Latest / Money to Give / Ep. 51 The New Rules Of Giving: Navigating The One Big Beautiful Bill Act with Jennifer V. Abelaj

Transcript

Ep. 51 The New Rules Of Giving: Navigating The One Big Beautiful Bill Act with Jennifer V. Abelaj · Money to Give

• 0:04
  Speaker 1: What happens when the rules around charitable giving suddenly shift,
• 0:08
  Speaker 1: and what can nonprofits, donors and advisors do to stay
• 0:12
  Speaker 1: one step ahead. Welcome to Money to Give with me
• 0:15
  Speaker 1: Rick Peck, the philanthropy guy with over twenty years in
• 0:19
  Speaker 1: the nonprofit sector. I've seen hundreds of millions of dollars
• 0:22
  Speaker 1: transferred from donors to nonprofits. I have learned a lot
• 0:26
  Speaker 1: along the way that I want to help convey to you,
• 0:28
  Speaker 1: my loyal listeners. In this podcast series, we talk about
• 0:31
  Speaker 1: one how nonprofits can most effectively showcase their mission and
• 0:35
  Speaker 1: vision and raise as much money as possible. Two how
• 0:39
  Speaker 1: donors and potential donors can make the greatest impact possible
• 0:42
  Speaker 1: in the world, And three how professional advisors, including philanthropic advisors,
• 0:47
  Speaker 1: can offer the most up to date information and services
• 0:50
  Speaker 1: to their clients. So join us here each episode for
• 0:52
  Speaker 1: more of that giving failing. In this episode, I'm joined
• 0:55
  Speaker 1: by Jennifer v abel At, a respected New York attorney
• 1:00
  Speaker 1: specializing in nonprofit estate and tax exempt organization law. Jennifer
• 1:05
  Speaker 1: helps charities and donors navigate the complex and often changing
• 1:10
  Speaker 1: world of giving. Together, we dive into the One Big
• 1:13
  Speaker 1: Beautiful Bill Act and how it's reshaping charitable deductions, donor behavior,
• 1:18
  Speaker 1: and nonprofit fundraising strategies, from bunching donations to preparing for
• 1:23
  Speaker 1: larger gifts and avoiding pitfalls like public charity test failures.
• 1:28
  Speaker 1: Jennifer's insights will help nonprofits plan wisely and will also
• 1:32
  Speaker 1: help donors gift strategically in this new landscape.
• 1:36
  Speaker 2: Let's begin, Jennifer, how has the One Big Beautiful Bill
• 1:46
  Speaker 2: Act changed the charitable deductions allowed.
• 1:49
  Speaker 3: It's primarily reduced the amount that itemized individuals can deduct
• 1:56
  Speaker 3: for charitable contributions that they make, while also in increasing
• 2:00
  Speaker 3: the amount that standard deduction tax payers can take as
• 2:05
  Speaker 3: a charitable deduction on their tax reterm.
• 2:08
  Speaker 2: Okay, that's helpful. So just talk a little bit maybe
• 2:11
  Speaker 2: about how this impacts donations and fundraising in the future.
• 2:15
  Speaker 3: Yeah, that's a really great question. What will probably happen
• 2:20
  Speaker 3: is that in twenty twenty five, for donors who are
• 2:25
  Speaker 3: aware of this change, they will probably begin making donations
• 2:31
  Speaker 3: before the year ends. For those who are unaware of it,
• 2:35
  Speaker 3: they will probably be caught off guard come January one,
• 2:40
  Speaker 3: twenty twenty six, and now the deduction that they normally
• 2:44
  Speaker 3: would have received, which essentially is let's just keep it
• 2:47
  Speaker 3: very simple, a dollar for dollar deduction up to sixty.
• 2:51
  Speaker 4: Percent of their AGI.
• 2:52
  Speaker 3: Okay, the new floor for itemized tax payers is zero
• 2:57
  Speaker 3: point five percent. That means is that they cannot deduct
• 3:02
  Speaker 3: any of the first point five percent of their donations
• 3:06
  Speaker 3: for the year. As an example, if someone's AGI is
• 3:09
  Speaker 3: a million dollars, the first five thousand of their donations
• 3:13
  Speaker 3: will not be deductible starting on January one, twenty twenty six. Okay,
• 3:19
  Speaker 3: what will probably happen for nonprofits is they're going to
• 3:24
  Speaker 3: have to tailor what they do going forward to take
• 3:29
  Speaker 3: this into consideration.
• 3:30
  Speaker 2: All right, what do you mean by that?
• 3:32
  Speaker 4: Yeah, great question.
• 3:33
  Speaker 3: So they should probably reach out this year, which is
• 3:38
  Speaker 3: we're still in twenty twenty five, so before the end
• 3:40
  Speaker 3: of the year, work with their fundraising team to identify
• 3:45
  Speaker 3: donors that would normally give them one of two types
• 3:49
  Speaker 3: of donations, either large donations or individuals who normally give
• 3:55
  Speaker 3: small donations every year. And the reason is because the
• 4:00
  Speaker 3: outcome of this bill will probably result in itemized taxpayers
• 4:07
  Speaker 3: bunching their donations in one year so that they can
• 4:12
  Speaker 3: exceed that five percent threshold.
• 4:15
  Speaker 2: Okay, could you talk about bunching. I've mentioned it in
• 4:18
  Speaker 2: the past in podcast, but it's worth repeating. So talk
• 4:20
  Speaker 2: about what you mean by bunching.
• 4:22
  Speaker 3: Bunching means instead of making several small contributions every year,
• 4:29
  Speaker 3: combining those contributions in one year. So for a taxpayer
• 4:34
  Speaker 3: who maybe every year would make a contribution of one
• 4:38
  Speaker 3: thousand dollars, as this example goes, instead of doing that
• 4:43
  Speaker 3: for five.
• 4:43
  Speaker 4: Years, they would make.
