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.
Charitable giving incentives are receiving collateral damage from a tug of war between the federal treasury and the states over the December 2017 Tax Act’s limitation of the state and local tax (SALT) deduction to $10,000.
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.
Following the December 2017 passage of the 2017 Tax Act, some in the gift planning community raised the question of whether the 2017 Tax Act’s elimination of miscellaneous itemized deductions extended to the deduction for unrecovered investment in contract (UIC) at the death of the last annuitant of a charitable gift annuity, as that deduction had appeared under the heading “Other Miscellaneous Deductions” on Form 1040 Schedule A. But the 2017 Tax Act only eliminated the miscellaneous deductions subject to the 2% floor, which the UIC deduction was not subject to. The UIC deduction remains available, as is confirmed in the tax forms, instructions, and publications the IRS has issued to reflect the 2017 Tax Act changes for 2018. This deduction equals the total of all tax-free portions of the annuity that have not yet been distributed as of the death of the last annuitant and is taken on the deceased’s final income tax return.
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.