Michigan Estate Planning Blog

Charitable Giving Delayed… Is Not Charitable Giving Denied

It’s pretty impressive to top the Chronicle of Philanthropy’s list of America’s 50 most generous donors, but it just defies the imagination to make the list 5 years after passing away. Still, that’s the story of 2011 and the late Ms. Margaret Cargill. This fact was swiftly picked up here, in a recent Forbes article, and as it turns out the reason for such successful giving can be traced back to some complicated estate planning and finance work. Cargill is a name that, depending upon your exposure to agribusiness, is either an utter unknown in the discussion of wealth (the media is infatuated with Mark Zuckerberg these days) or an utter no-brainer. And Cargill is synonymous with massive agribusiness, having topped the list of America’s Largest Private Companies for all but two of the last 24 years. The late Margaret Cargill was heir to the fortune. At her death, Ms. Cargill left all of her shares of Cargill stock to be split between two charity foundations, the Anne Ray Charitable Trust and her own Margaret A. Cargill Foundation. But don’t forget, Cargill is a private company, albeit a large one, and that makes the stock rather difficult to value and liquidate. The trust and the foundation sat idly by until a fortuitous moment when Cargill sold its shares in another company, a public company called the Mosaic Company, which gave them the opportunity to exchange private Cargill stock for public stock that could be liquidated to the tidy sum of $6 billion (that process hasn’t quite finished up, but they’re counting it for 2011 anyhow). It’s important to remember these kinds of limitations when it comes to assets in either estate planning or charitable giving. Ms. Cargill’s wealth was essentially locked up in private stock and so, despite the inefficiencies of doing so, that is what she gave when it came time to bequeath and give that wealth away to charity. Luckily, however, Ms. Cargill did her charity work through the powerful intermediaries of charitable trusts and foundations, which were in a position to make such gifts work. At least there’s next year for Paul Allen, George Soros, and Michael Bloomberg, the next three (living) names on the list of millionaire donors, but 2011 belongs to Ms. Cargill.

 Reference: Forbes (February 6, 2012) “This Year's Most Generous Billionaire Philanthropist Has Been Dead Since 2006”

Tips from the IRS about Charitable Contributions

If you’re considering making last-minute charitable contributions before the end of the year, consider these tips from the IRS: Charitable Contributions for Certain IRA Owners. If you are over age 70-1/2 and own an IRA, remember you can make a direct transfer tax-free of up to $100,000 per year to an eligible charity. Created in 2006, this provision expires at the end of this year. Clothing and Household Items. Remember to get a qualified appraisal of clothing and household items if you plan to claim a deduction of more than $500. Household items include furniture, furnishings, electronics, appliances and linens. Monetary Donations. Be sure you have a bank record or a written communication from the nonprofit that shows the name of the charity, the date and the amount of your contribution. If you want to deduct your donation of $250 or more, you must receive acknowledgment from the charity.

Go online to AdvisorOne for more tips and reminders.

Reference: AdvisorOne (December 19, 2011): Year-End Giving Tips, Compliments of the IRS.

Voluntary Philanthropy – Look to Your IRA

If you would rather be a “voluntary philanthropist” versus an “involuntary philanthropist,” then you need to take action regarding the Qualified Charitable Deduction (QCD). In short, it’s a very powerful tool for both charity and reducing the tax liabilities associated with IRAs. However, on December 31, 2011, will we see it disappear? Jim Blankenship at Forbes has recently pointed out that the very popular QCDs are not legally extended beyond 2011. As a result, we ought to take stock regarding whether the option will be around in 2012. As you may know, a QCD allows you to forgo taking your Required Minimum Distribution (RMD) by letting you redirect those funds straight to the IRS certified charity (or charities) of your choice. You can contribute as much as $100,000 per year. It’s a pretty powerful tool for a “voluntary philanthropist,” if you don’t need the money from your IRA in the first place. Otherwise, taking the distribution just means more “T-A-X-E-S.” Note: Making this charitable beneficiary designation gives you an efficient way of contributing to charity and saving on your income taxes. If you’ve taken advantage of the QCD this year, then you still have to ensure proper tax filing compliance. Unfortunately, the only thing that can reinstate the Qualified Charitable Deduction is an act of Congress.

Reference: Forbes (November 7, 2011) “Last Chance for Making Charitable Contributions From Your IRA?