• 4:46
  Speaker 3: One contribution of five thousand dollars or more in one
• 4:50
  Speaker 3: year so that they can exceed the floor that's been
• 4:54
  Speaker 3: imposed on them, and now they'll be able to receive
• 4:57
  Speaker 3: the charitable deduction in one year that they would not
• 5:01
  Speaker 3: be able to receive at all if they were to
• 5:04
  Speaker 3: make that same contribution and equal portions over a five
• 5:08
  Speaker 3: year period, right, So I think that's what we're probably
• 5:11
  Speaker 3: going to see.
• 5:12
  Speaker 2: Okay, there's some donors who probably like to make contributions
• 5:16
  Speaker 2: each and every year, So it's a good reminder that
• 5:18
  Speaker 2: that may not be your friend at the level that
• 5:20
  Speaker 2: you're talking about at a lower level each and every year,
• 5:22
  Speaker 2: but there are probably a lot of people who just
• 5:24
  Speaker 2: are prone to make larger contributions every few years, and
• 5:28
  Speaker 2: that's going to be beneficial. As you're describing it from
• 5:30
  Speaker 2: a bunching standpoint, because you get to stack more money
• 5:33
  Speaker 2: into a certain year and therefore get a better tax deduction.
• 5:38
  Speaker 4: That's right.
• 5:39
  Speaker 3: This is going to require intention and strategy for nonprofits
• 5:43
  Speaker 3: and also for donors, because if donors are aware that
• 5:48
  Speaker 3: they normally make certain contributions every year to their favorite charities,
• 5:53
  Speaker 3: they will probably consider making one large contribution in one
• 5:58
  Speaker 3: year so that they get at least some sort of
• 6:01
  Speaker 3: tax benefit for the contribution that they make. Yeah, it's
• 6:05
  Speaker 3: really going to be a hybrid approach because the nonprofits
• 6:10
  Speaker 3: are going to have to be strategic on what messaging
• 6:13
  Speaker 3: they're going to use for donors who would make small
• 6:17
  Speaker 3: contributions over a period of years and those that make
• 6:21
  Speaker 3: one large contribution every few years. And that's going to
• 6:24
  Speaker 3: require strategy from the fundraising team and really the messaging
• 6:29
  Speaker 3: on what that's going to look like.
• 6:31
  Speaker 2: Yeah, Jennifer, just aut a curiosity. Have you seen good
• 6:33
  Speaker 2: messaging with nonprofits or is what you're talking about something
• 6:37
  Speaker 2: that you're really hoping these nonprofits start to incorporate. I'm
• 6:40
  Speaker 2: just curious if you had examples of where you're seeing
• 6:42
  Speaker 2: this done well or if you're seeing this really not
• 6:45
  Speaker 2: done at all or is it just too soon to
• 6:47
  Speaker 2: make that determination.
• 6:49
  Speaker 3: I haven't seen any charities do it yet.
• 6:52
  Speaker 4: This bill it was passed earlier this year.
• 6:56
  Speaker 3: And I think people are still trying to figure out
• 6:59
  Speaker 3: what that's going to mean. And let's not forget that
• 7:03
  Speaker 3: it's not this bill that was passed that's impacting charities.
• 7:07
  Speaker 3: There were a lot of executive orders that were passed
• 7:11
  Speaker 3: around the same time that had a much greater and
• 7:16
  Speaker 3: immediate impact on charities. So when it came to deciding
• 7:21
  Speaker 3: what they needed to focus on, it really came down
• 7:24
  Speaker 3: to focusing on the emergency matters, which were the executive orders.
• 7:28
  Speaker 3: So I think that's what I'm seeing is that the
• 7:31
  Speaker 3: executive orders came in at the same time they have
• 7:34
  Speaker 3: to look at their policies and procedures in order to
• 7:37
  Speaker 3: comply with these executive orders, and this tax approach got
• 7:41
  Speaker 3: lost in the shuffle. So now is when it's starting
• 7:44
  Speaker 3: to come around where individuals such as yourself, myself that
• 7:49
  Speaker 3: work with donors, our tax professionals are saying, this is
• 7:53
  Speaker 3: what it's going to look like. Because the dust settled
• 7:56
  Speaker 3: a little bit on the executive orders, everyone now has
• 7:59
  Speaker 3: an opportunated to say wait, something happened here.
• 8:03
  Speaker 4: What is that going to mean for us?
• 8:05
  Speaker 2: Yeah, that's a great point. I've started to do a
• 8:08
  Speaker 2: presentation where I'm talking about the executive orders and then
• 8:11
  Speaker 2: i follow with the one Big, Beautiful Bill Act and
• 8:15
  Speaker 2: the changes, and it's just I think contextually it's helpful
• 8:18
  Speaker 2: for people to see both because they both, as you say,
• 8:21
  Speaker 2: have been tough or an adjustment in such a short
• 8:24
  Speaker 2: period of time. I mean really only about eight months
• 8:26
  Speaker 2: into a presidency and so many things have changed. So
• 8:30
  Speaker 2: as you say, it's that nonprofits have to sort of
• 8:32
  Speaker 2: adjust to it, see what's happening, and then see how
• 8:34
  Speaker 2: they're going to react to it and how they're going
• 8:35
  Speaker 2: to strategize around their marketing. As you say, so, thank
• 8:38
  Speaker 2: you for that. Let's talk about nonprofits preparing to receive
• 8:41
  Speaker 2: larger gifts. One of the things I talk about with
• 8:44
  Speaker 2: nonprofits is sometimes the disconnect between how little they're asking
• 8:48
  Speaker 2: for and how much they need to raise as far
• 8:51
  Speaker 2: as their total goal. They might need to be raising
• 8:53
  Speaker 2: a million dollars, but they're asking on their website for
• 8:57
  Speaker 2: twenty five dollars or fifty dollars. So I love of
• 9:00
  Speaker 2: the fact that we're going to talk about this right
• 9:02
  Speaker 2: now around receiving large gifts. What does that mean.
