PLANNED GIVING
PLANNED GIVING WILL NOT GO THE WAY OF THE HORSE AND BUGGY!

Back in June — you remember June, don’t you — Shawn Cribari wrote an intriguing article in the ADO INSIDER asking the question that is answered in the title above.

To review (since it’s been awhile), her original question (Will Planned Giving Go the Way of the Horse and Buggy?) occurred after hearing Hilary Rodham Clinton’s address at the Annual Westchester Not-for-Profit Leadership Summit, on May 9th. As reported in THE JOURNAL NEWS on May 10th, Ms. Clinton stated that funding for nonprofits would go way down if the proposal to permanently eliminate the estate tax became law in 2011.

Of course, for Ms. Clinton this tax is a political issue. Its repeal is seen by her and most others as a Republican-backed proposal, approved by the House, allowing those who inherit millions in unearned income to get this income tax-free. It would thereby "eliminate the incentive for charitable giving and leave the nation with a trillion-dollar increase in debt between 2012 and 2022," Clinton said.

Generally nonprofit agencies, on the other hand, as Ms. Cribari indicated, have not focused on estate tax repeal as a political issue. Rather the issue is more importantly a donor “hot potato”—to be avoided if at all possible.

In the area of nonprofit funding most related to estates, i.e., planned giving, fund-raisers seem to be focused these days, quite rightly, on donor relationships. Additionally they are focused on conveying their organizations’ missions well, as pointed out by Wallace Munro, chair-elect of the National Committee on Planned Giving and director of planned giving at the Actors’ Fund**. Finally fund-raisers who currently do planned giving are focused on the technicalities of the various vehicles that apply now and in the near future. Some practitioners have also been aware of the scheduled changes in the estate tax, brought about by the Economic Growth and Tax Relief Reconciliation Act of 2001. These changes started in 2002 and will continue through 2009.

One should note that this 2001 Act additionally affects the generation-skipping transfer taxes and the gift tax. The generation-skipping transfer taxes are scheduled for interim reductions in rates and interim increases in exemption amounts. The gift tax schedule includes its continuation, with some increase. (It would tax—pardon the pun—all our attention spans if we went into any further detail on such changes—at least in this article.)

Meanwhile, in her June article, Ms. Cribari pointed, out, quite logically, that full repeal of the estate tax would also eliminate the use of the planned giving vehicles that serve as shelters for the estate tax. However, there are a number of those in-the-know who believe that the estate tax will NOT be repealed. Tom Herman, in the May 29th WALL STREET JOURNAL column "Ask Dow Jones," said the actual repeal faces a big fight in the Senate. There is a possible compromise afoot that would "eliminate the estate tax for all but a tiny number of multimillionaires and billionaires, many of whom say" they can afford not to care about this tax anyway. (In fact, Shawn Cribari named a few of these rich-and-famous in her article.) Mr. Herman stated that “an influential Republican congressman who serves on the House Ways and Means Committee told” him that he’d sign onto the aforementioned compromise "in a heartbeat." Were the compromise to occur, the planned giving vehicles providing estate tax avoidance would still be effective, to some extent at least, for the majority of planned giving donors. So much for going the way of the horse and buggy—at least if the compromise comes to pass!

Jan Hesbon, National Audubon Society Planned Giving Officer and ADO June speaker on planned giving, very succinctly summed up the estate tax issue in his handouts at the presentation:

The estate tax will be repealed in 2010 for one year.
In 2011, the estate tax could be returned to…[earlier] levels.
The estate tax exemption…increase[d] from $1 million in 2002 [and will continue to do so up to] $3.5 million by 2009.
Estate tax rates will be reduced gradually from the height of 50% in 2002 to 45% in 2009, the year before possible repeal.
He goes on to say that if the estate tax is repealed, "death becomes an income tax problem." He expects that "in the future, [with repeal,] gift planning could revolve more around appreciated property and capital gains tax consequences. Most…[people] have an aversion to capital gains tax on appreciated property during life or at death, so they may become more motivated to give appreciated property away…[while they’re alive, to lower their income taxes on it,] rather than giv[e] such property to noncharitable beneficiaries at death."

Some of us in the fund-raising field look upon all this as a bunch of gobbledygook that we don’t really need to know. But, as most of us agree, the bulk of philanthropic dollars comes from individuals. And, as a result, this gobbledygook can be crucial. To maximize donations from individuals, it’s best for organizations to offer vehicles (depending on each organization’s needs as well its fund-raising maturity) that allow donors who have limited current cash flow to give from future dollars. From this kind of thinking, it follows that it’s best to have at least one-eighth of an eye focused on what’s ahead in the future for planned giving, since the "times they are [clearly] a changin’." So, while the answer to Shawn Cribari’s original question about planned giving, horses, and buggies, is no; I would suggest that planned giving, as it always has, will continue to evolve, with the changing times.

*Besides the writers and practitioners cited in this article, the author would also like to thank Sanford Schlesinger, Esq., upon whose materials she based some of her information about the 2001 Act. These materials were acquired at the NYC Estate Planners Day 2004. In addition, Mr. Schlesinger also (independently) concurred with Mr. Hesbon concerning the income-tax-avoidance orientation of inheritance wealth if the estate tax is repealed.

**Mr. Munro also wondered about Shawn Cribari’s April 24th New York Times citation of a decline in bequests during President Bush’s first term, when the President enacted a temporary rollback of the estate tax. He posited that bequests and gift annuities would continue to do well even if the estate tax is permanently repealed. He suggested that there could have been another economic factor causing the decline in bequests. Mr. Munro believes that donors will always give through these two vehicles, come what may. He inferred that charitable intent, paired with the need to give from future dollars, will override concerns stemming from a lessening of tax advantages.