Planned Giving Related News Stories

The Dreaded Trump Tax Plan IS Coming

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I know everyone is scared. So many messages coming at us – how could we not be afraid for ourselves and/or the nonprofit sector with the dreaded Trump tax plan?

Well, I am here to tell you in a few words – don’t stress the unknown.  And guess what – the final tax bill that is bound to happen soon is STILL unknown.

If you are seeing nonprofit sector commentators making recommendations like donors should be fronting their gifts in 2017 to donor advised funds in anticipation of losing out on tax deductions in 2018 and beyond – my advice is to completely ignore it.

In fact, the way I am seeing things, the charitable income tax deduction may be one of the few deductions left intact and may be even more important in 2018 and beyond.

And, all of this talk about the negative impact on nonprofits of raising the standard deduction (because it may take some people out of being itemizers) is ludicrous! Those people who are barely itemizers are NOT your major gift donors.  They are the type of donors who will still send you a $50 or $100 a year annual check, regardless of the deduction.

So, don’t lose sleep over a tax law overhaul that is far from done and may end up benefiting the nonprofit sector.

See, that wasn’t so bad!

Time to worry about tax law changes yet?

blog pickProbably not.  It doesn’t seem that the President and Congress are about to do anything together.

Ok, but what if all of the Republicans actually get in line (or a few Democrats defect…like that’s going to happen!!)?

Any problems with the most recent tax proposal for non-profits?

Here is a quick overview of potential issues that might impact nonprofits:

  • Standard deduction would be increased to $12,000 for individual filers and $24,000 for married couples – I can tell you right now that this does not hurt charities whatsoever – maybe even helps.  All it means is that middle and lower middle class America have less incentive to itemize but that sector is not likely to reduce charitable giving over a few tax benefits or not.
  • Personal exemptions and many itemized deductions would be eliminated – the income tax deduction won’t be touched directly so you actually might find upper middle class and higher Americans looking for more deductions (i.e. charitable deduction or maybe new fangled schemes for deductions).  Probably a plus for nonprofits.
  • Estate tax, which now only applies to estates of more than $5.5 million per decedent (or $11 million per couple) would be entirely repealed – oh boy, it’s not happening.  I’ll believe it when I see it.  George Bush Jr. had the power and did “repeal” the estate tax but was it really a repeal?  Go ahead and mess around with the estate tax again – all good news for consultants and attorneys. Probably not an impact on nonprofits but we will have to wait and see what they really are doing.

There is other stuff in it – the rest of which doesn’t yet rise to be addressed in this blog – here is a link if you want to read more: https://www.forbes.com/sites/janetnovack/2017/09/29/trump-plan-delivers-massive-tax-cuts-to-the-1-and-sharp-kick-to-upper-middle-class/#2f10cd861099

If you have ever seen my presentations, you would know that I subscribe to the 2% rule.  Americans in general give away 2% of their disposable income/wealth each year, roughly equal to 2% of the economy/GDP (see Giving USA for more on those numbers).  Since these percentages are very consistent, year in, year out, regardless of tax law changes, you have to believe that if anything  happens, it is not likely to impact charitable giving (unless it increases or decreases Americans’ disposable wealth or the overall economy). Even the so-called estate tax repeal doesn’t frighten me, and will probably be replaced with something confusing that I’ll be speaking and writing about it for years.

 

Never, Never Cut Corners

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I am working on a case where a nonprofit accepted around $1 million – transferred from an overseas account – around 20 years ago.  In the letter of instruction to the bank, it stated that it was a gift.  In subsequent letters to the charity, one of which was notarized, the donor again stressed that the funds are a completed gift to this charity.

What went wrong?

The donor immediately offered to invest the funds on behalf of the charity.  Their mistake – they let him set up a brokerage account in the charity’s name and gave him carte blanche authority to trade in the account.  20 years later, charity has never touched the funds, $1 million turned into $6 million.  And, he also reconnected with family (who he had been apparently looking to cut out of any potential inheritance). Now, he wants his grandchild to receive most of the money – his offer to the charity: “keep the original gift amount and write a check to my grandchild for the rest.”

