A gift of art to charity can be a mutually rewarding gift for the charity and the donor. However, there are numerous IRS rules that must be closely followed by the donor to protect and maximize his tax benefits. While the gift planning office should always counsel the donor to obtain his own advisor in such situations, an understanding of the basic IRS rules for gifts of art can assist in the process.
Mike is a senior consultant at PG Calc supporting our retainer and project consulting clients. Mike brings extensive gift planning and legal expertise to his consulting role at PG Calc. His experiences as a front-line gift planner and director of three active gift planning programs have taught him that the most successful planned giving programs – and planned gifts - require collaboration. Mike had broad responsibilities at all of the organizations where he has led gift planning programs, including ensuring best practices and efficiency in gift planning administration, legal compliance, stewardship of legacy circle members, multi-channel marketing efforts, and liaison among legal, investment, and custodian bank professionals.
The popularity of donor advised funds (DAFs) has resulted in a national movement in charitable giving. In 2017 assets in these funds reached a record $110.0 billion according to a report from the National Philanthropic Trust. This explosive growth presents a tremendous opportunity for public charities to benefit from this pool of assets. However, unlike private foundations, there are no requirements for annual distributions from DAFs. Charities expecting to maximize DAF gifts cannot sit passively by waiting for DAF grants to arrive in the mail. Those charities that implement a proactive strategy to acquire DAF gifts will develop another stream of income likely to increase over time.
It is not unusual that a charitable remainder unitrust (CRUT) or pooled income fund (PIF) gift made by a donor years ago no longer meets the donor’s or charity’s financial objectives. A trust donor may fear that a stock market correction will deflate trust assets and her income. Or a trust with a high payout rate may be headed toward trust assets exhausting. A charity’s pooled income fund may have only a few remaining participants and the charity desires to terminate the fund because of excessive fees.
Testamentary gifts (gifts made at death) are the most common type of planned gift, estimated to be 80% or more of planned gifts received by charities. Donors typically have to confront complicated family and financial issues in the estate planning process. Ask any gift officer who has been involved in planned gift fundraising. They can tell of donors sharing compelling stories of family addictions, marriage instability, costly medical conditions, and financial mismanagement. Donors anguish over leaving a potentially large inheritance to a family member who may lack the skills to prudently manage the inheritance. To complicate matters further, the donor is conflicted about making a final gift to a favorite charity from their estate that will divert assets away from a family member in need of financial support. A testamentary life income gift that will pay steady income to their family member for life, with the remainder going to charity when the life income gift terminates, may be the answer for such a donor. The role of the gift officer is to educate the donor about the possibilities, and if the donor has interest, to encourage a collaborative discussion with the donor’s financial and estate planning advisors.
The role of the gift officer is becoming increasingly complex. New tax laws and IRS regulations are placing gift officers at risk for crossing a red line that should never be crossed – the line between gift officer and financial or tax advisor. Even though much information may have been shared with them by the donor, gift officers need to know how to provide information to a donor without making assumptions about a donor’s complete financial or tax situation – assumptions that may be wrong and that could result in a donor not realizing the tax benefits they were assured of receiving.