• 9:06
  Speaker 3: It means being ready internally with policies and procedures before
• 9:11
  Speaker 3: that happens. So if we see this bunching actually coming
• 9:15
  Speaker 3: into reality as we're expecting is going to happen, charities
• 9:20
  Speaker 3: that normally would have received maybe smaller gifts will receive
• 9:24
  Speaker 3: one large gift in one year. Let's just add to
• 9:28
  Speaker 3: that a little bit that nonprofits that have lost federal
• 9:33
  Speaker 3: funding are probably going to be getting larger contributions from
• 9:37
  Speaker 3: private foundations possibly or even individuals, And in particular, private
• 9:43
  Speaker 3: foundations want to see certain policies and procedures be in
• 9:48
  Speaker 3: place for the charity before making a large contribution.
• 9:53
  Speaker 2: It makes total sense, right, They don't want to be
• 9:55
  Speaker 2: the first ones giving to an organization. Or maybe where
• 9:58
  Speaker 2: I've seen situations where someone approaches with a large gift
• 10:01
  Speaker 2: and the nonprivate says, no, you don't take that type
• 10:03
  Speaker 2: of gift. Maybe it's a gift of real estate or something.
• 10:06
  Speaker 2: So it seems like there's two parts to what you're saying,
• 10:09
  Speaker 2: is have your policies and procedures in place, and maybe
• 10:14
  Speaker 2: advertise for such assets. Then people know that you're trying
• 10:18
  Speaker 2: to attract such assets as a nonprofit rather than it
• 10:20
  Speaker 2: being a secret or that you're not necessarily prepared or
• 10:24
  Speaker 2: you're not that sophisticated in taking large gifts. So I mean,
• 10:27
  Speaker 2: maybe you can comment on that a little bit.
• 10:29
  Speaker 3: Yeah, that's a really great point. That starts with having
• 10:32
  Speaker 3: a gift policy, a gifting policy before a large contribution
• 10:36
  Speaker 3: comes in, so that the board, when things are running smoothly,
• 10:41
  Speaker 3: can think about this without the pressure of bending to
• 10:44
  Speaker 3: the whim of a large donor. That sometimes what I
• 10:48
  Speaker 3: see when there's a charity that's approached by a private
• 10:52
  Speaker 3: foundation or an individual for a large donation and they're
• 10:56
  Speaker 3: not ready. They don't know what their philosophy is on
• 11:00
  Speaker 3: the types of gifts they're willing to receive. They don't
• 11:02
  Speaker 3: know what's driving the reason for receiving that kind of gift,
• 11:08
  Speaker 3: what they want to do with it, what parameters they
• 11:11
  Speaker 3: put in place for donations. So an example is, will
• 11:16
  Speaker 3: this donor have a voice on a committee.
• 11:20
  Speaker 4: Let's say that's not unusual.
• 11:21
  Speaker 3: For a donor to at least be informed about what's
• 11:25
  Speaker 3: being done with this large contribution, maybe want to participate
• 11:30
  Speaker 3: or at least attend discussions when it comes time to
• 11:33
  Speaker 3: how these funds.
• 11:34
  Speaker 4: Are going to be used.
• 11:36
  Speaker 3: But if a nonprofit has not gone through that process
• 11:40
  Speaker 3: of what their policy and philosophy is going to be
• 11:43
  Speaker 3: on donor involvement and at what level will donors have
• 11:47
  Speaker 3: certain involvement. And that's really critical because by setting that
• 11:52
  Speaker 3: in advance, that will help with the messaging and with
• 11:56
  Speaker 3: the fundraising effort. Right, if the nonprofits policy in place
• 12:01
  Speaker 3: that says donations up to one hundred thousand dollars, they
• 12:06
  Speaker 3: will receive reports on a monthly basis. That's one level.
• 12:12
  Speaker 3: Let's say donations up to five hundred thousand, they'll be
• 12:16
  Speaker 3: able to attend one one discussion a year. If it's
• 12:20
  Speaker 3: above a million, they'll be able to sit in on
• 12:24
  Speaker 3: the committee discussions without having any sort of influence. By
• 12:28
  Speaker 3: thinking about that in advance, the nonprofit will be able
• 12:32
  Speaker 3: to communicate that to the donor, and now the donor
• 12:36
  Speaker 3: will have expectations on what the nonprofit has already thoroughly
• 12:42
  Speaker 3: considered on how donor involvement is going to shape what
• 12:46
  Speaker 3: they do.
• 12:47
  Speaker 2: Yeah, there's so many layers to what you're saying. I
• 12:49
  Speaker 2: think there's the how to make a gift. As you
• 12:51
  Speaker 2: were saying the policies and procedures. There's the why, back
• 12:55
  Speaker 2: to what is it that the nonprofit's going to do
• 12:57
  Speaker 2: with this money? What is the narrative, what is the
• 12:59
  Speaker 2: case for support, what is the case statement? How is
• 13:03
  Speaker 2: that being projected out?
• 13:04
  Speaker 3: There?
• 13:04
  Speaker 2: Is that clear? For example, the conversation that's often had,
• 13:08
  Speaker 2: which is are we bailing out a nonprofit that's suffering
• 13:12
  Speaker 2: and in the red and kind of barely making it?
• 13:14
  Speaker 2: Or are we giving money to an institution that's going
• 13:16
  Speaker 2: towards something. They're trying to achieve a goal. They're trying
• 13:20
  Speaker 2: to build a program, they're trying to build a building,
• 13:21
  Speaker 2: they're trying to do something that enhances their mission. So
• 13:24
  Speaker 2: the why I look at the why there, so we
• 13:26
  Speaker 2: talk about how the why, and then you're talking about
• 13:29
  Speaker 2: the stewardship, the fact that somebody's going to make a
• 13:31
  Speaker 2: gift and they want to know, how can I stay involved?
