How the new tax law affects planned giving

February 16, 2018

Helping generous people give more to the causes they love is the heart of Adirondack Foundation's work. The Tax Cuts and Jobs Act of 2017 contains both positive and uncertain aspects. One thing we know for sure is that annual gifts from donors will be more important than ever. In this piece, we've asked local estate attorney Jill Beier to summarize these points, which may inspire and encourage donors. In a future article, Adirondack Foundation will talk about steps to support regional nonprofits to keep all donors engaged in giving at all levels, regardless of the charitable deduction.

Generosity is a long-standing American tradition, and the good feeling that comes from giving back is just one of many benefits. Generosity in the Adirondack region is particularly important, as local charitable organizations in our area must depend on the support of individuals. In fact, across the country, the largest source of giving is contributions from private individuals. The Tax Cuts and Jobs Act of 2017 provides many tax-efficient ways for individuals to continue the support of local charitable organizations.

Donor advised funds (DAFs) are now more attractive than ever. Donors can maximize the impact of several smaller gifts by making a larger gift to a DAF. The DAF can direct gifts to multiple public charities that are important to the donor. A larger gift to a DAF may allow the donor to itemize in the year the gift was made. Contributing appreciated securities to a DAF may also provide added tax savings.

For donors who are at least age 70 ½, a qualified charitable distribution (QCD) from an IRA may be very advantageous. Donors can transfer up to $100,000 from an IRA (not a 401k or other retirement account) directly to a public charity or a community foundation (not a private foundation or a donor advised fund). Although there is no charitable deduction, the income tax that is normally owed on IRA withdrawals is avoided. In addition, the QCD can satisfy minimum distribution requirements that could result in income tax savings.

Another consideration is to make life-income gifts such as charitable remainder trusts. Gifts to these types of trusts tend to be larger so that donors may be able to itemize in the year a gift is made to the trust. Payments made from life-income gifts may also provide income tax and possibly capital gains tax savings.

Donors can still make gifts of highly appreciated assets to charitable organizations that allow donors to avoid the capital gains tax that would be due if the assets were sold. This offers tax savings even if the taxpayer uses the standard deduction.

The joy of giving through bequest remains unchanged and the tax advantages may actually increase for some donors and their heirs.

Finally, for those donors who will still itemize their deductions, the deduction limit for cash gifts to charity has increased from 50% of adjusted gross income (AGI) to 60% of AGI. So, those donors who want to make large donations of cash will be able to deduct more than in previous years.

You should consult your accountant or attorney before deciding which method is right for you. Whatever method you choose, Adirondack Foundation is uniquely qualified to assist with all types of charitable giving. Adirondack Foundation staff can work with individuals and families to craft a charitable giving plan that carries out your philanthropic goals in the most tax-efficient manner. More importantly, donating to Adirondack Foundation will provide assistance and enrichment to local communities, and that causes an increase to endorphins!

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