For two formidable teams (Kansas City Chiefs vs. San Francisco 49ers), it’s the culmination of a season. (And for us, it’s a great excuse to indulge in all the best tailgating snacks.) It’s a grueling seven-month schedule with tons of variables from pre-season training camp to regular season kick-off to post-season playoffs.
Just like all the games leading up to the Super Bowl, a lot can happen throughout a lifetime. So many variables, so many strategies, upsets, and so many potential outcomes.
While it may be difficult to ponder the inevitably of your own timer running out, preparation for what happens after your season ends is indeed necessary.
The Main Players
Estate plan – An estate plan is the whole playbook, generally containing the following documents: your will; healthcare power of attorney; financial power of attorney; disposition of personal property; and final disposition of remains.
Will – A will is a superstar which can accomplish so much for your team. For example, who will quarterback the distribution of your property at the end of the game? You need to make certain the will is well crafted, solid, and can stand up in court. Keep in mind though, important assets such as retirement assets and investment accounts may well contain beneficiary designations that actually trump your will.
Trust – You have lots of different options with this multi-tool MVP. A trust can help your team in so many different ways and provide you huge advantages in every facet of the game.
Thorough planning is the best way to plan for the end of your season so that you and your family are never caught unprepared. When you are no longer around to coach and care for the rest of your “team,” make sure they are both provided for and are provided training on how to keep pushing forward by settling your affairs. A comprehensive estate plan, written by an experienced estate planner, is the best way to do this.
No ‘I’ in Team
Your loved ones and close friends are all a part of your team; part of being a strong team player is including them on the plays you’re making. Discuss important aspects of your estate plan with the people it involves to avoid any confusion or conflict when it comes times for them to carry out your wishes. For instance, if you have minor children (under age 18) you’re going to want to establish legal guardianship if the worst happens and you’re no longer around to care for them. You’ll want to discuss with your chosen guardians ahead of time to make sure they’re willing and available to carry out the responsibility.
Pro football coaches switch up who’s starting for the best winning strategy. Similarly, you may well need to make adjustments to your estate plan “lineup” as things inevitably change over the course of your life. Big events like marriage, the birth of a child/grandchild, moving to a different state, a large change in financial status, divorce, and other significant changes are a good reason to review your designated representatives, beneficiaries, and overall goals.
Charity Factor
Pro football players make bank, but many also make significant contributions to charities they care about. Some NFL players have founded their own charitable foundation, while others focus on a few nonprofits whose missions they care deeply about. For instance, Chris Long, the Eagles defensive end, announced last fall he will donate his entire salary ($1 million) from the season to educational charities. Most players also work together as a team to give back to their communities. The league as a whole also supports building awareness for nonprofits through initiatives like “My Cause, My Cleats.”
Given their high profile sports status, these players also help inspire folks across the country to do the same. (In one great example, these football fans donated to NFL players’ favorite nonprofits!) You too can be a fierce philanthropist, but without actually having to sprint, throw, or sweat! You can include your favorite charities in your estate plan as beneficiaries. Then there are the other charitable giving tools that can be included as a part of your “end game” like charitable gift annuities and the charitable remainder trust.
I cannot predict who will win the Super Bowl today, but I can say without a doubt that you never know when the game is going to change. You never know when you (and/or your team members) are going to need any one of the documents a part of your estate plan. So, you need to have your “playbook” written out ASAP…well, you can wait until after the big game!
The best place to start on your estate plan is with my free, no-obligation Estate Plan Questionnaire. You can also shoot me an email or give me a call at 515-371-6077 to discuss your situation (or football).
https://www.gordonfischerlawfirm.com/wp-content/uploads/2018/02/Screen-Shot-2019-02-03-at-2.06.47-PM.png5721036Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2020-02-02 11:00:402020-05-18 11:28:37Love Super Bowl Sunday? Then You'll Love Estate Planning!
Typically when you think of a nonprofit you generally think of a public charity. However, private foundations (and private operating foundations) are also 501(c)(3) organizations under the IRS’ classification system. Understanding the difference between the different tax-exempt organization is key because, while public charities and private foundations have much in common, there are also major differences. The most important of these differences to understand is that private foundations are subject to much stricter regulations and oversight than public charities.