• 13:34
  Speaker 2: Am I going to be forgotten about because people don't
• 13:36
  Speaker 2: want that. They say I gave a big gift and
• 13:38
  Speaker 2: no one seemed to care. But then there's also like
• 13:42
  Speaker 2: maybe it's just softer stuff like we're engaging you in
• 13:45
  Speaker 2: meetings like you said, or we're sending you some information,
• 13:48
  Speaker 2: or we're bringing you on a tour, or we're having
• 13:50
  Speaker 2: a meet leadership, or whatever the case may be. There's
• 13:53
  Speaker 2: lots of different levels of what stewardship means. So the
• 13:55
  Speaker 2: people who are making the gift feel closer to the institution,
• 13:58
  Speaker 2: they feel more engaged. Maybe they do some volunteer work,
• 14:01
  Speaker 2: maybe they do some board work, maybe they do some
• 14:03
  Speaker 2: other types of engagement as an advisor. But your point
• 14:06
  Speaker 2: being clear, being clear about all of these things, how
• 14:10
  Speaker 2: to make a gift, why to make a gift, and
• 14:12
  Speaker 2: how am I going to be involved as a donor.
• 14:14
  Speaker 2: And I think those are all things that are incredibly
• 14:17
  Speaker 2: important to accentuate because we can never take those things
• 14:20
  Speaker 2: for granted, and donors don't know, they don't know from
• 14:23
  Speaker 2: one nonprofit to the next how this stuff works. They're
• 14:26
  Speaker 2: looking for clarity, right.
• 14:28
  Speaker 3: Great point, And just going back a little bit to
• 14:31
  Speaker 3: what you mentioned about the type of assets, this goal
• 14:33
  Speaker 3: comes down to policies and procedures. You have a gifting policy,
• 14:37
  Speaker 3: not just at what level do you have donor involvement
• 14:41
  Speaker 3: what that looks like. But just as you said, asset
• 14:43
  Speaker 3: types allowed, not every charity can receive every type of asset.
• 14:48
  Speaker 3: Sometimes someone might want to donate a building and the
• 14:51
  Speaker 3: charity is not in a position to receive it or
• 14:54
  Speaker 3: manage it.
• 14:55
  Speaker 4: I've had situations.
• 14:56
  Speaker 3: Where a decedent has left artwork to a museum without
• 15:02
  Speaker 3: notifying the museum in advance, and the museum says, we
• 15:06
  Speaker 3: can't take that. These are the kinds of discussions that
• 15:10
  Speaker 3: have to happen in advance. Another part of my practice
• 15:15
  Speaker 3: is a state planning. So it's something I see often,
• 15:18
  Speaker 3: which is individuals who are charitably inclined and most charities
• 15:22
  Speaker 3: are able to receive a cash gift, let's say, but
• 15:25
  Speaker 3: when it comes to something that's more difficult to receive
• 15:31
  Speaker 3: and manage, having policies in place for that will help
• 15:35
  Speaker 3: guide the discussion, not just for the board that's in
• 15:37
  Speaker 3: place at that time, but in the future, so that
• 15:40
  Speaker 3: if someone asks, why don't we receive real estate, why
• 15:45
  Speaker 3: don't we receive cryptocurrency, let's say, or digital assets? A
• 15:50
  Speaker 3: few years ago that was a very popular thing, was
• 15:53
  Speaker 3: receiving digital assets. It's going to be overwhelming for the
• 15:58
  Speaker 3: nonprofit when they're saying, well, we do we need assets? Well,
• 16:01
  Speaker 3: what do you need assets for?
• 16:03
  Speaker 4: Right?
• 16:04
  Speaker 3: Do you need cash? So that you can.
• 16:05
  Speaker 4: Carry out your objectives.
• 16:07
  Speaker 3: If you receive a building, are you able to manage
• 16:10
  Speaker 3: that building?
• 16:12
  Speaker 4: What will it be used for?
• 16:13
  Speaker 3: Or is it type of charity we're having a building
• 16:16
  Speaker 3: would be very helpful, Maybe it provides educational resources. So
• 16:20
  Speaker 3: being intentional about the types of assets that they can
• 16:24
  Speaker 3: receive is going to be essential, especially now as we're
• 16:29
  Speaker 3: thinking about this minimum floor on itemized deductions. Those taxpayers
• 16:37
  Speaker 3: who are going to want to give a large gift,
• 16:39
  Speaker 3: what does that look like and is this charity in
• 16:42
  Speaker 3: a position to receive it? Yeah?
• 16:44
  Speaker 2: Great, And there's a few other layers I think to
• 16:46
  Speaker 2: what you're saying around the idea of taking in a
• 16:49
  Speaker 2: certain type of asset, it's in the policies and procedures.
• 16:52
  Speaker 2: I would also argue that nonprofits could find partners to
• 16:55
  Speaker 2: help them. In the case of real estate, that's either
• 16:57
  Speaker 2: holding the real estate intact or it's having maybe a
• 17:01
  Speaker 2: third party process it for them. There's a group called
• 17:03
  Speaker 2: Charitable Solutions or another group called Realty Gift Fund. They
• 17:06
  Speaker 2: process gifts of real estate on behalf of the nonprofit.
• 17:10
  Speaker 2: They accept the real estate, they sell the real estate,
• 17:12
  Speaker 2: then they process it and wire the net proceeds over
• 17:15
  Speaker 2: to the nonprofits. But that comes back to your point
• 17:17
  Speaker 2: a discussion. What is the assumption of the donor. Is
• 17:21
  Speaker 2: the donor saying, I thought you were going to keep
• 17:23
  Speaker 2: this building. I mean it's a great building, it's in
• 17:25
  Speaker 2: a great location. The nonprofits would say, yeah, but we
• 17:27
  Speaker 2: can't maintain that building. It's not in our wheelhouse. It's
• 17:30
  Speaker 2: not part of our mission. It's kind of mission drift
• 17:33
  Speaker 2: actually for us. So it'd be better if we don't.
