“We make a living by what we get, but we make a life by what we give.”

“We make a living by what we get,
but we make a life by what
we give.”
—Winston Churchill
Charitable Giving
• In 2007 total U.S. charitable giving reached
$306 billion
• By comparison, 2006 giving was $295
billion
1
Giving by Source
Businesses………… 4%
Bequests…….…….. 8%
Foundations..……...12%
Individuals…..……..76%
The vast majority of donors give
regularly to causes they care about
Non-givers…………..15%
Givers……..…………85%
But very few donors give through their
wills or trusts
Will bequest……….8%
No charitable
Bequest…………..92%
2
SURVEY BY
National Committee on Planned
Giving
Reasons for not making a bequest:
•
No professional advisor suggested it
•
People didn’t think of it themselves
•
No charity asked them to leave a bequest
“It is the responsibility of every
human being to aspire to
do something worthwhile, to make
this world a better place than the
one they found.”
—Albert Einstein
“No one has ever become poor
by giving.”
—Anne Frank
3
The Great Wealth Transfer Study
From Boston College
• Initial estimates of $10 trillion as the baby
boomer generation begins to pass away
• Twice the gross national product
• 50 times the total of private U.S. savings
• 1% of accumulated assets in all foundations
• Estimates are $41-50 trillion even up to
$130 trillion over 55 years starting in 1998
Which Are Important to Your Donors?
•
•
•
•
•
•
•
•
Benefit a charity now or benefit a charity later
Income tax deduction today
Estate tax deduction when they’re gone
Participate in making grants
More income today
Control/invest the assets even if given away
Make a large gift with small donations
Keeping an asset in the family at reduced estate taxes
Planned Giving Trivia
One out of three planned giving donors never make a cash
contribution to the charity before they make
a planned gift.
4
Planned Giving Trivia
Two out of three bequest donors never tell the charity they’ve
put a bequest in their will.
Why?
The Greatest Thing Since
Sliced Bread: The Pension
Protection Act
of 2006 Charitable Rollover
Law Now & Before
Charitable Rollover Was in
Effect
•
•
•
•
All gifts from IRAs are taxable income
Then second, take a charitable income tax deduction
Inflates AGI for other issues
Depending on total AGI, may or may not deduct all of
gift
5
Law Now & Before
Charitable Rollover Was in
Effect
•
•
•
•
Example: $50,000 IRA gift
Means $50,000 of ordinary taxable income.
If person also has $20,000 of other income = $70,000
AGI
Maximum deduction for gift of $50,000 is only $35,000.
Prior Charitable Rollover Rules
•
•
•
•
•
•
Must have been age 70½ or older
Can transfer up to $100,000 per year in 2006 and 2007
Law ended 12/31/2007
Must be direct transfer from an IRA
Could count toward required minimum distributions
No income tax deduction, but no taxable income
Prior Charitable Rollover
•
Not to:
Supporting Organizations (Type I, II or III)
Charitable Gift Annuities
Charitable Trusts
Donor Advised Funds
Private Foundations
6
NCPG IRA Gift Reporting
Latest study shows:
•
•
•
•
8,677 gifts voluntarily reported
$140,000,000 total gifts
$16,000 average size
$100,000 gifts total 40% of the total $
Proposed Legislation to Extend
Charitable Rollover
!
" # $ % &%
%& #
'( )
)
!
New rules for receipts required
for cash gifts of less than $250.
Effective date:
generally 1/1/07
7
Cash Gifts
• Effective for tax years after the date of enactment: for most
donors that is 1/1/07
• Old law: Cash gifts of $250 or more needed a receipt from
charity; all noncash gifts needed a receipt from charity
without a value; noncash property greater than $500 needs
IRS Form 8283; donor needs an appraisal for
gifts > $5,000
• New law: ALL cash (not checks) gifts under $250 need a
receipt
Cash Gifts
• Result: Charities need to provide receipts for all
cash (i.e., currency) gifts received (even those
under $250)
• Donor can still use his/her cancelled check as a
receipt for gifts by check if less than $250
Clothing & Household
Item Donations
8
Clothing & Household Items
• Effective for gifts made on or after 8/17/06
• Old law: Deduction for clothing and household items is
less than cost basis and is normally FMV (garage sale
value) regardless of use related to exempt purpose
• New law: No deduction allowed unless clothing and
household items are in good condition. No deduction for
used socks or undergarments.
Clothing & Household Items
• Household items are
–
–
–
–
–
–
Furniture
Furnishings
Electronics
Appliances
Linens
NOT paintings, antiques, art objects, jewelry, gems
RESULT: Donors should take photographs before they make the gift.
