Working in the Gift Planning office can be a high-stakes game. You need to make judgment calls on the “tough gifts.” There can be multiple issues in the gift acceptance process, including managing donor relations.
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Everyone needs to go to the doctor for a checkup now and again. The same can be said for a gift annuity program. Without the benefit of routine assessments, some programs will encounter problems or fail when an early diagnosis could have saved them.
The income tax charitable deduction reduces a taxpayer’s reportable income. It does not reduce the income tax due on a dollar-for-dollar basis. For example, consider a taxpayer with a marginal income tax rate of 24%. If the taxpayer makes a charitable gift of $10,000 that is fully deductible, the income tax savings is not $10,000. Instead, the donor’s reportable income is reduced by $10,000, with tax savings in this case being 24% of $10,000, or $2,400.
Imagine this scenario. Your organization’s fiscal year just ended. The VP of advancement, your boss, summons you to her office. She asks about your objectives for the planned giving program in the next fiscal year. Your response: “I don’t have a formal plan.” Without a detailed annual plan, essentially you just told your VP that you are “just winging it.”
PG Calc’s March Featured Article discussed the practical challenges of making a charity the beneficiary of an IRA and other qualified plans upon the donor’s death. The process of completing the beneficiary designation form is complicated and bureaucratic. And then there's the matter of collecting the proceeds after the donor's death.
Most gift planning professionals have heard of charitable lead trusts (CLTs), where the charitable beneficiary receives payments, typically for a term of years, and the remainder is distributed to one or more non-charitable beneficiaries at the end of the term. Historically, these trusts have been used – or at least contemplated – by donors whose wealth exposes them potentially to paying gift or estate tax. This type of lead trust is called a non-grantor charitable lead trust. At the end of the term, the assets remaining in the trust are distributed to persons other than the donor (grantor), and most typically, to members of the donor’s family.
I’ll tell you what’s up. The IRS discount rate, the interest rate used in computing the deduction for gift annuities, charitable remainder trusts, retained life estates, and charitable lead trusts. It’s edged upward a full percent in the last 6 months, and it appears likely to continue that trend for the rest of 2018 as the Federal Reserve continues to gradually raise interest rates.
Charities market beneficiary designations of 401(k)s, IRAs and other qualified plans as an easy, low-cost way to make a tax-wise planned gift. This is true for the most part. The details of completing a beneficiary designation can be more challenging than they appear, however. There are pitfalls and potential mistakes that can result in a failed beneficiary designation and no gift to charity.
The new tax law, which went into effect January 1st, has prompted a lot of discussion about the impact it will have on charitable giving. Of course, there’s no way to fully predict how donors will react to the changes in deductions (standard and itemized) and reduced tax brackets. But somewhat lost in the conversation has been the wide variety of other benefits that lead donors to make a charitable gift in a particular way.
On December 22, 2017, the President signed into law an “Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” That’s quite a mouthful, so this article will refer to the law as the “Tax Reform Act” for convenience. There has been some alarm in the charitable community about the impact of this law on charitable giving. The intention of the analysis that follows is twofold. First, it explains which laws affecting planned giving have changed and which laws remain intact. Second, it offers five suggestions on the best ways donors can continue to make tax-efficient planned gifts.