• 17:35
  Speaker 2: So the policies and procedures in place not only tell
• 17:39
  Speaker 2: the donor or the potential donor what you do want
• 17:41
  Speaker 2: to receive or what you can receive as a nonprofit,
• 17:44
  Speaker 2: but also what you don't and having those rules up
• 17:46
  Speaker 2: front are really important. Around the bequests, that's a little tougher, right,
• 17:51
  Speaker 2: there's assumptions made by the person before they pass to say, oh,
• 17:55
  Speaker 2: of course they're going to want the artwork at the museum.
• 17:57
  Speaker 2: Of course they are. I've seen so many rifts and
• 18:01
  Speaker 2: arguments and sore feelings about giving artwork to a museum
• 18:04
  Speaker 2: that they don't end up putting up on the wall.
• 18:06
  Speaker 2: They end up storing it because I don't think most
• 18:08
  Speaker 2: people realize how much space or lack thereof museums have
• 18:13
  Speaker 2: and how many things they have in storage because they
• 18:16
  Speaker 2: just don't have the space to put all that artwork up.
• 18:18
  Speaker 2: It's not that it's bad artwork, it's just that they
• 18:20
  Speaker 2: just don't have that space. At Dartmouth College when I
• 18:24
  Speaker 2: work there the Hood Museum, I think they stored tens
• 18:26
  Speaker 2: of thousands of things in storage because they just couldn't
• 18:29
  Speaker 2: put it up on the walls. But I've seen donors
• 18:32
  Speaker 2: get upset about that and say, well, I don't know
• 18:33
  Speaker 2: why they're not putting the stuff on the wall. It's like, well,
• 18:35
  Speaker 2: did you have that discussion beforehand? It's as hard right,
• 18:39
  Speaker 2: But I think that no assumption should be made. It's
• 18:41
  Speaker 2: respect to the nonprofit to say, what are your rules
• 18:44
  Speaker 2: and policies and procedures around this before I just go
• 18:46
  Speaker 2: ahead and give you something that you may actually have
• 18:49
  Speaker 2: to disclaim or something that you're just going to have
• 18:52
  Speaker 2: to say no to, and then the family's going, what
• 18:54
  Speaker 2: do you mean you're saying no to this? So I
• 18:57
  Speaker 2: think there's two sides to that equation, and it's important
• 19:00
  Speaker 2: to make sure that everybody kind of sees it from
• 19:02
  Speaker 2: the other one's point of view and works through it.
• 19:05
  Speaker 2: Otherwise there are going to be hard feelings and the
• 19:07
  Speaker 2: negative repercussions of that through lack of discussion, through lack
• 19:10
  Speaker 2: of talking that through. So I mean we're talking about
• 19:14
  Speaker 2: some risks there, maybe some relationship risks and others, But
• 19:18
  Speaker 2: can you talk about risks that charities should be aware
• 19:21
  Speaker 2: of before receiving a large donation just anything else that
• 19:24
  Speaker 2: we haven't really touched on.
• 19:26
  Speaker 3: Primarily is to determine if the gift won't jeopardize their
• 19:31
  Speaker 3: public charity status.
• 19:32
  Speaker 2: Okay, say more about that.
• 19:34
  Speaker 3: Yeah, a public charity must receive at least one third
• 19:38
  Speaker 3: of its annual receipts from the general public at large,
• 19:42
  Speaker 3: in other words, numerous small to average donations instead of
• 19:46
  Speaker 3: a few very large donations. This is a key factor
• 19:50
  Speaker 3: that differentiates public charities from private foundations. Is this public
• 19:55
  Speaker 3: support test where there are a large number of small
• 19:59
  Speaker 3: donors as opposed to to a small number of large donors.
• 20:02
  Speaker 3: So if a charity is approached with a very large
• 20:04
  Speaker 3: gift that's well beyond what they would normally receive, it
• 20:08
  Speaker 3: could result in them failing the public support test for
• 20:11
  Speaker 3: that year when.
• 20:12
  Speaker 4: They're receiving that amount.
• 20:14
  Speaker 3: And if they fail that test for two years in
• 20:16
  Speaker 3: a row, they lose their public charity status. And I've
• 20:21
  Speaker 3: actually had this happen to a charity recently. Wow, they
• 20:25
  Speaker 3: lost their public charity status. And you have to think
• 20:28
  Speaker 3: of the timing of preparing the income tax return for
• 20:32
  Speaker 3: a charity, and this will just help frame how this
• 20:36
  Speaker 3: could actually happen. The tax return for charities generally do
• 20:40
  Speaker 3: Let's just say if it's calendar year charity, it's due
• 20:43
  Speaker 3: May fifteenth of every year. A lot of them do
• 20:46
  Speaker 3: six month extension which takes it to November fifteen by
• 20:50
  Speaker 3: the time that tax return is fil if it didn't
• 20:53
  Speaker 3: receive that public charity status for the prior year. Now
• 20:58
  Speaker 3: they've gone through almost an an entire year, eleven months
• 21:02
  Speaker 3: of carrying on without taking action to address the failure
• 21:08
  Speaker 3: to meet this test. So by the time it's November,
• 21:13
  Speaker 3: if they find out in November that they failed the
• 21:15
  Speaker 3: public charity test for the prior year, they only have
• 21:19
  Speaker 3: one month to course correct and that's not going to
• 21:22
  Speaker 3: be enough time for them to take action in order
• 21:27
  Speaker 3: to meet the public charity test for the second year,
• 21:31
  Speaker 3: because eleven months have already elapsed.