Oh, this is a mess.  The donor, now in his late 80s, still thinks the money is his.  And,  you know what? He has a point.  Yes, legally the funds have not been his since he put them in their account. But, he never took an income tax deduction and they never severed the cord.

Their actions lended credence to his “mistaken” belief that he somehow had some interest in those funds and a court or the attorney general will certainly not appreciate their willful ignorance of basic nonprofit law regarding controlling investments – a clear “no-no” under any circumstances.  To boot, charities have no business encouraging donors to impoverish themselves in their favor a charity – it reeks of undue-influence or collusion in tax or other fraud.

The morale of the story: don’t cut corners, don’t cut side deals. Call competent counsel. Your charity may live to regret it.  Both sides in this story will be lucky to come away without an FBI investigation of what’s really going on.

 

 

It’s started…..

Tax reform – yikes! Always supposed to simplify but always ends up being more complicated!

If you are a nonprofit/fundraiser, you should be concerned. Presidential proposals in the past have been very frightening to nonprofits who rely mainly on tax deductible gifts. So, what are we facing?

  1. Firstly, we are a long way from anything actually happening but we do have some details on the Administration’s’ proposed plans.
  2. Good news – It’s official – the income tax deduction isn’t being tampered with.
  3. Not sure news – the standard deduction would jump a lot (ie… 2016 for married joint return is $12,600 – would jump to $24,000). In other words, many more people will no longer “itemize” on their tax returns – maybe this deincentivizes those from giving because their gifts no longer get them a cash rebate?  More on this below.
  4. Also not sure news – no more death tax.  Ha ha. Last time a president fulfilled his promise to eliminate the estate tax (2001), he actually increased it in many places and it almost swung back to huge rates in 2011. In any case, the roller coaster years of ending estate tax to the snap back year to a decent fix actually didn’t impact planned giving numbers! I don’t think there will be an impact on bequest dollars to charities but I do think I may be very busy dealing with whatever cockamanie scheme they come up with (ie…return of carry-over basis 🙂

Back to #3 – I already saw a Forbes article claiming that the increase in the standard deduction “could decimate charitable giving.” Click here for that article but please read my response!

I totally disagree with that article’s point.

Here is another quote from the article:

The House tax reform blueprint said that a $24,000 standard deduction for joint filers would reduce the percentage of American taxpayers who itemize and take the charitable deduction from 25% (one out of four taxpayers) to 5% (one out of 20).”

Sounds catastrophic except for the fact that most charities receive 80% or more of their fundraising dollars from the top 20% echelon of their donors – and those 20% will likely continue to itemize.  Trust me, your major gift donors have more than $24,000 in itemized deductions! I have way more than that!!! (and I’m not anywhere near being a major gift donor – nowhere near it in fact;(

Anyway, take a look at these charts from my training programs:

One Day Boot Camp - AM Session 1 Introduction and OverviewOne Day Boot Camp - AM Session 1 Introduction and Overview 2

Americans give consistently – regardless.  2% of disposable personal – 2% of the economy.  The dips happen when people are poorer – not upset about taxes.  SO, the administration argument that people doing better in general is better for nonprofit fundraising is TRUE!!!!  Put more money in their pockets and they will give more.  This next slide on total US giving – inflation adjusted since 1975 – makes that point especially in light of the above slides. Giving over those years just went up and up but the percentages of disposable wealth and GDP stayed flat!!

One Day Boot Camp - AM Session 1 Introduction and Overview 3

Ok, so how could charities get hurt by the increase of the standard deduction? Well, older people might be impacted who don’t have all of the deductions that younger folks have.  They may start getting less benefit from their charitable giving – that is true.

Ah, older meaning age 70.5 and up – just happens that at that age, you are eligible to make direct IRA rollover gifts – no taxes.  This is already a great deal for seniors who don’t itemize and if this change happens, you need to step up the IRA rollover marketing!

Maybe we can convince the government to allow direct rollover IRA giving from age 59.5!! That would be really cool.

We’ve just begun with the big tax changes. Stay tuned!