Title: Arising from the Dead: Planned Giving with Death, Taxes, and maybe a Death Tax
1Arising from the Dead Planned Giving with
Death, Taxes, and (maybe) a Death Tax
- Edward J. McCaffery
- USC Law School
- Sonnenschein Nath Rosenthal LLP
- NCPG Conference
- Kissimme, Florida
- September 29, 2005
2Outline
- Status of Estate Tax Repeal
- Status of Charitable Sector Taxation
- Back to Basics
- Conclusion
3Outline
- Status of Estate Tax Repeal
4Status of Estate Tax Repeal
- What EGTRRA wrought
- Post-EGTRRA antics
- My current theory
- My best guess
5What EGTRRA Wrought
6Slouching towards 2010
- Throw Momma from train year
- Avoid your children year
- Charitable Sector pitch
- Give to us as life insurance!
7Post EGTRRA antics
- House and Senate vote multiple times for outright
repeal - Votes always come up short
- Recent move to compromise
- 15 rate?
- 3.5-5M exemption?
8My Current Theory
- Shakedown at Gucci Gulch
- Congress creates and perpetuates special interest
groups so that it can be lobbied - Note estate tax saga two-sided
- Wealthy families want repeal
- Insurance cos, financiers, and nonprofits oppose
- Good for Congresss business
- See McCaffery, Tax Notes, 11/15/04, and McCaffery
Cohen, forthcoming, UNC Law Review
9My best guess
- 2010-2011 as written by EGTRRA will not happen .
. - . . . there will be more votes . . .
- . . . the new fight will be over a 15 rate . .
. - . . . the ultimate compromise will feature
- rates in 30s or 40s
- exemption of 2 to 5M
- . . . . that is, what could/should have happened
in 2001
10Planned Giving without Death
- Some basic facts of the matter
- Polls rank tax reasons low among donors
- Lifetime giving is 10-12 times greater than
bequests - But . . . .
- Large donors matter
- Some definite price elasticity to charitable
giving - Under estate tax, 1 gift costs 50 cents
- Best quess is price elasticity gt income
elasticity (Rakowski 1997) - Lifetime giving reflects existence of estate tax
- And donors dont always admit tax motives . . . .
- . . . . perhaps even to themselves
11Planned Giving without Death
- Nontax reasons for planned giving (benevolence
for any giving) - Control
- Flexibility
- Certainty
- Income tax reasons to give
- (ideally, fair market value) deduction, today
- See Don Weigandt, Charitable Giving without Fear
of Death, 2002 Major Tax Planning McCaffery and
Weigandt, Tax Notes, Chronicle of Philanthropy
2003
12Outline
- Status of Estate Tax Repeal
- Status of Charitable Sector Taxation
13Bad News, Part I Shakedown Redux
- Status of CARE/HR 7
- Key features
- Non itemizer deduction
- Non-penalized IRA rollover
- Facts
- President supports
- Senate approves CARE 95 5 (2004)
- House approves HR 7 408 13 (2004)
- Nothing happens
- More votes scheduled
14Bad News, Part II Dancing with the Devil
- Charitable sector under microscope
- Car valuation problem addressed in AJCA of 2004
- Grassley SFC Hearings focus on abuses in
charitable sector, including 509 (a)(3)
supporting organizations - Charitable entities involved in listed tax
shelters
15The wages of sin . . . .
- One recent poll found that 70 of people surveyed
found it difficult to determine whether a charity
is legitimate - Better Business Bureau Wise Giving
Alliance/Princeton Research Associates 2001
16Outline
- Status of Estate Tax Repeal
- Status of Charitable Sector Taxation
- Back to Basics
17The usual advice
- Response from those in the non-profit sector
should be twofold - 1. Ensure that favorable legislation is enacted.
- 2. Become familiar with the legislation so you
can direct your marketing efforts to those who
would be most affected by the law changes. - Changes in Charitable Giving May be Imminent,
Nonprofit World, May 1, 2005
18My advice . . . .
- Repent!
- Just say no
- Stop lobbying for new tax breaks
- Stop marketing to latest and greatest tax idea
- Get back to basics
19Back to Basics or, Keep it Simple, Stupid
- Most donors want to give
- Thats why theyre donors
- If they do not want to give, you shouldnt want
to get from them - Emphasize your mission and your credibility
- Let taxes be taxes
20Back to Basics, Part II The fundamental things
apply . . . .
- Death is salient
- Taxes are salient
- Simple devices like
- CRTs, CLTs, Charitable Annuities, Donor Advised
Funds - Work, for tax and non-tax reasons, and are
time-tested
21The fundamental things . . . .
- Know your client!
- Devices for income now, charity later
- CRTs (with trust, pluses and minuses)
- Charitable annuities (no management!)
- Devices for charity now, family later
- CLTs (avoids estate tax if there is one)
- Ongoing philanthropy
- Donor advised funds better than private
foundations (see Cafferata) or supporting
organizations. . . . .
22Outline
- Status of Estate Tax Repeal
- Status of Charitable Sector Taxation
- Back to Basics
- Conclusion
23Keeping it simple
- Emphasize non tax aspects of planned giving
- Keep tax aspects simple, understandable, and
legally uncontroversial - Best tax-favored vehicles have non-tax benefits
- Just say no to lobbyists . . . .
- . . . . .and Congress!
24Contact
- Ed McCaffery, USC Law and Sonnenschein Nath and
Rosenthal - emccaffery_at_sonnenschein.com
25Arising from the Dead Planned Giving with
Death, Taxes, and (maybe) a Death Tax
- Edward J. McCaffery
- USC Law School
- Sonnenschein Nath Rosenthal LLP
- NCPG Conference
- Kissimmee, Florida
- September 29, 2005