• 21:33
  Speaker 2: Wow, that's tough. Yeah, it almost seems like a contradiction, right,
• 21:37
  Speaker 2: that nonprofit's looking to raise money and they want to
• 21:41
  Speaker 2: bring in as much money as possible, but then they
• 21:43
  Speaker 2: have to be aware that it can't be too much
• 21:45
  Speaker 2: money from one individual or a certain segment. Which must
• 21:49
  Speaker 2: be hard, right, because a lot of these nonprofits are
• 21:51
  Speaker 2: probably saying, we don't get large donations from a lot
• 21:53
  Speaker 2: of our donors. We do have one or two or
• 21:56
  Speaker 2: three donors who are willing to give us a lot
• 21:59
  Speaker 2: of money. You have to be aware of that public
• 22:01
  Speaker 2: charity test to keep that in check. So that must
• 22:03
  Speaker 2: be a strange conversation. Obviously you have to be one
• 22:06
  Speaker 2: hundred percent aware of it as a nonprofit, but it
• 22:08
  Speaker 2: must be strange to say, well, we're trying to get
• 22:10
  Speaker 2: as much money as possible, we actually have to limit
• 22:12
  Speaker 2: that amount per donor so that we don't screw up
• 22:15
  Speaker 2: our public charity tests. So that I don't know if you,
• 22:18
  Speaker 2: I mean, do you have any comments on that? I
• 22:19
  Speaker 2: don't know what the answer.
• 22:21
  Speaker 4: Is today, I do, Yeah, I do.
• 22:23
  Speaker 3: So. The IRS provides to release valves if a charity
• 22:27
  Speaker 3: is approached.
• 22:28
  Speaker 4: With a very large donation.
• 22:31
  Speaker 3: One of them is the ten percent Facts and circumstances test,
• 22:34
  Speaker 3: which means if you don't meet this one third test
• 22:36
  Speaker 3: in one year, if you at least can show that
• 22:40
  Speaker 3: ten percent of your donations came from the public at
• 22:44
  Speaker 3: large and the purposes and the activities of your charity
• 22:48
  Speaker 3: are in fact charitable. That's one way to get out
• 22:52
  Speaker 3: of this potential jeopardizing status for charities that don't meet
• 22:58
  Speaker 3: that test. The second please valve is what is considered
• 23:03
  Speaker 3: an unusual grant by the IRS, And what the charity
• 23:06
  Speaker 3: would have to do is it would have to notify
• 23:10
  Speaker 3: the IRS, preferably in advance, that they are intending to
• 23:15
  Speaker 3: receive a very large contribution that's out of sorts from
• 23:20
  Speaker 3: what they normally receive, and request that that particular contribution
• 23:26
  Speaker 3: be excluded from their test for that year. So those
• 23:30
  Speaker 3: are the two release valves.
• 23:32
  Speaker 2: That's very helpful. And that second description that you just described,
• 23:36
  Speaker 2: what if that kept happening, someone kept coming forward and
• 23:39
  Speaker 2: saying I want to help you. Would you have to
• 23:40
  Speaker 2: each and every year say please exclude that? Or is
• 23:43
  Speaker 2: the IRS saying okay, knock it off. You keep coming
• 23:46
  Speaker 2: to us and asking us to exclude that. Is there
• 23:48
  Speaker 2: a certain limit on that? Is there a certain threshold
• 23:51
  Speaker 2: on being able to ask such permission, so you can.
• 23:54
  Speaker 4: Ask it more than once.
• 23:56
  Speaker 3: But this is a facts and circumstances for the irs.
• 24:00
  Speaker 3: They give a very long laundry list of what they
• 24:04
  Speaker 3: look at when it comes time to determining whether they're
• 24:07
  Speaker 3: going to approve the requests for this to be considered
• 24:10
  Speaker 3: an usual grant, And one of the more pertinent ones
• 24:15
  Speaker 3: is exactly what you said. Is this something that you
• 24:18
  Speaker 3: knew was coming? Is this a donor that has given
• 24:21
  Speaker 3: a large contribution like this before? Have you made a
• 24:26
  Speaker 3: request for an unusual grant recently? So these are just
• 24:31
  Speaker 3: three of the factors that they consider, but there are
• 24:34
  Speaker 3: many more, and that means that if they see too
• 24:37
  Speaker 3: many of these factors, that would say, no, this is
• 24:41
  Speaker 3: not really unusual, because maybe you were asking for very
• 24:45
  Speaker 3: large donations, right, Maybe this is an individual that has
• 24:50
  Speaker 3: a history of making large donations. Perhaps there was fundraising
• 24:55
  Speaker 3: discussions in advance where you were already working with this
• 24:59
  Speaker 3: individual to make this large donation, it has to be
• 25:04
  Speaker 3: something that's surprising. And a really good example is McKenzie Scott,
• 25:09
  Speaker 3: who's been giving away huge donations to charities. In that case,
• 25:14
  Speaker 3: most charities were unaware and unprepared that they were going
• 25:19
  Speaker 3: to be selected. It was a sudden case, probably one time.
• 25:25
  Speaker 3: That's a great example of what would be considered an
• 25:28
  Speaker 3: unusual grant is a sudden gift. It's not going to
• 25:32
  Speaker 3: be coming on an annual basis. It's not something you
• 25:36
  Speaker 3: were actively communicating with the donor form. Another example is
• 25:42
  Speaker 3: receiving a bequest when someone dies under their will under
• 25:45
  Speaker 3: a trust. If you didn't know it was going to
• 25:48
  Speaker 3: be coming to you, that would be an example also
• 25:51
  Speaker 3: of an unusual grant that you can apply and the
• 25:54
  Speaker 3: IRS will take that into consideration as being excluded from your.
• 25:59
  Speaker 4: Public support test for that particular year.
• 26:01
  Speaker 3: So essentially think of it as a sudden, unexpected wind
• 26:05
  Speaker 3: fall that's coming to the charity.