Because this can get complicated in this post let’s just cover private foundations and the rules related to “self-dealing.”
Look to the Code
Section 4941 of the Internal Revenue Code (IRC) and related regulations prohibit any direct or even indirect financial transaction between a private foundation and virtually every person closely associated with it, who are known as “disqualified persons.”
Disqualified Persons
The IRS code is quite specific as to who “disqualified persons” are—and they can be individuals, as well as legal entities, trusts, and even other foundations; it’s a very wide net.
Disqualified persons include:
Any substantial financial contributors to the foundation
Officers, directors, trustees, or persons who can act on behalf of the organization
All family members, including spouses, children, grandchildren, and spouses of children of individuals described above
Controlled entities (e.g., a corporation of which disqualified persons own more than 35% of the combined voting power)
Certain government officials
Simply put, if a person has influence over the decisions of the private foundation or a particular relationship with it, it’s extremely likely that they are a “disqualified person.”
Self-dealing occurs when a disqualified person acts in his or her own financial interest, rather than in the best interest of the private foundation he or she serves.
The IRS code lists these six (6) specific acts of prohibited self-dealing:
The sale, exchange, or leasing of property
The lending of money or other extensions of credit
The furnishing of goods, services, or facilities
Payment, compensation, or reimbursement of expenses
Transfer to, or use by, or for the benefit of, a disqualified person of any income or assets of the foundation
An agreement to pay a government official
As you can see, rules against self-dealing are quite expansive when it comes to financial transactions.
Like most areas of the law, there are exceptions to the self-dealing rules for private foundations. But great care must be taken because they are relatively narrow and require both skill and care to use.
Exceptions to self-dealing rules include:
A disqualified person can make a loan to a private foundation with no interest or charge if the funds are used exclusively for purposes related to the foundation’s charitable goals;
A disqualified person can enter into a no-rent lease with a foundation or otherwise make its facilities available free of charge;
Compensation and reimbursement of expenses for services provided by disqualified persons are permissible if the amount is both reasonable and necessary to carry out the foundation’s charitable goals;
Certain scholarship, travel, and pension payments to government officials are allowed.
Common Problem areas
There are several self-dealing hazards for private foundations. The most common include:
Pledges
Allowing the foundation to satisfy a personal pledge of a disqualified person with foundation dollars is considered self-dealing.
Event tickets
The foundation’s purchase of event tickets for a disqualified person unless the disqualified person attends a grantee’s event in order to evaluate the charity’s activities.
Family member expenses
Family members of disqualified persons are considered disqualified persons, so allowing a foundation to pay their expenses is considered self-dealing if they don’t have foundation duties to justify payment of their expenses.
Shared resources
If a company devotes office space, staff, or other resources to a private foundation it establishes, the private foundation must keep meticulous records to avoid self-dealing.
Protect Your Private Foundation with a Team of Advisors
If you’re thinking about forming a private foundation, I highly recommend you see the advice of an attorney well-versed in the nuances of nonprofit law. The info in the blog is, at best, a mere outline of the complex and stringent laws governing private foundations. That said, forming and growing a private foundation can be immensely rewarding to the communities and causes you want to serve. To best execute, it’s wise to build up a team of knowledgable professional advisors that can safely guide the way through the legal hoops.
If you want to learn more, don’t hesitate to contact me as I offer a free consultation. You can also download my free, no-obligation nonprofit formation guide.
It can be difficult upon first glance to understand the differences between the various sets of letters and numbers used to identify nonprofit organizations. You hear a lot about 501(c)(3) organizations, but what if you come across a 501(c)(4) entity when making donations? What if you want to form a 501(c)4)? What does this type of IRS identification mean?
What is a 501(c)4?
Both 501(c)(3) and 501(c)(4) organizations are tax-exempt from federal income taxes on income earned and raised related to their exempt purposes.
501(c)4s are best categorized as civic organizations and local associations of employees. The Code of Federal Regulations, §1.501(c)(4), says: “A civic league or organization may be exempt as an organization described in section 501(c)(4) if:
It is not organized or operated for profit; and
It is operated exclusively for the promotion of social welfare.”
