is still pending and possible.
• The unlimited deduction is not available for contributions of appreciated assets, only cash.

 Internal Revenue Service:  Katrina Emergency Tax Relief Act of 2005

Planning Idea

In light of the Katrina legislation, what planning options should you consider?

The Katrina Emergency Tax Relief Act does not permit tax free rollovers from a retirement plan or IRA to charity, but current law does permit penalty free withdrawals from those plans by participants who are at least 59 ½ and the new law then permits 100% deduction for any cash gifts made to charity. The 3% reduction for certain itemized deductions in excess of the income threshold of $145,950 is suspended for qualified charitable contributions. So, the withdrawal followed by a contribution amounts to a near wash. It’s a “near” wash because, by bumping up the gross income, for some taxpayers the 3% reduction may reduce the benefit of other itemized deductions. An analysis by Professor Christopher Hoyt, presented at the 18th National Conference on Planned Giving, indicates that the cost could be a 1% tax attributable to the charitable gift. In addition, in those states where the income tax is based on gross income, rather than taxable income, the charitable contribution will have no affect on the ultimate tax.

 Contact us for more information.

Correction

In the September issue of Strategic Source Online, we reproduced a statement issued by the Association of Small Foundations on September 1, 2005. However, ASF issued a corrected statement that reminds their members that there are no special distribution requirements from a community foundation, since it is a public charity.

ASF: Hurricane Katrina Disaster Relief - Resources for Giving

Concept to Ponder

How long should the foundation continue?

Should a foundation continue forever after the founder is gone? Should it continue for a specific period of time, perhaps during the lifetime of the next generation, and then terminate? Or should it terminate as soon after the founder is gone as may be practical? These alternatives, and their many variations, have strong proponents.

Lewis Cullman, an 85 year old former businessman and now full time philanthropist, just published his memoirs entitled “Can’t Take It With You: The Art of Making and Giving Money.” Over the many years of his philanthropy, Mr. Cullman has given away more than $233 million. His foundation has over $65 million in assets and has one full-time and one part-time employee. According to Mr. Cullman, foundations should be required to spend all their assets within 50 years of their formation. As for his own foundation, he plans on having it wind up within a year of the death of himself and his wife. His argument “So much of the vast wealth of America is tied up in sterile private foundations that exist primarily for their own self-perpetuation.”

This view is supported by several other founders as well as some commentators. Actually, one of the oldest examples is Benjamin Franklin who, as part of his Last Will, left 1000 pounds sterling in trust to provide loans to young former apprentices to go into business. He mandated that his trust terminate in 200 years and the funds be distributed to the city of Philadelphia (and another similar trust to be left to the city of Boston), for public purposes. Over $2.0 million was left to his many charities (including the University of Pennsylvania and the public library) in Philadelphia in 1999.

More recently, Uncas A. Whitaker established his foundation upon his death in 1975, with a bequest of $440 million. The foundation has focused on promoting biomedical engineering in colleges and universities in the U.S. and Canada. Whitaker required, in the trust instrument that created the foundation, that it sunset out within 40 years of his death. He was concerned, according to foundation documents, that “private foundations often continue after they have achieved their purpose, principally to maintain their bureaucracy.” The foundation is closing its doors at the end of the year. Last year, it still had approximately $123 million in assets.

For some, the issue is a matter of keeping philanthropy fresh and current. For others, it’s about accelerating the flow of dollars into the charitable world, through increased grant making. Some, like Whitaker, are concerned about preventing the growth of administration and costs. The other side of this discussion is that most of the issues that challenge our world and our communities will not go away. The resources we set aside today can be used with great effect for the benefit of human kind for countless generations. No one can be sure that we will always have the surplus of assets that have been accumulated over the last century, or that we will have a society that is as generous and compassionate as the present. For family foundations, an increasingly large segment of philanthropy, the platform for family philanthropy is an effective vehicle for transferring important family values, including caring, sharing, and inspiring. It offers future generations of the founder the opportunity to connect with their heritage and legacy, learn critical life skills like leadership, collaborative decision making, management, and fiduciary responsibilities, and better appreciate their own good fortune by working for the benefit of others.

The debate is not likely to end. But, the founder should consider and make clear:

• Should the foundation last indefinitely?
• If not, what should trigger the termination? Term of years? Specific event? Election by the Board?
• If the foundation does terminate, where should the remaining proceeds go? To charities selected by the founder? To charities selected by the Board? To split up into new private foundations created by members of the Board?

In the December issue of Strategic Source Online, we’ll discuss how a founder can ensure that his or her intent is carried out, instead of ignored by a future board of directors or trustees.

Lewis B. Cullman: Can't Take It With You: The Art of Making and Giving Money

The Whitaker Foundation: Home

Children of Paradise:  Second Edition

Dr. Lee Hausner offers a comprehensive parenting guide for financially advantaged families. This fresh and updated book offers a clear nine-step program for affluent parents to improve their skills and inspire healthy values in their children. You will learn: How to make the time with your children count. How to motivate your children to develop confidence and competence - essential elements of self-esteem. How to listen effectively to your children. How to talk openly and honestly with your children. When to say no and when to create boundaries for your children. How to teach your children the value of money and to prepare them for the responsibilities of wealth. How to create an effective disciplinary plan when problems arise. You will benefit from Dr. Hausner's four decades of experience, and you will especially appreciate the humor, clarity, and practical suggestions that will make the challenges of your parenting easier and more effective.

"A great book for parents at any income level!", February 19, 2005, T. Brown (Miami, Florida).  -Amazon.com Customer Review

IFF Advisors, Inc.: Buy Children of Paradise Second Edition Today!

Amazon.com: Search Inside "Children of Paradise: Successful Parenting for Prosperous Families"

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