Recapture of Tax Benefit if Not
Used for an Exempt Purpose
9
Recapture of Tax Benefit
• Effective for gifts made after 9/1/06
• Old law: Gifts of TPP deductible at FMW if related to
exempt purpose of charity; only deduct cost basis if not
related to an exempt purpose
• New Law: If the charity disposes of tangible personal
property within 3 years of gift, taxpayer has to adjust his
tax benefits (must claim FMV minus cost basis = taxable
income)
•
Only for tangible personal property with an original deduction of more than
$5,000
Example
• Donor gives artwork to charity (FMV $50,000; cost
$5,000)
• Charity says we’ll display it in lobby forever
• Two and ½ years later, charity sells artwork
• As a result, donor has to claim $45,000 as income
Fractional Interests in Tangible
Personal Property
10
Fractional Interests in TPP
Effective for gifts made after 8/17/06
Old law: Donors could give fractional interests and keep
possession for a portion of the year
New law:
– Donor has to make additional gifts of fractional interests in future
years;
– Recapture of tax deduction unless donor fails to give all the
remaining interest before the earlier of:
• 10 years from the initial contribution or
• the donor’s death
Fractional Interests in TPP
Future deductions of fractional interests are the lesser of:
1) FMV based on the initial fractional gift or
2) FMV at the time of the subsequent gift
10% penalty tax of the amount recaptured applies to donor
Life Insurance Scrutiny
11
“I’m very concerned about snake
oil salesmen taking advantage of
tax-exempt organizations to line their own
pockets with life insurance schemes. Many states are now
considering legislation that would allow this kind of
exploitation.”
—Senator Charles Grassley
What is Grassley Talking About?
• Lease-purchase of insurable interests
• Donors agree to allow the purchase of life insurance
on their lives
• An example: face amount of insurance per donor:
$200,000
• Goal: to find 1,000 donors = $200,000,000 in trust
What is Grassley Talking About?
• 3rd party (investor) pays premiums & pays charity
$2,000 per insured
• Charity gets $2 million (1,000 donors x $2,000)
• 3rd party collects $198 million--all remaining death benefits
(1,000 donors x $198,000)
• Many variations exist
12
New Reform in Legislation
• Temporary reporting requirement for policies acquired
within 2 years from 8/17/06
• Charities must report to the IRS on an informational
return:
– When a charity has a direct or indirect interest in life insurance,
commercial annuities or commercial endowment policies
– And a 3rd party other than the charity has an interest (doesn’t
have to be concurrent interests with charity) directly or
indirectly AND doesn’t have an insurable interest in the
insured
– Doesn’t apply if the 3rd party’s interest is as the policy
beneficiary
New Reform in Legislation
• IRS Notice 2007-24
• IRS Form 8921
• IRS Form 8922
100% Excise Tax on
UBTI in a CRT
13
UBTI
• IRC Section 664 (c) changed effective 1/1/2007.
• Now a 100% excise tax on unrelated business income of a
CRT.
• Replaces prior rule that made the CRT lose its tax exempt
status for the entire year and become a taxable entity when
it had unrelated business taxable income
IRS 2008
Dirty Dozen Tax Scams:
Abuse of Charitable
Organizations and Deductions
United States vs. L. Donald Guess
et al; No. 04 CV 2185 (AJB)
Department of Justice filed a complaint against Xelan, Inc.,
for operating Xelan Foundation as a donor directed fund.
Xelan allegedly allowed doctors to make tax deductible
donations and then directed those dollars to pay for the college
tuition of the doctor’s children.
14
Tightened requirements for
qualified appraisers and
appraisals
Estate Tax Repeal/Changes
If Estate Tax Repeal Happens…
• 6,000 families would pay estate taxes if the exemption were
$3.5 million
• Charities stand to lose $10 to 25 billion per year if estate tax
is repealed permanently
According to Brookings Institution and the Urban Institute; Trust & Estates Magazine May 2005
• Lifetime gifts would decrease by 6-12%
• Bequests would decrease by 16-28%
According to study by Congressional Budget Office July 2004
15
Related Technical Websites
• www.pgdc.com Planned Giving Design Center
• www.leimbergservices.com Steve Leimberg; $28/month
Other Websites
• www.ncpg.org National Committee on Planned Giving
• www.guidestar.org Research on charities nationwide
Related Technical Books
• The Tools & Techniques
of Charitable Planning
2nd Edition published by
National Underwriter Company
(800-543-0874); $92
• Professional Advisor’s
Guide to Planned Giving
by Kathryn Miree published by
Panel (800-638-8437); $229
16
Related Technical Books
• Tax Economics of Charitable
Giving 2007/2008 Edition
published by Warren Gorham and
Lamont (800-950-1216); $234
Books for Charity Staff
• The Complete Guide to
Planned Giving 3rd Edition
by Debra Ashton, published
by Ashton & Associates (617472-9316)
Questions?
17