Planned Giving

“To Give, or Not to Give… That isn’t really the question!”

by Christopher L. Kelly
Director of Major and Planned Gifts, Schoolcraft College Foundation

First I ask forgiveness from “the Bard” for misquoting Hamlet, but even the Prince of Demark would find this coming tax season just cause for uncertainties! The Tax Cuts and Jobs Act of 2017 has been in existence for a year now, and there are a number of us who still don’t feel completely comfortable with the changes. Then again… are we ever really comfortable where the tax laws are concerned? Since last January, a number of articles have been written stating that charitable giving will be drastically affected because people will not make gifts without a charitable income tax deduction. While that could be a consideration for some, it does tend to underestimate the benevolence of American donors and what motivates us to make our contributions.

We also need to understand that the new tax laws did not eliminate the charitable income tax deduction; every charitable contribution will still generate the appropriate charitable deduction. The question on most people’s mind this tax season will be, “have I exceeded the threshold ($12,000 for individuals, $24,000 for couples) so I can itemize on my taxes, or do I take the new standard deduction?” In essence, making the stress of tax season even more stressful…

Then, for those of us who enjoy a good cliff-hanger, there is a provision within the Act that basically states that if Congress fails to take action before December 31, 2025, (making these changes to the Code permanent), the tax laws will revert back to the tax laws of 2017. Even Shakespeare couldn’t write a more dramatic scene. But I will be charitable and refrain from comment on Congressional “action” and stay focused on what is important, exploring ways to continue to make impactful charitable contributions, working within the current tax laws.

There are a few viable options, and I do want to stress that it is always advisable to speak with your own advisors (legal, tax, financial, and charitable) to find the path that best suits you and all your goals. Some of the viable options to consider are the following:

• Bunching. This is a new term that came into being due to the Tax Cuts and Jobs Act. “Bunching” occurs when donors pull together two years of contributions to make their gifts in one year. The goal is to enable the donor to meet the new threshold and itemize in that taxable year. It also assumes that the donor would then take the standard deduction the following year, repeating the process over and over. This technique works well; however, it assumes the donor will be very organized and has suitable disposable income to “bunch” every other taxable year. Another concern I have are those urgent or emergency giving situations occurring more frequently, (i.e., natural disasters such as hurricanes, wild fires, etc.) and never seem to happen within our organized planning. To that end, a donor might consider linking the bunching technique with a Donor Fund to add some flexibility.
• Donor Funds. A donor fund is a charitable vehicle that offers donors the opportunity to make contributions, utilizing the administration/operations expertise of the “parent organization” to handle all daily responsibilities.  This particular vehicle functions well under the new tax laws because the donor can make their contribution(s) to generate their charitable income tax deduction, and then focus exclusively on their philanthropic goals without further concern over deductions, time frames or thresholds. It is particularly useful with the bunching technique. There are four types of Donor Funds; Donor Advised, Donor Directed, Field of Interest, and Unrestricted. The most commonly used is the Donor Advised Fund, as the donor works with the parent organization to make “grant” decisions.

Bunching and donor funds allow donors to use organized giving to generate a charitable income tax deduction that can be used under the new tax laws, but again, this assumes the donor has excess disposable income that is comfortably available. Can charitable planning offer potential solutions to generate new or additional disposable income? Well yes, charitable planning can offer viable options to consider!

• A Life Income Vehicle. These are charitable planning tools that enable the donor to use portions of their accumulated wealth to achieve their overall planning goals. The most commonly used of the life income vehicles are the Charitable Remainder Trust and the Charitable Gift Annuity. In the traditional planning with a Charitable Remainder Trust (CRT), the donor’s own legal advisor will draft their trust agreement according to the donor’s charitable goals, along with the exact distribution percentage. The distribution percentage establishes what the trust will “give back” to the donor in disposable income and what will be the charitable legacy, providing the justification for the charitable income tax deduction. Once the document is prepared and executed, the donor normally contributes appreciated asset(s) to their CRT, offering beneficial assistance with the dreaded capital gains tax liability associated with the sale of the assets. With 100 percent of the proceeds from the sale inside the Trust, a new diversified portfolio is created to generate both the distribution to the donor and to assist with the ultimate gift to the charity/charities. For purposes of “bunching,” this new disposable income from the CRT can be used to make additional charitable gifts and generate the deduction amount needed for the donor to itemize. The Charitable Gift Annuity (CGA) functions in a similar manner, with the exception that a donor establishes the CGA with one charity (who provides the CGA document free of charge). Most donors contribute cash because the required gifting amount is much more comfortable (most CGA programs require a $10,000 to $15,000 minimum). Either way, new disposable income is generated that will enable donors to continue to make current contributions and sustain their charitable impact.
• The Charitable IRA Provision. Another venue to explore for potential opportunity is the Charitable IRA Provision, or the Qualified Charitable Distribution (QCD). Since its creation under the Pension Protection Act of 2006, the QCD has been another source of confusion as it was meant to be a temporary measure, (it’s original purpose was to encourage stronger funding of retirement savings by individuals and their employers). The provision was closed and reopened a number of times until it was made permanent under the Protecting Americans from Tax Hikes Act (PATH) in 2015. The provisions provide benefits to the IRA owner, as well as opportunity to impact their charitable goals. The basics of the provision are as follows:
• The QCD enables owners who are 70 1/2 to “distribute” up to $100,000 from their IRA to charity. Couples with separate IRAs can contribute up to $100,000 each; both qualifying as a QCD, for a total of $200,000.
• To qualify as a QCD, the distribution must go directly to the charity, but will not generate a charitable income tax deduction. This is important because dollars that are considered a QDC will not count as income to the donor and while there isn’t a charitable income tax deduction, the other potential benefits can actually be more beneficial.
• The QCD can be the entire RMD or just a portion of the distribution amount. Any portion that is processed as a QCD reduces the tax liability on the IRA distribution (RMD) as it is excluded from the owner’s taxable income for that year. This is also beneficial to the IRA owner because lowering their adjusted gross income (AGI) will also reduce the amount of their Social Security that will be subject to tax; and in turn can lower the amount of their annual Medicare premiums. A benefit of this nature can be extremely important to retirees who wish to remain active donors, but have concerns over fixed income and protecting increasingly important Social Security benefits.
• Regardless of the fact that the Charitable IRA Provision does not award a charitable income tax deduction, the planning opportunities can make it extremely useful to both donor and charity. Donors deserve to feel secure personally as well as philanthropically, which can far outweigh the lack of a charitable income tax deduction.

Ultimately charitable strategies can still offer planning and tax benefits to donors, with or without an actual charitable income tax deduction. Planning will continue to enable us to have an impact on the organizations and issues that we believe in.  At the end of the day, American donors are very generous and will continue to rise to the challenge of offering assistance to those less fortunate. To that end, they deserve any of the benefits associated with their benevolence.

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Including Planned Parenthood of Michigan in your will or estate plan allows for your values and principles to be carried forward — creating a legacy for what matters most to you — and qualifies you for membership in the Power Legacy Society. As a member, you will receive invitations to exclusive membership events and educational forums as well as early access to key messages and talking points on critical issues affecting Planned Parenthood locally and nationally.

If you would like to learn more about the Power Legacy Society, have questions about planned giving, or have included Planned Parenthood in your estate plan, please contact:

Helen Harding
Director of Development
Planned Parenthood of Michigan
734-926-4827
helen.harding@ppmi.org