• 26:07
  Speaker 2: Yeah, this is super helpful. I think by diving so
• 26:10
  Speaker 2: deeply in as you have, it just says not only
• 26:12
  Speaker 2: should we be aware as a nonprofit of the public
• 26:15
  Speaker 2: charity test, the public support test, but we also have
• 26:18
  Speaker 2: ways to mitigate that in case things happen, like you say,
• 26:20
  Speaker 2: there's a surprise or something, and there's ways to work
• 26:24
  Speaker 2: through that. So that's helpful versus having it fall apart
• 26:26
  Speaker 2: because they were unaware and things happened and they didn't
• 26:29
  Speaker 2: address the IRS concerns and then they lose their five
• 26:31
  Speaker 2: oh one C three status.
• 26:33
  Speaker 3: Right absolutely, and having regular communication with your accountant, your
• 26:38
  Speaker 3: fundraising team, your attorney is really critical for this. A
• 26:44
  Speaker 3: great example is I have a client who actually did
• 26:47
  Speaker 3: receive a very very large gift that they weren't expecting,
• 26:51
  Speaker 3: and they had the foresight to contact me immediately and say,
• 26:56
  Speaker 3: can we receive this? And I said to them, well,
• 26:59
  Speaker 3: let me look at your nine n let's see if
• 27:01
  Speaker 3: this would potentially jeopardize your one third test for the year.
• 27:06
  Speaker 3: And I said, you can receive this, but let's do
• 27:08
  Speaker 3: a request to the IRS to have this treated as
• 27:12
  Speaker 3: an unusual grant. And the way that's done is by
• 27:14
  Speaker 3: filing something called the form eighty nine forty in case
• 27:17
  Speaker 3: your listeners are interested and the IRS will consider it
• 27:21
  Speaker 3: that way, the best thing to do is to file
• 27:23
  Speaker 3: this before receiving the gift.
• 27:26
  Speaker 2: Very smart, so the eighty nine to forty, filing that
• 27:28
  Speaker 2: before receiving the gift as a way to offset any
• 27:31
  Speaker 2: potential negative repercussions of getting that gift. Okay, great, really
• 27:35
  Speaker 2: powerful stuff. Oh, Jennifer, I have one last question for you,
• 27:38
  Speaker 2: have you noticed any trends recently in nonprofit needs? We
• 27:42
  Speaker 2: did talk about executive orders, we talked about the changes
• 27:45
  Speaker 2: in the tax slot, but just any trends that you've
• 27:48
  Speaker 2: seen that you want to communicate out.
• 27:50
  Speaker 3: Yes, I have seen a significant uptick in nonprofits that
• 27:53
  Speaker 3: are dissolving or merging with other organizations. And this is
• 27:57
  Speaker 3: well beyond what I've seen in the almost fifteen years
• 28:00
  Speaker 3: I've been working with nonprofits. I've noticed the uptick in
• 28:03
  Speaker 3: the last two years and I have not seen it
• 28:07
  Speaker 3: slowing down.
• 28:08
  Speaker 2: Is this good or bad? What do you think about this?
• 28:10
  Speaker 3: This is a bit of a taboo topic, I think
• 28:12
  Speaker 3: for a lot of people in the nonprofit world. I
• 28:16
  Speaker 3: think of it as a natural part of the life
• 28:19
  Speaker 3: cycle of a nonprofit. Nonprofits many times are set up
• 28:23
  Speaker 3: to meet a need that the public services can't provide,
• 28:29
  Speaker 3: and in many cases that need is met, and so.
• 28:32
  Speaker 4: That's a good thing.
• 28:34
  Speaker 3: Right If the organization was set up thirty years ago
• 28:37
  Speaker 3: to help ensure that sidewalks are properly maintained, let's say
• 28:43
  Speaker 3: in your city, and you've actually been able to see
• 28:46
  Speaker 3: that that's been done, that the community is helping with
• 28:50
  Speaker 3: that that there have been lost pass on that that
• 28:53
  Speaker 3: charity has accomplished the goal that it's set out to accomplish.
• 28:56
  Speaker 3: So it really depends on what's.
• 28:59
  Speaker 4: The reason for the dissolution.
• 29:01
  Speaker 3: And the one common thread I tend to see is
• 29:04
  Speaker 3: that organizations were founded several decades ago by a small,
• 29:09
  Speaker 3: passionate group of people who are no longer part of
• 29:12
  Speaker 3: the more, there was no succession plan in place, and
• 29:16
  Speaker 3: as the directors resigned, died, or their term ended, the
• 29:21
  Speaker 3: vacancy wasn't filled.
• 29:23
  Speaker 2: Interesting, so by.
• 29:24
  Speaker 3: The time, yeah, by the time a nonprofit comes to
• 29:27
  Speaker 3: me to be dissolved, maybe there's one director left, and
• 29:31
  Speaker 3: sometimes there isn't even a director left. Sometimes it's the
• 29:34
  Speaker 3: nonprofit consultants or the CPA who's saying, I'm stepping into
• 29:39
  Speaker 3: this director role to close this out, and so I'll
• 29:43
  Speaker 3: be representing them. I mean, now they are on the board.
• 29:45
  Speaker 3: But that's usually what I see. By the time there's
• 29:48
  Speaker 3: a dissolution, there's not that many people left to manage it.
• 29:53
  Speaker 2: Wow, it's almost like a ghost town. It's like a
• 29:55
  Speaker 2: lack of succession, either because people aren't stepping up or because,
• 30:00
  Speaker 2: as you say, the nonprofit sort of fulfilled its mission.
