Ready or not, it’s year-end again, which leads us right into tax season – that “most wonderful time of the year!” Here is our quick review of the tax reporting process for life income gifts.
These are truly historic times. The United States – along with the rest of the world – is in the grips of a pandemic that most of us could never imagine, even in our worst nightmares. At the time of this writing, the deaths within our borders alone are running into tens of thousands, and the global number of cases is now being counted in millions. Most of the country is under some sort of stay-at-home mandate, our economy has basically sputtered to a crawl, and our stock markets appear to be in a continual free-fall. These are desperate times, when everyday Americans are fearful for their lives, and for the safety and well-being of their loved ones. Beyond those immediate concerns, folks are worried about their jobs and the sudden declines in the values of their retirement accounts. How can we presume that donors will think about planned gifts – or charitable gifts of any kind – at a time like this?
The IRS Discount Rate (also known as the “7520 rate”) has fallen from 3.6% in December of 2018 to 1.8% in October of 2019. This dramatic decline over a relatively short period of time has significant implications for split-interest gift arrangements. The charitable deductions for gift annuities and charitable remainder trusts go down when the discount rate goes down, but the deductions for charitable lead trusts and retained life estates go in the opposite direction. (The calculations for Pooled Income Funds are unaffected, as they do not use the discount rate.) The following paragraphs illustrate the impact of declining rates on various gift types.
No doubt about it, Planned Giving is a fascinating area to work in. it’s right at the confluence of fundraising and estate planning, incorporating knowledge about investments and sensitivity to the life cycle stages that are part of the human experience. We’re helping organizations to raise money for causes we believe in, and we’re helping individuals to make the most efficient allocations of their income and wealth. One of the central and more difficult aspects of planned giving, however, is the dependence upon a variety of tax laws that affect every type of planned gift. Today’s gift planning professionals need to know more about the American tax system than ever before.
We’re at that point in the year when the kids are finally out of school, the fiscal year has ended for many, and we’re all more than halfway through the calendar year. The weather is finally nice, we’re taking our summer vacations, and in general, we’re starting to enjoy a slightly less hectic pace of living. But truth be told, summers aren’t as quiet as they used to be. Families don’t just pack up and head “down the shore” or “down the Cape” for the entire months of July and August. Colleges and even many primary and secondary schools now begin the “fall” sessions in the middle of August – or even earlier. And no one ever really disconnects and gets away from it all anymore, because we have our cell phones and our tablets and all of our 21st century accoutrements with us at all times.