The most common organizations with a 501(c)(4) designations are those active in politics, lobbying, and advocacy work. Some classic examples include volunteer fire departments, Miss America Organization, and community service clubs like Kiwanis, Rotary, and Lions Clubs.
By comparison, 501(c)3 organizations are recognized by the IRS as tax-exempt because they are organized and operated for: “religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals.”
These organizations tend toward advocacy work, political actions, lobbying, environmental purposes, homeowners’ associations, and various community associations. Interestingly, it is not uncommon to find some organizations occupying the ranks of 501(c)(4) that would normally be considered 501(c)(3) if it were not for particular activities such as substantial lobbying or political candidate endorsements…things prohibited under 501(c)(3).
To be granted 501(c)4 status, the exempt purpose of the organization is the promotion of social welfare. What does social welfare mean exactly? The Code reads (with italics added for emphasis):
An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community. An organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements.
To achieve and retain 501(c)4 status, the organization’s must primarily engage in activities that further its exempt purpose (promotion of social welfare). However, the organization could engage in activities (like lobbying and political campaign intervention mentioned below), so long as they don’t exceed the primary actions related to social welfare. So, technically, “other activities” should not exceed 49% of the organization’s operations.
In comparison, a 501(c)(3) organization is expressly prohibited from engaging in more than an insubstantial amount of activities that do not further its exempt purpose.
Lobbying
501(c)(4) organizations may engage in unlimited lobbying so long as it is in furtherance of their social welfare purposes.
Political Activities
So long as political campaign activities are not the primary actions (meaning more than 49%) of the organization, the 501(c)(4) may engage in political campaign intervention.
By distinction, 501(c)(3) organizations are prohibited from engaging in any political campaign intervention activities.
Contribution Deductibility
Generally, donor contributions to 501(c)(4) organizations are not deductible. There are limited exceptions for certain contributions to war veterans organizations and volunteer fire companies. In fundraising solicitations, 501(c)(4) organizations must disclose to prospective donors–in an obvious and easily recognizable format–that donations to the organization are not deductible as charitable contributions for federal income tax purposes. Note well that some payments to 501(c)(4)s will be deductible as business expenses in certain situations.
How do you form a 501(c)(4)
If an organization is looking for 501(c)(4) status they may go about it one of two ways. The organization may:
Apply for formal IRS recognition of exemption by filing Form 1024; or
Declare itself as exempt under 501(c)(4).
In both cases, the entity must notify the IRS by electronically filing Form 8976 within 60 days of establishing intent to operate as a 501(c)(4) organization. (Organizations operating under any other 501(c) section should not file this notice!)
Want to learn more? Have questions which organization designation may be best for your entity? Maybe your 501(c)(3) would benefit from establishing a 501(c)(4) arm? Don’t hesitate to contact me to discuss your situation!
https://www.gordonfischerlawfirm.com/wp-content/uploads/2019/01/Screen-Shot-2019-01-30-at-11.17.49-AM.png6581037Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2020-01-27 19:25:062020-05-18 11:28:37What is a 501(c)(4) organization?
Love Super Bowl Sunday? Then You’ll Love Estate Planning!
Estates & Estate Planning, Events, Powers of AttorneyFor two formidable teams (Kansas City Chiefs vs. San Francisco 49ers), it’s the culmination of a season. (And for us, it’s a great excuse to indulge in all the best tailgating snacks.) It’s a grueling seven-month schedule with tons of variables from pre-season training camp to regular season kick-off to post-season playoffs.
Just like all the games leading up to the Super Bowl, a lot can happen throughout a lifetime. So many variables, so many strategies, upsets, and so many potential outcomes.
While it may be difficult to ponder the inevitably of your own timer running out, preparation for what happens after your season ends is indeed necessary.
The Main Players
Estate plan – An estate plan is the whole playbook, generally containing the following documents: your will; healthcare power of attorney; financial power of attorney; disposition of personal property; and final disposition of remains.
Will – A will is a superstar which can accomplish so much for your team. For example, who will quarterback the distribution of your property at the end of the game? You need to make certain the will is well crafted, solid, and can stand up in court. Keep in mind though, important assets such as retirement assets and investment accounts may well contain beneficiary designations that actually trump your will.
