 |  |  |  |  |
 |
 |
 |
 |
 |
|
|
|
|
|
|
B
F
A
R
Estate taxes are coming down. The maximum rate is declining and the individual exemption is increasing. As
of this writing, the estate tax is scheduled to be repealed for one year, 2010, but no professional adviser that I
know thinks the present law will go unchanged until complete repeal in 2010 (followed by a return to 2001
rates and laws in 2011).
Charitable Gifts. Many charitable organizations and commentators have been lamenting tax reduction as a
decrease in the incentives for wealthy individuals to make charitable gifts during lifetime or at death. On the
other hand, philanthropy was alive and well before the advent of the estate tax, evidence the private colleges,
art museums and other institutions that have been around for decades, if not centuries. The net result for our
clients here in Northern Michigan will be that less money will be paid in estate tax by fewer people. Does that
mean that charitable giving will dry up?
Continued Giving. A recent article in Trusts and Estates hypothesized that charitably inclined donors would be
left to share the tax savings with charities, as well as family members. Charitable organizations should
continue to woo their supporters and encourage gifts of all types. Remember, giving is not motivated strictly
by taxes. Whole books have been written about motivations for charitable giving, but I have not read any
informed opinion that saving estate taxes is the primary motivating factor for charitable giving as a whole.
In my experience, charitable gifts at death are made by a certain number of people who are inclined toward
charitable giving regardless of the estate tax effect. Many clients with both small and large estates make no
charitable provisions. They just don’t think about giving their resources to a charitable organization. Others
will make charitable gifts, even though relatively modest, where taxes bear no weight in the decision making
process. The challenge will remain the same, motivating donors to support an institution or cause which has
meaning to them.
Lifetime Gifts. It may be that the reduction in estate taxes will mean that donors will pay closer attention to
lifetime giving with attendant income tax savings. Avoidance of capital gain taxes with gift annuities and
Charitable Remainder Trusts will remain popular. Donors can achieve increased cash flow and
diversification of investments, while at the same time receiving an income tax deduction spread over a period
of years in many cases, that make these vehicles appealing. Highly appreciated securities were popular
vehicles in the 90's, particularly where the securities were producing no current income. With the recent
market recovery, there may be a resurgence of interest here.
Gift Annuities and CRT’s. In the current decade, gift annuities and Charitable Remainder Trusts are ideal
vehicles to turn appreciated real estate or securities into cash flow, without paying capital gain taxes, and at
the same time achieving valuable income tax deductions. These may be valuable alternatives for clients with
appreciated real estate, especially if it is likely that the family will not, for one reason or another, chose to, or
be able to, hold on to expensive waterfront property when the donors are gone. These properties can be
turned into an income stream for parents and children.
Charitable Lead Trusts. Will these devices all continue to remain popular in a lower tax environment? The
typical Charitable Lead Trust does not offer a current income tax deduction, but rather is designed to pass.
Property to family members at a low taxable value. There may be instances where a CLT makes good
financial planning for the family, but in my experience, the Charitable Lead Trust is often employed as a
mechanism to reduce or eliminate the tax on wealth transfer, the charitable benefit being somewhat
incidental. However, the bottom line is still the same - charitable motivation. If a client has a charitable
motivation, a Charitable Lead Trust may be a good way to "kill two birds with one stone", benefitting charity
and the family at the same time by delaying property distributions to family members.
Charitable Inclination. The bottom line is that charitable planning will be undertaken by individuals who have a
desire to leave a legacy to society in the form of a gift to an educational, religious or other charitable
organization. The standard of life in the United States has risen tremendously in the last fifty years or more.
(We have fewer and fewer clients who remember the 1930's when things were really bad). Many want to give
something back to the society in which they have prospered. Structuring the right kind of charitable giving
mechanism can and should involve all professional advisers, financial consultants, CPA’s and attorneys,
along with the charities involved. Motivation and ideas can come from any of these directions. Careful
structuring of the final mechanism can afford a higher level of charitable giving while maximizing the resultant
tax benefits and family benefits.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| October 2003 DECLINING ESTATE TAXES AND CHARITABLE GIVING by James R. Modrall III, J.D., C.P.A. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |