Wealth Transfer

Interesting opportunities as a result of the new tax law

Image result for Interesting opportunities cartoon Slowly, we are starting to realize there are interesting opportunities as a result of the new tax law. Many will take months or longer to come out.

Here is one – in addition to the most obvious that people with estate planning attorneys are likely going back to them as we speak:

No longer needed life insurance!

Yes, many life insurance policies were created specifically to pay any federal estate tax liability – saving the principal of the estate for the family.

But now the estate tax exemption just jumped to $11.2 million per person from $5.6 million per person. In other words, anyone who had such a life insurance policy should be talking to their insurance/financial planner. Why not do something charitable with that policy?

Want to get up to speed on the new tax law and various planned giving options?

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Update on New Tax Plan and Nonprofits

Image result for not so bad Ok, the details are coming out and as I thought, nonprofits might actually benefit from the tax plan!

We still have an estate tax! Ok, it impacts much less people (exemption doubled to $11.2 million per person) but it didn’t impact many of our donors in recent years anyway. Just having it on the books is a good thing for the planned giving world – just giving them something to worry about is enough to spur talking to estate planning counsel.
Here is my favorite quote from Crescendo Interactive on the new tax bill: “Now that Congress has passed tax reform, one thing is clear – tax reform is good news for gift planners! Planned giving donors are still expected to itemize their deductions. In fact, with the loss of other non-charitable deductions, donors may be increasingly attracted to making a planned gift as a way to increase their overall deductions and reduce their taxes.“ I bolded the important ideas – planned giving (and certainly major gift donors!) donors will likely continue to itemize. I commend for Crescendo for getting this point – see next bullet point for one that I was shocked at how skewed others were looking at this….
Here is a quote from another provider who I will not mention as I felt their comments were just wrong: “Although the legislation maintains the current-law income tax charitable deduction, it will significantly reduce the number of taxpayers who itemize and effectively eliminate the income tax charitable deduction for a vast majority of Americans.” Please read that last, bolded sentence again – the claim that the new tax law effectively eliminates the deduction for the “vast majority of American” is absurd!!!! The “vast majority” of those who no longer will itemize are not your typical major or planned giving donors! (Ok, some older donors on fixed imcome will no longer itemize but that is ok – see next point!)
I think the big advantage for planned giving promotion coming out of this bill will be the IRA rollover. For those donors age 70.5 and up (clearly candidates for no longer itemizing), this will be a great option to heavily promote. Not itemizing? Considering a direct IRA rollover gift! It’s that simple.
Apparently, the 50% of AGI ceiling for charitable giving deductions per year is going up to 60%. This may be very helpful for larger gifts! More to come on this when I finally get to those details.

So, there you have it, for now. Charitable giving will be more valuable to those who are the biggest givers in 2018 and beyond. And, for the folks who may no longer need to itemize (a good thing for them as it means they save some taxes), the IRS rollover is a great option if they are 70.5+.

One last point! This blog (as well as most in this field) is apolitical – I’ve attacked both sides of the isle on foolish tax laws/proposals. I was shocked to see a major provider of planned giving services out there buying into a clearly political statement. The idea that this legislation is bad for charities is utterly ridiculous and to make it seem as though they just eliminated the income tax deduction is plainly foolish. Don’t get caught up in the politics – just look at what is changing and see where it can help (or hurt).

And, by the way, change is good for planned giving. It gets people thinking and addressing their plan! That is half the battle (considering less than half of Americans have any estate plans at all)!

Tax Deal: Does it impact fundraising?

Image result for tax plan cartoon It looks like we’ll have a tax bill signed any day and now we are left trying to figure out what impact, if any, this may have on nonprofit fundraising.

While many final details are still to be revealed, here are the main items that may impact our donors and their giving:

“[T]he corporate tax rate would be cut to 21 percent, while the top tax rate for individuals would drop to 37 percent from 39.6 percent. The new rates would take effect next year.” – Highest earner get a bit of a break (but might very well get hurt by other things in the bill). For example, if your AGI is $500,000, you just saved approximately $13,000. You will probably lose more than that if you live in an expensive neighborhood with a really big mortgage (i.e. your real estate taxes are more than $10,000 a year and your mortgage is over $750,000 – see below).

“The deduction for state and local taxes would be capped at $10,000 and taxpayers would be able to choose to deduct their property or income taxes, source said.” – Is the $13,000+ break from bullet point # 1 enough to offset the loss from this bill if you pay more than $10,000 in real estate taxes? The irony of this point is that it really hurts the wealthier sector – something not reported in the media very well.

“The standard deduction would be doubled under the deal, to $12,000 for individuals and $24,000 for families.” – This may actually put more money in the pockets of your middle and lower middle earners! Again, not reported in the media very well. Still, the question is if this disincentivizes charitable giving for those who now will no longer need to itemize? I suspect not but I am ready to start touting the IRS rollover giving provision in a big way for those 70.5+. You know what, I will be shocked if this hurts charities at all.

“Republicans senators leaving a GOP lunch told NBC News that the agreement would also set deductions for pass-through income at 20 percent.” – I am not sure what this means!

“Under the deal, the mortgage interest deduction would be allowed on loans up to $750,000, the sources said.” – Again, hurts our wealthiest sector. Ironically, nonprofit fundraising could be hurt if this sector is feeling really poor after they finally realize what happened. Not sure it will impact charity!

The verdict?

Still out. I am leaning towards people on the higher wealth/earning end looking for more deductions and therefore more charitable giving! Ok, I am an optimist. Most likely result for nonprofits: no change.

Look for more posts on this topic as the final details come to light.

The Dreaded Trump Tax Plan IS Coming

Image result for trump tax plan

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!