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The Trump Bump

Susan Ott and I just gave our annual planned giving presentation at the Emerging Philanthropy Conference: Who’s Driving the Car? Following this Conference, I am still thinking that we are in an unusual time with the winds of change blowing. Change, whether we like it or not, always brings opportunities, and organizations need to be prepared to discuss change with their donors.

As a tax lawyer, I deal with the constantly evolving state of the tax law. While Treasury Regulations, IRS rulings, court cases, etc. constantly change, the current legislative environment appears poised for significant and maybe even sweeping changes. If Tax Reform becomes a reality, there will be significant effects on charities and their donors.

While it is impossible to predict the legislative package that MAY get passed by Congress, it appears that President Trump and the Republican-controlled Congress are in agreement on the following points:

  • Lower corporate tax rates
  • Lower individual tax rates
  • Lower capital gains tax rates
  • Survival of the charitable income tax deduction, but with a ceiling on itemized deductions and other changes (such as increasing the standard deduction)
  • Repeal of the federal estate tax
  • Repeal of the alternative minimum tax (AMT)

Many of these changes are the result of a desire for more simplicity in the Tax Code, such as the repeal of the AMT. Others are clearly intended to reduce the tax burden, such as lower rates, which have the effect of making the charitable deduction less valuable.

Some of the other changes, such as a doubling of the standard deduction and repeal of the estate tax, also may be a disincentive (to some people) to charitable giving. Given these potential future tax changes, an opportunity arises. For those donors who are concerned with the tax effects of their charitable giving, charities can get out in front of the curve by encouraging their donors to consider current charitable gifts before the effective date of Tax Reform legislation.

Charities are well-advised to talk to their donors about gifts generating immediate charitable tax deductions. Current gifts of cash, stock, real estate or other tangible assets may be more advantageous to the donor under current law. In addition, current gifts to donor advised funds or private foundations may be wise to consider because a current charitable deduction is available to the donor, while allowing the decision on which charities to benefit to be made over time. Finally, planned gifts which generate large up front deductions, such as charitable gift annuities, charitable remainder trusts and pooled income funds, may be more valuable in the current environment.

In conclusion, there may be some reduction in the benefits to donors of tax-wise giving after Tax Reform. Before we get there, however, forward-thinking charities can use this potential for change to their advantage, thereby receiving a “Trump Bump”. Charities should strongly consider talking to their top 25 donor prospects over the next few months.

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