“Update on Planned Giving Tax Strategies”
Hampton Roads Gift Planning Council
January 9, 2014
Mike Kirkman, Partner
National Leader - Estate, Gift and Trust Services
Items to cover
Top Planned Giving Techniques – 2013
Charitable Stats from 2012
Impact of “NEW” tax law on Planned Giving
Charitable Trusts – What to do when they have
run their course?
Planned Giving Techniques
 Outright Gifts
 Life Insurance Proceeds
 Retention of a Life Interest
 Donor Advised Fund
 Charitable Gift Annuity
 Charitable Lead Trusts
 Charitable Remainder Trusts
Charitable Giving 2012 (billions)
Individuals Foundations Bequests Corporations -
$228.93
45.74
23.41
18.15
Total -
$316.23 100%

Source: IRS & Giving USA Foundation
72%
14%
7%
6%
Charitable Giving 2012 – Change over 2011
Individuals
Foundations
Bequests
Corporations
Overall
- 3.9%
- 4.4%
- (7.0)% **
- 12.2%
3.5%
 Source: IRS & Giving USA Foundation
** I will comment later on this.
Charitable Giving Sectors (Billions) - 2012
Religion$101.54 [32%]
Education$41.33 [13%]
Human Services$40.40 [13%]
Public Society/Benefit$21.63 [7%]
Health$28.12 [9%]
Arts, Culture, and Humanities- $14.44 [5%]
International Affairs$19.11 [6%]
Environment/Animals$ 8.30 [3%]
Individual Giving – % of Disposable
Income (40 years)
Disposable Income – As defined by Bureau of
Economic Analysis (US Department of Commerce)
1972 - 2.2%
1982 - 2.0%
1992 - 1.8%
2002 - 2.2%
2012 - 1.9%
 Source: Giving USA Foundation
2012 Itemized Deductions - Virginia
# of Returns - 3,801,986
# Itemized - 1,513,949
# Claiming Charitable - 1,236,419
Value of Charitable Deduction- $5,351,793,000
 Source: IRS
Charitable Receipt Changes
Percentage of responding organizations reporting change in charitable receipts
by year, 2001 through 2012
Source: Nonprofit Research Collaborative
Charitable Receipts – 2013 projected
Anticipated direction of change in charitable receipts, 2013 compared with 2012
Source: Nonprofit Research Collaborative
Impact of New Tax Law on Charitable
Giving
3.8% surtax –Net Investment Income Tax (NIIT)
Taxpayers seek deferral techniques
Fiduciaries face dilemmas
Charitable Trusts – Opportunity
Impact of Charitable Giving - Estate & Gift Tax
Exemption
 $5 million (indexed to inflation)
 $5.34 million for 2014
Top Rate
 40%
Portability
 Allows Surviving Spouse to use Deceased Spouse Unused
Exemption
Individuals
New 39.6% rate applies…



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MFJ > $450k AGI
Singles > $400k AGI
HH > $425k AGI
MFS > $225k AGI
Medicare 3.8% Surtax * applies…
 Taxpayers MAGI > $200k/$250k
 Net Investment Income
Supplemental Medicare Tax * .9% applies…
 Taxpayers MAGI > $200k/$250k
 Part of FICA (Hospital Insurance Tax)
* The Patient Protection and Affordable Care Act
Individuals- cont.
“High Income” taxpayers $400k/450k
 Capital Gain/Qualified Dividends – 20% vs. 15%
 Results – 23.8% tax on LTCG/QD
Personal Exemption Phase-out/Pease Limitation
 Limits deduction for personal exemption and itemized
deductions
•
•
•
•
MFJ > $300k AGI
Single > $250k AGI
HH > $275k AGI
MFS > $150k AGI
Individuals – cont.
Pease Limitation
Couple has $670,000 AGI & $45,000 itemized
deductions
Thresholds - $250K (single) & $300K (MFJ)
Itemized deductions reduced to $33,000



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Mortgage interest - $5,000
Property taxes - $5,000
State income taxes - $20,000
Charitable deduction - $15,000
Reduced by lesser of:
 3% x $400K ($700K - $300K) = $12K
 80% x $45K = $36K
Tax Rate Changes
 Since 1913 – How many rate changes have we had?
 Hint: Avg. of more than one every 3 years
 How many changes were increases/deceases?
 Do rate increases follow decreases?
 Economists – 60% probability of change in same direction
 2 periods of steeply declining rates
 1942 – Executive Order – 100% tax on salaries > ?
Tax Rate Changes – Impact on
Charitable Giving
 Discretionary Trusts
 Top Rate 39.6% - > $11,950 Taxable Income
 Net Investment Income Tax – 3.8%
 65 Day Rule
Mitigating the 3.8% Surtax Charitable Trust
Avoiding the Surtax – 3.8%
 Pre 2013 - Charitable Remainder Trust
 2013 Charitable Trust
 Why It Works…
• Let’s look at an example….
Mitigating the 3.8% Surtax Charitable Trust (cont.)
 Donors – Couple age 65/64
 Contribution - $1 million
 Term – Life
 Jan 2014 AFR – 2.2% (higher the better)
 Annuity payout - 5% ($50,000 per year)
 Charitable deduction - $108,111
 What if…annuity could be pushed out?
Mitigating the 3.8% Surtax Charitable Trust (cont.)
 Charitable Remainder Trust – Net Income Make-Up
 NIMCRUT
 Distribution
 Required - 5% of trust assets FMV
 If trust accounting income < 5%...then…
 Deficit is accumulated for future years
 Why is this a good thing?
Charitable Trust – End of the Road
 Facts: In 1990 Tom (72) and Betty (68) established a
CRAT.
 $1 million @ 6% annuity, lifetime
 Now in 2014 – Tom and Betty don’t need annuity
income.
 What options are available?
Charitable Trust – End of the Road (cont.)
Terminate The CRT
 Assign the income interest
 Divide up CRT assets
Caution! – Must follow rules (Tax and Legal)
 Any other options?
Charitable Trust – End of the Road (cont.)
Consider a “Sale of Income Interest”
 Is there a Market?
 Income beneficiary has “capital gain”
 Trust typically continues
 Risk is shifted to buyer
Conclusion
Tax law does impacts charitable giving
Planning for the 3.8%
CRTs are not bad options
Charitable trusts DO have an exit strategy
Happy New Year!
Thank You!