Charities Hoping for an Uptick in Giving

Have we bounced back from the Great Recession or are we still languishing (and due for another fall backwards)? This is a hot topic in political and economic circles, let alone around kitchen tables. It’s also a question of importance in the world of philanthropy. As the Chronicle of Philanthropy reports, America’s biggest charities are expecting modest growth in 2011, but face challenges in rebounding from the 2008 tumble. One way the Chronicle charts the world of charitable giving is through the Philanthropy 400, tracking the largest 400 charities. Think of it as the Forbes 400 of charities. Out of these 400, the expectation is that charities will see a modest median rise of 4.7% by the end of 2011. That is good news because this will be a net rise over 2010 growth, when charities were able to gather up an additional median gain of 3.5%. Nevertheless, those charities are still below 2007 levels and much of the gains have been in the form of donated medicine, food, and services rather than monetary funds. The Chronicle counts the 400 as a barometer of the charitable world. As such, it is a reminder of the many needs out there. The article also charts some patterns in charities of interest to the savvy philanthropist. There is a bit of promising news for the charitably inclined, too, as headway has been made on the worldwide malaria problem, with charitable organizations at the forefront of vaccine development. However, these charities need more funding to eradicate the disease.

Reference: The Chronicle of Philanthropy (October 16, 2011) “America’s Top Fund-Raising Groups Face Big Struggles”

CRTs – More Benefits Of Giving And Receiving

Sometimes, giving an asset to charity doesn’t mean you can no longer enjoy benefits from it. Yes, it’s true. And, the magical legal tool that affords this wonder is the “Charitable Remainder Trust (CRT).” Recently, Reuters cast another spotlight on this powerful tool with an eye to the future. A CRT, as many of you may be aware, is a specific type of irrevocable trust set up to give an asset away to charity at the time of death, but to allow you to receive income from the asset for your lifetime, another’s lifetime or even a period of years. The CRT allows you to do good, receive an income, and avoid some hefty taxes. As Reuter’s puts it: “In essence, the trust takes advantage of the tax-exempt status of the nonprofit it benefits.” The important thing about the CRT these days, at least as far as taxes are concerned, is the future. The returns on a CRT are similar to any investment in accordance with the market. And, with the market as it is, that’s not great. It follows then that the tax reduction might not be that great either. But many taxpayers are concerned about increased taxation in the future. President Obama already has called for further taxation with the new idea of the so-called Buffet Rule, not to mention the closing of Bush-era tax cuts and stricter estate taxes. For as many in Congress as are calling for tax reduction there are those calling for tax increases… and the super-committee might be turning the latter direction. If the Bush-era tax cuts expire, and in particular if the capital gains tax rises back up to 24% instead of 15%, the CRT will be quite the advantageous machine. In the end, a CRT is an irrevocable trust. It can’t be undone once it is created. More background and insights can be gleaned in the original article. Whether a CRT is right for you and your circumstances will require competent legal counsel. As always, look before you leap.

Reference: Reuters (Sepetember 30, 2011) “Charitable remainder trusts: how the wealthy give it away and get it back”

Charitable Giving – Ways And Means

Giving to charity over your lifetime can be powerful. Not only can you make an impact on the charities you care about, but you enjoy personal satisfaction and even charitable deductions. Still, since the tax laws are in a state of flux (and we can only expect them to become more uncertain as the politics in Washington continues to boil over), making substantial lifetime gifts may become more dicey, especially given the fragile economy. As a result, giving at your death may be more attractive and practical. As the Wall Street Journal points out, there is always the option of leaving a bequest. One way to make a postmortem bequest is through your Last Will and Testament. While you lose the lifetime charitable deduction, the bequeathed amount is deducted from your estate value. Depending on the size of your estate, that deduction can be significant. It’s true that the estate tax exemption amount is (for most Americans) a safe $5 million, but there’s no guarantee it will stay there (as with the gift tax laws). Nevertheless, a bequest also is a more malleable means to benefit charity, since you can think about your decision over a longer period and can give more types of assets. A classic example is the ability to name a charity as beneficiary to your IRA without the income tax burden of required minimum distributions. Remember: Charities do not have to pay income taxes on your IRA like your heirs would. Indeed, there are many powerful tools to use when making a bequest, depending on the type of asset. Be sure to read the original Wall Street Journal article for more ideas.

