donor advised funds

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!

Trump Tax Plans – Good, Bad or Ugly for Charities?

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Here is the really brief summary of some of the so-called Trump tax pre-proposal/rumors that might effect charitable and/or planned giving  (he isn’t President yet so I wouldn’t call these a proposal yet):

  • 3 income tax brackets: 12%, 25%, and 33% (obviously, those in the 39.6%/43.4% with Obama care tax will save a lot of money! – probably no significant impact)
  • Goodbye estate tax (we have seen this before – since tax cuts generally must be revenue neutral, we might see the same old hocus pocus to make it “work” which usually means more business for estate planning attorneys;)
  • Lower capital gains rates for those currently at 18.8%/23.8% rates with Obama care tax (not great for life income gifts like charitable remainder trusts)
  • Cap the total amount of itemized deductions at $100,000 for single filers and $200,000 for joint filers (yikes: this could get interesting, probably a boom for Donor Advised Funds in the short term)

According to a CBS News article (click here to see), advisors might be rushing their clients into up-fronting charitable giving before year’s end to maximize deductions just in case some of Trump’s plans actually come to fruition reducing the charitable deductibility of major gifts in future tax years.  The last bullet point is huge on this point – major campaign givers may want to consider the advice in the article!

After following tax law impacting charitable giving for close to 20 years, I am always hesitant to get ahead of ourselves – campaign discussions and even actual proposed presidential budgets rarely look like anything in legislation that is actually passed.  So, let’s chalk up any hysteria that pushes donors into speeding up gifts (even to donor advised funds) as a good thing and wait to see what really transpires.

Fiscal Cliff Causing Donors To Accelerate Their Giving?

I don’t believe it.

Donors accelerating their giving in 2012 ahead of fiscal cliff?  Check out this Wall Street Journal article:  WSJ click here.

Please readers – comment on this one.  If you read the linked article, you will notice that the three big investment firm Donor Advised Funds were interviewed.  Sure, their donations are up but are yours?

Yes, there has been talk about capping deductions – which primarily hurts the value of charitable deductions for higher income earners. I even wrote about that possibility less than two weeks ago.  And, yes, if a fiscal cliff compromise ends up being this back-door tax raise of capping deductions, then advisors will certainly advise their wealthier clients to accelerate their giving (particularly to donor advised funds which allow donors to time the distributions in future years).

But, capping deductions is just talk and not intelligent policy (at least if you ask me).  Honestly, not likely to happen.  What is likely to happen is income tax rates returning to Clinton era rates – it is happening automatically come January 1, if Congress can’t find a compromise.  Do you think there is going to be compromise over the next few weeks?  I don’t.

I actually suspect that advisors may advise clients to hold off on their year-end giving so that they can use their charitable deductions in 2013 when they may really need it.  I also suspect that there is so much uncertainly (tax rates, investments, well-being of the country, etc..), people may just stay put with their giving and investments.

Back to that article – you have wonder.  Only the donor advised funds interviewed actually stated their increased giving.  Others interviewed did not.  I agree that individuals may like the certainty of parking money at a donor advised fund – just in case the charitable deduction is tampered with.  But, a big increase in year-end giving in 2012?  Hard to believe.

Planned Giving Articles – Et tu, New York Times?

I better start reading the New York Times because I am almost missed this one by about two months.

The link is below but here is my introduction:

It’s about the National Heritage Foundation (NHF) bankruptcy situation. The article starts out bemoaning the fact that NHF had to take $25 million of its Donor Advised Fund (DAF) money to settle with its 107 gift annuitants. Then the article moves into a loose discussion about gift annuities. Check it out if it interests you but please see my after-article comments below

http://www.nytimes.com/2009/11/12/giving/12FUND.html?_r=1&scp=1&sq=national%20heritage%20foundation%20gift%20annuities&st=cse

I was asked by a friend today about a line in this article that made a board member nervous.

I am going to try and keep my comments ask kind as possible. The article’s beginning leaves out one crucial legal fact: DAF money is considered from a legal point of view to be TOTALLY and COMPLETELY UNRESTRICTED. That’s the deal – sorry DAF donors. If the charity runs into financial trouble (like NHF did), DAF money is TOTALLY AND COMPLETELY AVAILABLE. Period. If the DAF donor doesn’t like it, then start a private foundation.

That is why the legal cases of most of NHF’s DAF donors were thrown out of court. It doesn’t excuse any fraud committed by NHF in obtaining those donations.

Secondly, my problem with this article is that it seems to be pitting DAFs as the good guy and CGAs (gift annuities) as the bad guy. Or maybe not. I actually know the author, and I think she is a great writer, but something tells me that the editors messed this one up. I really couldn’t respond to the question I received this morning because I had no idea where the article was going.

Third point – this is a quote from the article:

Faced with shrunken endowments, charities are seeking to bolster giving by heavily marketing gift annuities, emphasizing the income stream they offer.

The article offers no proof of this statement and if you asked me, I would say the opposite. I think charities have slowed their CGA marketing out of fear of the liabilities they are dealing with. Getting new annuities is actually a good idea for a basically healthy program but it has nothing to do with NHF or the initial part of the story.

There was an interesting story there – it just never came out. It is interesting to note that DAF money was used to pay off CGA donors of a charity going into bankruptcy. What was also interesting was the fact the CGA donor mentioned actually received back $131,239 from his initial CGA gifts of $235,000.

Considering what Madoff investors, as well as other ponzi scheme investors, will receive, I think the NHF CGA donors did pretty well. I am guessing that this donor got to keep his initial charitable deductions. He was barely out of pocket if you think about it. The story should have been how CGA donors had a right to receive something in the bankruptcy – and obviously were in a decent place in the line.

Something about the whole article bothers me – is it only me? Isn’t there lack of focus? No wonder a board member is pulling a quote from the piece to cause some trouble. It took me a few minutes to figure out what it was talking about.