• 30:02
  Speaker 2: Or it's maybe just not great succession planning where there's
• 30:06
  Speaker 2: not a lot of robust investment into the people who
• 30:10
  Speaker 2: will lead it moving forward, and it just kind of
• 30:13
  Speaker 2: falls apart, and so somebody's just coming into kind of
• 30:15
  Speaker 2: close shop. Right, the shop needs to be closed. We're
• 30:18
  Speaker 2: closing it down, and that's okay. We weren't getting a
• 30:21
  Speaker 2: lot of money, we don't have any officers, the mission
• 30:24
  Speaker 2: has or has not been fulfilled, or there's not much
• 30:26
  Speaker 2: of a demand for the nonprofit services and it's time
• 30:29
  Speaker 2: to wind it down and merging into others. It sounds
• 30:32
  Speaker 2: like that's different. Right when you're merging into another organization,
• 30:35
  Speaker 2: there's probably a little bit more energy there maybe, or
• 30:38
  Speaker 2: there's something where there's been a conversation about merging the
• 30:41
  Speaker 2: services or the offerings together, because there's value in merging
• 30:45
  Speaker 2: versus just letting that nonprofit die.
• 30:47
  Speaker 3: Right, absolutely, absolutely, And one thing to note is that
• 30:52
  Speaker 3: when a charity ends, the funds that are remaining continue
• 30:56
  Speaker 3: on for charitable purposes. You can't close down a charity
• 31:01
  Speaker 3: that's actually charitable in the US and then paid out
• 31:05
  Speaker 3: to friends and family who initially made a contribution. It
• 31:08
  Speaker 3: actually has to be paid out to another not for
• 31:10
  Speaker 3: profit organization, so it continues doing good even after the
• 31:15
  Speaker 3: organization is no longer operating. And the merger is a
• 31:18
  Speaker 3: great example of that, right, which is for mergers, we
• 31:22
  Speaker 3: know that they're going to continue carrying out those purposes.
• 31:26
  Speaker 3: It's a little different than a full.
• 31:27
  Speaker 4: Dissolution, right.
• 31:28
  Speaker 3: This solution is whatever is leftover is.
• 31:30
  Speaker 4: Being paid out to another charity.
• 31:33
  Speaker 3: For a merger, it's a little bit easier to see
• 31:36
  Speaker 3: that the activities are going to be carried out by
• 31:40
  Speaker 3: the surviving entity.
• 31:42
  Speaker 2: Yeah, no, that's good, that's excellent stuff. So thank you, Jennifer.
• 31:46
  Speaker 2: This is a super multifaceted conversation that we've had today
• 31:49
  Speaker 2: around so many different things, and I'm sure it's very
• 31:52
  Speaker 2: insightful to nonprofits and a good warning sign on many levels.
• 31:56
  Speaker 2: You're just filling in blanks and talking about things that
• 31:59
  Speaker 2: maybe a lot of nonprofit that's aren't necessarily thinking about.
• 32:01
  Speaker 2: So thank you for the work that you do. So
• 32:03
  Speaker 2: how would people find you?
• 32:04
  Speaker 3: Thank you for asking.
• 32:06
  Speaker 4: This was a great conversation. I enjoyed it.
• 32:08
  Speaker 3: So people can find me on my website. It's my
• 32:11
  Speaker 3: last name law.
• 32:13
  Speaker 4: That's ab.
• 32:16
  Speaker 3: La j law dot com. My last name is Abeli,
• 32:21
  Speaker 3: and that's the best way to reach out to me,
• 32:24
  Speaker 3: and happy to share my email too. It's j Va
• 32:28
  Speaker 3: at abelilaw dot com.
• 32:31
  Speaker 2: Great Abili, with the J being silent at the end.
• 32:34
  Speaker 2: So yes, that's great. Well, Jennifer, we've known each other
• 32:37
  Speaker 2: a while. I really appreciate your insight, your integrity, your
• 32:41
  Speaker 2: fastidiousness to doing the right thing, and all the work
• 32:45
  Speaker 2: that you put into helping nonprofits do the right things
• 32:47
  Speaker 2: for themselves. You are a valued resource and I appreciate you,
• 32:50
  Speaker 2: and I'm glad you were here. And You're always welcome
• 32:53
  Speaker 2: to come back again and maybe tell some more stories
• 32:55
  Speaker 2: about things you've seen, maybe warning stories or success stories,
• 32:59
  Speaker 2: anything thing you see from your perspective. You're always welcome
• 33:02
  Speaker 2: back to come and tell us all about it. So
• 33:04
  Speaker 2: thank you, thank you, all right, we'll see you next time.
• 33:12
  Speaker 1: That wraps up today's conversation with Jennifer Abelat. Her deep
• 33:17
  Speaker 1: understanding of nonprofit law reminds us that generosity thrives when
• 33:20
  Speaker 1: it's guided by both heart and structure. Here are three
• 33:24
  Speaker 1: key takeaways from our discussion. First, awareness matters. The One
• 33:28
  Speaker 1: Big Beautiful Bill Act introduces new rules for charitable deductions,
• 33:32
  Speaker 1: meaning both donors and nonprofits must act before the end
• 33:36
  Speaker 1: of twenty twenty five to prepare. Second strategy is essential.
• 33:41
  Speaker 1: Bunching donations into a single tax year can help donors
• 33:45
  Speaker 1: maximize impact, while nonprofits must adjust messaging and gift policies
• 33:50
  Speaker 1: to align with these giving shifts, and third readiness protects
• 33:54
  Speaker 1: the mission. Having clear internal policies, procedures, and gift acceptance
• 33:59
  Speaker 1: guideline insures nonprofits can confidently receive and retain larger donations
• 34:05
  Speaker 1: without jeopardizing your public charity status. Thanks for listening to
• 34:09
  Speaker 1: Money to Give. If this conversation resonated with you, please
• 34:12
  Speaker 1: leave a review on your preferred streaming platform, share it
• 34:16
  Speaker 1: with a friend or colleague, and most importantly, keep that
• 34:19
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• 34:23
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• 34:28
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• 34:31
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• 34:35
  Speaker 1: please consult an attorney, financial advisor CPA, or other type
• 34:40
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• 34:43
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• 34:46
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• 34:49
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• 34:54
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• 34:58
  Speaker 1: you'll also read about many of our podcast guests, while
• 35:01
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• 35:14
  Speaker 1: let's keep making a difference together.