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.
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.
2014 was a record year for philanthropy in the United States, according to the Giving USA 2015 Annual Report. There was a 7.1% increase in giving dollars over 2013 (5.4% adjusted for inflation). These numbers signal the return of pre-recession giving patterns. Some experts had predicted it would take 10 years for charitable giving to rise back to pre-recession levels, so the increases are heartening.
The question of why charities need the donor’s cost basis for long-term appreciated stocks funding charitable gift annuities (CGAs) comes up frequently in our client support calls. If the donor doesn’t provide the information up front, do they really need to pursue it? What if the donor says he doesn’t have the cost basis information? Can the charity simply assume zero for the cost basis and call it a day? What difference does it make anyway? Why it matters PG Calc’s Planned Giving Manager prompts the user to supply the dollar amount the donor paid for the stock when it was originally acquired – or, in the case of inherited stocks, the official value of the stock on the date of death of the previous owner (AKA the “stepped-up” cost basis).* This information is relevant and necessary because charitable gift annuities are split-interest gift arrangements. In each CGA, there is a benefit for the charity (the remainder or residuum), and a benefit for the annuitant (the value of the stream of annuity payments over time).