Maryland Bar Bulletin
Publications : Bar Bulletin : January 2006

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Working to Help Your Clients with Community Foundations
By Buffy Beaudoin-Schwartz

In the course of doing business, sooner or later you will be called upon to help clients with their charitable giving.

Your clients may be looking for the most tax-advantaged ways to contribute to charitable causes that they hold dear. They might have questions about specific charitable-giving vehicles, such as charitable remainder trusts. And they may want to know how to capitalize on the potential for contributing retirement funds to charity.

Wouldn't it be great if there were one place that you could go to get all the information that you and your clients need about charitable giving? Well, in Maryland, there isn't just one place – there are ten.

Maryland has ten community foundations, serving citizens in 14 counties and Baltimore City. Each Maryland community foundation is a nonprofit, community corporation created by and for the people of Maryland. Their mission is to help donors make a positive impact on their community. Community foundations offer a variety of giving tools to help people achieve their charitable goals and have expertise on issues and trends in charitable giving instruments and strategies.

Who handles the investments of community foundations? Typically, community foundations employ a number of local trust companies and investment firms to handle their investments. A volunteer Investment Committee made up of business and civic leaders monitors these investment returns carefully and works with the investment advisors to ensure the continued growth of each permanent fund in the community foundation.

Are there tax advantages of a community foundation over a private or family foundation? Community foundations are public charities under tax laws. This offers some advantages to donors over private foundations. For example, gifts of cash and ordinary property to a community foundation are deductible up to 50 percent of adjusted gross income (AGI). Gifts to private or family foundations are deductible only to 30 percent of AGI. Similarly, gifts of appreciated property to community foundations can be credited for 30 percent compared with 20 percent for a private foundation. There are no excise taxes on community foundations as there are on private foundations and community foundations are not required to distribute a certain percentage each year.

What kinds of charitable instruments can my clients access through community foundations?

Outright Gift. Your client can make a gift of cash, stocks, bonds, real estate or other assets to your community foundation. Their gift qualifies for maximum charitable benefit under state and federal law.

Bequest. Your client can designate a gift or portion of his/her estate to the local community foundation and, in some cases, receive a substantial reduction in federal gift and estate taxes.

Gift Annuity. Your client can make a gift of cash or property to the community foundation now, get immediate tax benefits and ensure that he/she or a loved one receives fixed quarterly or annual income payments for life.

Charitable Remainder Trust. Your client can place cash or property in a trust that pays annual income to him/her (or another named beneficiary) for life. After your client's death, the remainder of the trust transfers to the community foundation and is placed in the charitable fund the client selected. The client receives income tax benefits the year he/she established the trust.

Charitable Lead Trust. Your client can place cash or property in a trust that pays a fixed amount to the community foundation for the number of years your client selects to support the charitable causes of his/her choosing. Once this period ends, the assets held by the trust are transferred to the beneficiaries named by your client. In some cases, the client receives a substantial reduction in federal gift and estate taxes.

Is it ethical for me to refer clients to community foundations? Sometimes attorneys and advisors question whether it is ethical for them to refer clients to community foundations. After all, by doing so, aren't you advocating a particular charitable cause? You are not, because of the fundamental difference between community foundations and other charities.

Community foundations are set up for people to give through them; they are not the end-users of charitable dollars, but rather are the go-betweens for donors and nonprofits. They work with your clients to help them give to charities and meet their tax-planning goals and do not dictate the type of gifts their donors can make.

By making a referral to a community foundation, you are not advocating a particular cause.

Can my client give to organizations outside of the community where the community foundation is located? Yes. Community foundations can channel donor distributions anywhere in the country (and even in some cases outside the U.S.) as long as recipients are nonprofit organizations qualified as 501(c)(3).

Where can I get more information? For general information or to link to your local community foundation, go to www.mdcommunityfoundations.org.


Buffy Beaudoin-Schwartz is Director of the Maryland Community Foundations Initiative.

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Publications : Bar Bulletin: January 2006

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