Reference: The Wall Street Journal (October 1, 2011) “The Quest for the Right Bequest”

GIVING AND RECEIVING: THE CHARITABLE GIFT ANNUITY

Remember the good old days, you know, when you could invest in a certificate of deposit (CD) and the bank would actually pay you something called “interest” on your deposit? No, really, I kid you not. Obviously, I am being a bit factitious, but you get the point. It is hard enough to make money these days, let alone accumulate wealth. Let’s say you are retired and are looking for a place to put your money to work. And, you need more of a return on that money than the banks are paying on their CDs. Also, you are intending to leave a bequest from your estate to support your favorite charity. Here is a win-win idea to consider, especially if you are charitably-inclined – invest in a charitable gift annuity. Recently, none other than The Wall Street Journal ran an article on this very subject, entitled “Earning income by Making a Gift.” Here is how it works: Give the money to your favorite charity… instead of to your favorite bank. However, you may “give and receive” when you make the gift to charity in exchange for a charitable gift annuity. Ultimately, you’ll be giving what remains of that charitable gift to the charity at the time of your death. However, in the interim, you’ll receive a fixed and predictable stream of income over your lifetime. The most important detail is that the “annuity rate” is determined by your age, rather than national interest rates. That means a couple at age 65 would receive around a 4.7% yield and a couple at age 75 would get 5.7% (individuals at age 65 and 75, respectively, would receive even higher yields at 5.3% and 6.5%). Further, the money is tax friendly. The yield is largely tax-free and the initial chartable donation offers a sizable upfront tax deduction. Some savvy life insurance planning can even replace the value of the asset contributed to the annuity for your loved ones. How? With the increased return on your money via the charitable gift annuity, you may find enough left over to pay the life insurance premiums. A charitable gift annuity can help you support yourself, provide for your heirs (via the life insurance “wealth replacement”), and your favorite charity, all in one fell swoop. Nevertheless, it can be a little tricky. Ensure that your charity can support a charitable gift annuity. Not all can. Look before you leap is good advice here. Check out The American Council on Gift Annuities website (acga-web.org.), but remember two important caveats. First: a charitable gift annuity locks you into that rate for your lifetime. So, what is competitive now may not be should national interest rates rise and the yield will no longer be as competitive. Some regard this as unlikely, especially in the short term (i.e., Ben Bernanke, Chairman of the Federal Reserve Bank has said interest rates will be suppressed for another two years). Second: if the charity itself could suffer economic hardship and thereby be unable to meet their annuity obligations and cease payments. This is a real possibility. Charitable gift annuities are not backed by the government like CDs. Clearly, then, if a charitable gift annuity is right for you, then it will take some research and proper planning to pull off well.

Reference: The Wall Street Journal (September 17, 2011) “Earning income by Making a Gift”

CHARITABLE GIVING – THE BATTLE BETWEEN PRIVATE CHARITY AND GOVERNMENT CHARITY

There’s a lot of commotion surrounding President Obama’s jobs bill, and for good reason, but not all of it is positive. Small businesses, for one, are lukewarm since their concern is less for tax-breaks and more for actual revenues. But the biggest detractors so far may just be charities and those that give to them: the bill proposes eliminating some of the deductions for charitable giving amongst high earners. The jobs bill comes out to a $447 billion price tag, and much of it would be paid for by limiting the tax deductions for charitable giving amongst top earners making $200,000 a year or more. Currently, these earners can deduct 35 cents on the dollar, but if the bill passes as written that rate would drop to 28 cents. In fairness, this simply equalizes things so that top earners have the same deductions as lesser earners, but in the end it also effectively limits total donations to charity and makes a favored practice of many top earners that much more difficult. Indeed, the amount of money in question, 7 cents for every dollar, adds up to the staggering amount of $467 billion over 10 years, according to White House estimates. If you give to charities of your own selection, then this will be an important development to follow for the sake of your charities of choice and to anticipate your upcoming tax liabilities. Learn more about giving to charitable causes on the Charitable Planning Practice Center on our website. While you’re there, be sure to sign up for our free monthly estate planning e-newsletter, too.

Reference: The Wall Street Journal (Spetember 13, 2011) “Why Obama’s Jobs Bill Could Be Bad For Charity”