Health care power of attorney & financial power of attorney – Don’t let a sudden disability completely take you out of the game. Have someone strong come off the bench to carry you to your personal goals.
Trust – You have lots of different options with this multi-tool MVP. A trust can help your team in so many different ways and provide you huge advantages in every facet of the game.
Get a Good Playbook!
Thorough planning is the best way to plan for the end of your season so that you and your family are never caught unprepared. When you are no longer around to coach and care for the rest of your “team,” make sure they are both provided for and are provided training on how to keep pushing forward by settling your affairs. A comprehensive estate plan, written by an experienced estate planner, is the best way to do this.
No ‘I’ in Team
Your loved ones and close friends are all a part of your team; part of being a strong team player is including them on the plays you’re making. Discuss important aspects of your estate plan with the people it involves to avoid any confusion or conflict when it comes times for them to carry out your wishes. For instance, if you have minor children (under age 18) you’re going to want to establish legal guardianship if the worst happens and you’re no longer around to care for them. You’ll want to discuss with your chosen guardians ahead of time to make sure they’re willing and available to carry out the responsibility.
Lineup Adjustments
Pro football coaches switch up who’s starting for the best winning strategy. Similarly, you may well need to make adjustments to your estate plan “lineup” as things inevitably change over the course of your life. Big events like marriage, the birth of a child/grandchild, moving to a different state, a large change in financial status, divorce, and other significant changes are a good reason to review your designated representatives, beneficiaries, and overall goals.
Charity Factor
Pro football players make bank, but many also make significant contributions to charities they care about. Some NFL players have founded their own charitable foundation, while others focus on a few nonprofits whose missions they care deeply about. For instance, Chris Long, the Eagles defensive end, announced last fall he will donate his entire salary ($1 million) from the season to educational charities. Most players also work together as a team to give back to their communities. The league as a whole also supports building awareness for nonprofits through initiatives like “My Cause, My Cleats.”
Given their high profile sports status, these players also help inspire folks across the country to do the same. (In one great example, these football fans donated to NFL players’ favorite nonprofits!) You too can be a fierce philanthropist, but without actually having to sprint, throw, or sweat! You can include your favorite charities in your estate plan as beneficiaries. Then there are the other charitable giving tools that can be included as a part of your “end game” like charitable gift annuities and the charitable remainder trust.
Winning Score
I cannot predict who will win the Super Bowl today, but I can say without a doubt that you never know when the game is going to change. You never know when you (and/or your team members) are going to need any one of the documents a part of your estate plan. So, you need to have your “playbook” written out ASAP…well, you can wait until after the big game!
The best place to start on your estate plan is with my free, no-obligation Estate Plan Questionnaire. You can also shoot me an email or give me a call at 515-371-6077 to discuss your situation (or football).
Private Foundations: Avoid Self-Dealing
NonprofitsTypically when you think of a nonprofit you generally think of a public charity. However, private foundations (and private operating foundations) are also 501(c)(3) organizations under the IRS’ classification system. Understanding the difference between the different tax-exempt organization is key because, while public charities and private foundations have much in common, there are also major differences. The most important of these differences to understand is that private foundations are subject to much stricter regulations and oversight than public charities.
Because this can get complicated in this post let’s just cover private foundations and the rules related to “self-dealing.”
Look to the Code
Section 4941 of the Internal Revenue Code (IRC) and related regulations prohibit any direct or even indirect financial transaction between a private foundation and virtually every person closely associated with it, who are known as “disqualified persons.”
Disqualified Persons
The IRS code is quite specific as to who “disqualified persons” are—and they can be individuals, as well as legal entities, trusts, and even other foundations; it’s a very wide net.
Disqualified persons include:
Simply put, if a person has influence over the decisions of the private foundation or a particular relationship with it, it’s extremely likely that they are a “disqualified person.”
Specifically Prohibited Self-Dealing Acts
Self-dealing occurs when a disqualified person acts in his or her own financial interest, rather than in the best interest of the private foundation he or she serves.
The IRS code lists these six (6) specific acts of prohibited self-dealing:
As you can see, rules against self-dealing are quite expansive when it comes to financial transactions.
Exceptions to Self-Dealing Rules
Like most areas of the law, there are exceptions to the self-dealing rules for private foundations. But great care must be taken because they are relatively narrow and require both skill and care to use.
