Advantages

Developing a charitable plan that takes into account your client's financial and charitable needs is no small task. As a professional advisor, the opportunity you have to help your clients achieve their philanthropic goals is both a privilege and a challenge. We want to be a resource for you as well as a philanthropic partner for your clients. A full understanding of the many possibilities of charitable giving, which can offer specific tax benefits, can also help your clients achieve financial, personal or business goals.

We consider attorneys, accountants, financial planners, insurance agents and other professionals who have relationships with donors to be our valued partners in charitable giving. This section of our site makes tools and information available to help you ensure that your clients receive the full benefit of their contributions while supporting the charities of their choice.

We have an outstanding reputation for integrity and service to donors. We have developed unique resources for you to use in helping donors craft their charitable giving plans.

The Taos Community Foundation does not provide legal or financial advice. Donors are encouraged to work directly with their legal and financial advisors when considering a fund or making a planned gift. Both have attractive tax advantages for the donor.

Seven Reasons

1. The “Endowment” vs. “Lump Sum” Problem. How do most people make their charitable gifts? Usually, it’s in relatively small and recurring periodic installments – $50 per month, $1,000 per year, etc. In fact, most people are disinclined to leave a large amount of money to a charity in a “lump sum” – i.e., all at one time. The receipt of a large, unexpected gift has ruined many a small charity – such a gift can disrupt annual budgets and can actually induce other donors to reduce their contributions or pledges to that charity. When given a choice on how to make a large gift to charity, most people prefer to do it in a permanent or endowment fashion. In other words, they prefer to make the gift in such a fashion that the principal remains intact, and only the income is distributed to the charity on a recurring basis. Unfortunately, however, many charities do not have separate endowment organizations. Until now, the only choice for donors wanting to make a permanently-endowed gift was to set up their own stand-alone private foundation. The problem there, of course, is the cost and hassle of doing so, and many times the gifts just don’t get made at all. But now, TCF affords donors the chance to endow their giving, without the cost or hassle of a private foundation. In fact, the mere existence of TCFas an endowment vehicle opens up gifts for the benefit of specific charities – gifts that simply wouldn’t have been made directly to those charities, without the TCF.

2. The “Independent Screen” Problem. There are several charities in this part of central Kansas large enough to have their own separate foundations. A college or hospital is a good example. The college itself is a corporate entity, and its foundation is a wholly separate corporate entity. Typically, these “parallel” foundations are formed to provide an answer to the problem mentioned in the preceding paragraph. The argument goes: “You don’t have to worry about leaving a large amount to the college – if you want to endow your gift, you can simply leave it to our separate foundation, which will administer it for the benefit of the college.” The problem, however, goes much deeper than this. In particular, some donors worry that the college may in fact control the “separate” foundation, such that if the college ever runs short, all it has to do is send someone across the hall and get a large check from the “separate” foundation. The beauty of TCF is that it provides donors with an independent screen. There is, in effect, a layer of insulation between the operating entity (i.e., the college, the hospital, or whatever) and the endowment entity. In short, the latter is not a “puppet” controlled by the former, and the mere existence of TCFas an independent screen encourages gifts that simply would not be made in its absence.

3. The “Disappearing Charity” Problem. Donors often worry that one or more of their favorite charities will someday close down, and that their gifts to those charities, intended to be permanent endowments, will simply disappear into the night. TCF provides a solution to this problem – the donor may set up a donor-advised fund within TCF, from which fund annual payments are then made to one or more charities. The operative document gives the donor the right to request that, if a specified charity ever closes its doors, then its payments from the fund are to be diverted to one or more different charities. And there’s an ironic twist to this particular problem. If the fear that a charity may eventually disappear prevents donors from giving to that charity in the first place, then that very fear may well hasten the charity’s demise! TCF, by providing a “diversion” feature in that event, actually serves as an inducement for gifts that otherwise wouldn’t have been made, thereby helping to ensure the charity’s long-term existence.

