Tax season is over. Well, for savvy people, it is never over, but the 2017 filing deadline has come and gone and your CPA is probably not answering his or her phone this week. It’s 2018 and things have changed. The 2017 Tax Cuts and Jobs Act will significantly impact tax planning, especially charitable giving.
Charitable giving recently rose to a new high in the United States. According to Giving USA’s 2017 Annual Report on Philanthropy, individuals, foundations and corporations topped out with $390.05 billion in giving during the 2016 year. Charity Navigator estimated that 12% of all charitable giving happens in the last three days of the calendar year. Now, because of the new tax law, fewer individuals will need to itemize and thus fewer will have the tax incentive to make individual charitable contributions. Charitable giving will likely decline in years to come, but it won’t disappear. People give for reasons beyond their own financial incentive.
Charitable giving is way to share what you have with others either during your lifetime or after you pass away. It has also served as a way to receive an estate tax break. That will change with the new tax law. The estate tax has effectively gone away. Unless your estate is over $11.2 million as an individual or $22.4 million as a couple, you will not have to pay a penny in federal estate taxes. (At least until the law expires in 2027.)
Still, true charitable intent does not have a tax incentive. Sending in a check to the Red Cross when a hurricane hits or donating to your church is a common practice among Americans and I am confident that will not stop. At its core, estate planning is about values. A great example sits on the corner of Concord Road and Knox Valley Drive. O’Delle K. Holt gifted $4.2 million to the Brentwood Library, which is now named after her husband, John P. Holt. Mrs. Holt created an estate plan before she died that allowed Charles Witherspoon to benefit from her valuable property in Brentwood during his lifetime and then to the library. There are other twists and turns to this story which you can read at http://www.brentwoodtn.gov/Home/Components/News/News/1413/267. It’s fascinating, but there’s not enough space here.
What Mrs. Holt did is not as uncommon as you might think. Often, people set up estate plans that allow members of their family to benefit from their assets while they are alive and then leave those assets to a charity after that family member dies. Estate plans can also include gifts similar to Mrs. Holt’s when a person either has no heirs or simply wants to make a gift to these organizations after their heirs have passed away. Often people use a trust and keep such details private. Since Mrs. Holt used a will, we are able to read her plan.
The new law did not eliminate all tax-advantaged giving strategies, however. There are still ways in which you can make charitable gifts during your lifetime and afterward using annuities and life insurance policies. Qualified charitable distributions from your IRA and charitable stacking (often through donor-advised funds) are emerging as popular strategies, but the alphabet soup of CRAT, CRUT, NICRUT, NIMCRUT and FLIP-CRUT (remainder trusts) and CLAT and CLUT (lead trusts) are still around and still useful.
Don’t worry if you don’t know recognize that jargon. If you are interested in making charitable giving part of your overall tax or estate planning, I encourage you to sit down with an estate planning attorney, experienced financial planner, or accountant to start the discussion.
Randy Ratliff is a Brentwood attorney practicing estate and elder law. He can be reached at trust@RandyRatliff.com or www.randyratliff.com.