Exceptions to self-dealing rules include:
Common Problem areas
There are several self-dealing hazards for private foundations. The most common include:
Pledges
Event tickets
Family member expenses
Shared resources
Protect Your Private Foundation with a Team of Advisors
If you’re thinking about forming a private foundation, I highly recommend you see the advice of an attorney well-versed in the nuances of nonprofit law. The info in the blog is, at best, a mere outline of the complex and stringent laws governing private foundations. That said, forming and growing a private foundation can be immensely rewarding to the communities and causes you want to serve. To best execute, it’s wise to build up a team of knowledgable professional advisors that can safely guide the way through the legal hoops.
If you want to learn more, don’t hesitate to contact me as I offer a free consultation. You can also download my free, no-obligation nonprofit formation guide.
What is a 501(c)(4) organization?
NonprofitsIt can be difficult upon first glance to understand the differences between the various sets of letters and numbers used to identify nonprofit organizations. You hear a lot about 501(c)(3) organizations, but what if you come across a 501(c)(4) entity when making donations? What if you want to form a 501(c)4)? What does this type of IRS identification mean?
What is a 501(c)4?
Both 501(c)(3) and 501(c)(4) organizations are tax-exempt from federal income taxes on income earned and raised related to their exempt purposes.
501(c)4s are best categorized as civic organizations and local associations of employees. The Code of Federal Regulations, §1.501(c)(4), says: “A civic league or organization may be exempt as an organization described in section 501(c)(4) if:
The most common organizations with a 501(c)(4) designations are those active in politics, lobbying, and advocacy work. Some classic examples include volunteer fire departments, Miss America Organization, and community service clubs like Kiwanis, Rotary, and Lions Clubs.
By comparison, 501(c)3 organizations are recognized by the IRS as tax-exempt because they are organized and operated for: “religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals.”
These organizations tend toward advocacy work, political actions, lobbying, environmental purposes, homeowners’ associations, and various community associations. Interestingly, it is not uncommon to find some organizations occupying the ranks of 501(c)(4) that would normally be considered 501(c)(3) if it were not for particular activities such as substantial lobbying or political candidate endorsements…things prohibited under 501(c)(3).
Exempt Purpose: Social Welfare
To be granted 501(c)4 status, the exempt purpose of the organization is the promotion of social welfare. What does social welfare mean exactly? The Code reads (with italics added for emphasis):
To achieve and retain 501(c)4 status, the organization’s must primarily engage in activities that further its exempt purpose (promotion of social welfare). However, the organization could engage in activities (like lobbying and political campaign intervention mentioned below), so long as they don’t exceed the primary actions related to social welfare. So, technically, “other activities” should not exceed 49% of the organization’s operations.
In comparison, a 501(c)(3) organization is expressly prohibited from engaging in more than an insubstantial amount of activities that do not further its exempt purpose.
Lobbying
501(c)(4) organizations may engage in unlimited lobbying so long as it is in furtherance of their social welfare purposes.
Political Activities
So long as political campaign activities are not the primary actions (meaning more than 49%) of the organization, the 501(c)(4) may engage in political campaign intervention.
By distinction, 501(c)(3) organizations are prohibited from engaging in any political campaign intervention activities.
Contribution Deductibility
Generally, donor contributions to 501(c)(4) organizations are not deductible. There are limited exceptions for certain contributions to war veterans organizations and volunteer fire companies. In fundraising solicitations, 501(c)(4) organizations must disclose to prospective donors–in an obvious and easily recognizable format–that donations to the organization are not deductible as charitable contributions for federal income tax purposes. Note well that some payments to 501(c)(4)s will be deductible as business expenses in certain situations.
How do you form a 501(c)(4)
If an organization is looking for 501(c)(4) status they may go about it one of two ways. The organization may:
In both cases, the entity must notify the IRS by electronically filing Form 8976 within 60 days of establishing intent to operate as a 501(c)(4) organization. (Organizations operating under any other 501(c) section should not file this notice!)
Want to learn more? Have questions which organization designation may be best for your entity? Maybe your 501(c)(3) would benefit from establishing a 501(c)(4) arm? Don’t hesitate to contact me to discuss your situation!