4. The “Berkshire-Hathaway Problem.” The last decade has seen remarkable gains in the stock market. Many individuals hold stocks worth far more than they paid for them – so much more, in fact, that they are disinclined to sell them for fear of incurring capital gains tax. A good example is Berkshire-Hathaway, the investment company headed by Warren Buffet. This publicly-traded stock is now selling for over $100,000 per share, and some were fortunate to acquire their shares for a fraction of that price. Many such individuals would like to use a share of their stock to make a charitable gift. But they rarely want to give $100,000 to just one charity. Typically, they’d like to split up the gift – $10,000 to their church, $10,000 to a college, etc. But they can’t cut up their stock certificate with a pair of scissors! Until now, in order to split up their gift, the person had to sell the stock, incur the capital gains tax, and then give away the after-tax proceeds. Needless to say, the prospect of paying the tax has a dampening effect, and many times the gifts just don’t get made at all. But now, TCF affords a donor the chance to “split up” the stock. In particular, the donor can give the stock itself to TCF, which then sells the stock with no tax due whatever. The donor then requests that TCF distribute the proceeds to two, five, ten, or however many charities he or she wishes. The mere existence of TCF as a “conduit” or “pass-through” charity opens up charitable gifts that otherwise simply wouldn’t have been made at all.

5. The “Call-from-the-CPA” Problem. Donors sometimes receive last-minute telephone calls in December from their CPA or other tax preparer along the following lines: “You need to give away some money, and fast – your taxable income is coming in way too high, and you need to make some cash contributions immediately.” The problem, however, is that the donor may be on his way out the door for the family’s annual skiing trip, and there’s simply not enough time to come up with the identities of the charitable recipients, much less their sharing ratios. Oftentimes, out of frustration over the time deadline, the contribution simply doesn’t get made at all. Note that this is the opposite of the “Berkshire-Hathaway” problem. There, the donor knew exactly the identities of the charities and their sharing ratios – he simply had no way to divide the asset. Here, the asset (cash) is easily divisible – the donor simply doesn’t know (at least yet) how he wants to divide it. Fortunately, TCF lets the donor make the gift now, and obtain the desired tax deduction now, but defer the identity/sharing ratio decisions until later. Thus, by offering the donor a “temporary parking place” for his contribution, TCF stimulates gifts that otherwise wouldn’t have been made at all.
6. The “Cafeteria Line” Approach to Charitable Giving. It is very easy for a particular charity to “fail to get noticed” when it comes time for a donor to choose charitable beneficiaries. But by supporting and becoming a part of a community foundation, a charity effectively “gets its name out” and can actually attract donations that would not otherwise occur – yet another example of how and why donors will give to a charity via the TCF, whereas they might not have given to the charity directly.

7. The “Asset Protection” Problem. This is actually a variant of the “independent screen” problem noted in paragraph 2 above, but it’s of sufficient importance to warrant its own separate discussion. When a charitable organization is sued (witness the recent flood of lawsuits against churches for the improprieties of their clergy), it becomes critical to know which of the organization’s assets are “up for grabs” – i.e., available to be seized by a winning plaintiff – and which are not. Many an organization has been surprised to learn that its internal “endowment funds” were available to the reach of the enterprising plaintiff. That’s because the funds were “in-house” – in other words, owned either by the charity itself or by its “separate” but nonetheless captive foundation. However, if a third-party donor contributes money to the charity’s organization fund at the TCF, then that money is not reachable by the charity’s creditors, even though the money is held for the exclusive benefit of that charity. The sensationalist publicity surrounding recent lawsuits against charities has caused many donors to pull back on their charitable giving. By offering these donors a creditor-proof alternative, TCF is re-kindling donors’ interest in making gifts that they otherwise might not have made at all.

As a legal requirement, gifts to component funds of TCF become the assets of TCF.

IRS regulations include but are not limited to restrictions on holding interests in business enterprises, prohibition against grants to support lobbying, and expenditure responsibility procedures for grants to organizations that are not public charities.
As a “public charity,” TCF operates under different rules and its administration monitors all compliance issues.