What Does Charitable Planning & Giving Look Like In 2020? September 3, 2020 Honolulu, Hawai‘i 1
Speakers:
Kawena S. Beaupré Senior Director of Gifts & Compliance, Associate General Counsel Hawai‘i Community Foundation
Katharine P. Lloyd Senior Vice President & General Counsel Hawai‘i Community Foundation
Brian K. Janowsky, Esq. Partner Schiff Hardin LLP 2
Overview •Charitable Giving & the Pandemic •Review recent legislation ❖ CARES Act ❖ SECURE Act
•Impact the legislation has on charitable giving & planning •Charitable techniques in a low interest rate environment
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How Has Covid-19 Affected Charitable Giving? • Q2 2020 giving is -8.3% down from same time last year. ▪ Small NPOs -17.6% ▪ Med NPOs -7.3% ▪ Large NPOs -6% • 25% of individual donors plan to increase their giving; 54% plan to maintain giving
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Giving in Tough Economic Times • Great Recession reduced charitable giving by 7% in 2008 and another 6% in 2009. It took 7 years to return to pre-recession levels. o Hawai‘i: Charitable giving declined 5% from 2006 to 2012 o US Median Household Wealth declined 43% from 2007 to 2013 • Overall participation in charitable giving continued to decline from 2000 (66% of households) to 2008, declined more through 2010 (considered the end of the Great Recession), and keeps on declining (53% in 2016) 6
CARES Act 1. Universal Charitable Deduction 2. Increased Limitation - Cash Gifts
3. Waiver of Required Minimum Distribution (RMD) for 2020
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Universal Charitable Deduction • $300 above the line deduction for cash gifts • Applies to “tax filing unit” • Does not apply to donor advised funds (DAF), supporting organizations & non-operating private foundations 8
Income Tax Deduction Limitations - Review
60% if only gifts in a given year are cash gifts to public charities
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Increased Limitation - Cash Gifts • Increases deduction limit from 60% to 100% of adjusted gross income (AGI) ▪ Cash gift ▪ During calendar year 2020 ▪ To a public charity (No DAFs or supporting organizations)
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100% of AGI Example Jane’s AGI [60% of AGI CARES Act 100% of AGI Income Tax
$150,000 $90,000] $150,000 $0
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Waiver of RMD for 2020 • Suspends RMDs in 2020 from an IRA, 401(k), 403(b), and most defined contribution plans • Includes RMDs due by 4/1/2020 because account owner turned 70 ½ in 2019 12
IRA Charitable Rollover “Qualified Charitable Distribution” IRS IRA CUSTODIAN
1. IRA owners 70 ½ + can direct the custodians of their accounts to send checks up to $100,000 directly to a qualified charity. 2. Distribution excluded from income. No charitable deduction. No tax. 13
SECURE Act • RMD pushed out from 70 ½ to 72 years old • Contributions allowed after 70 ½ for those with earned income • Added complexity to QCDs
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SECURE Act (continued) • Stretch IRA is no longer allowed – entire IRA distributed by the 10th Anniversary of the participants death. ▪ XC: no limit for “eligible designated beneficiaries” ❖ Surviving spouse
❖ Minor child ❖ Disabled/chronically ill beneficiary ❖ Beneficiary
less than 10 years younger 15
Charitable Strategies After the SECURE Act • If utilizing the post 70 1/2 deductible contributions be wary of QCD impact • CRTs as an Alternative to the Stretch IRA
• Low interest Rate Environment – take a fresh look at Lead Trusts 16
Charitable Remainder Trusts • Irrevocable trust ❖Term of years ❖Life or lives of the individual or individuals • At the end of the term, the remaining trust corpus is distributed to charity • 50% maximum annual payout • Charitable remainder worth 10% at inception 17
Charitable Remainder Trusts Two types of charitable remainder trusts • Annuity Trust ❖
stated amount must be a sum certain that is not less than 5% of the initial fair market value of the trust
• Unitrust ❖
stated amount must be a fixed distribution that is not less than 5% of the value of the trust assets, determined annually
Tax Benefits at Creation • Income tax deduction = value of remainder interest • Gift tax deduction = gift of income/term interest (to non-charitable beneficiaries) & non-taxable charitable gift of remainder interest • GST tax = can be made GST exempt if non-charitable beneficiaries are grandchildren or more remote descendants. 18
Comparison: Legacy CRT vs. Direct to Heirs Direct to Children or Other Heirs
5% CRT Named as Beneficiary
$2,000,000
$2,000,000
Federal income tax (est. 22% bracket)
$440,000
$0
Net outright to children or other heirs
$1,560,000
$0
$0
$3,442,647 (PV @ 4%: $2,069,634)
$1,560,000
$2,069,634
$0
$4,065,588 (PV @ 4%: $1,586,073)
$1,560,000
$3,655,707
Transfer from IRA
Total income payments from CRT (est.)
Total benefit to children or heirs (est.)
Total benefit to charity (est.)
Total benefit to children and charity (est.)
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Use a CRAT or CRUT to get your “Stretch” and Benefit Charity
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Charitable Remainder Trusts Planning Considerations with Gifts of Appreciated Property • A charitable remainder trust is a tax-exempt entity, so appreciated assets gifted, and later sold, does not trigger immediate capital gains. • Contract for sale of stock in place before gift is made • Donation and redemption • Liquidating Corporations • Sale of donated property by charity to buyer with whom the donor had previously negotiated 21
Applicable Federal Rates
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Charitable Remainder Annuity Trust
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Charitable Lead Annuity Trust
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Charitable Lead Trusts Charitable lead trust is the flip-side of a charitable remainder trust (discussed
later) Charitable beneficiaries receive a stated amount each year − for a specified term of years OR − for the life/lives of an individual(s) At the end of term, property passes outright or in trust for grantor’s descendants or other third party beneficiaries Two types (just like charitable remainder trusts) ⁻ Annuity trust ⁻ Unitrust 25
Charitable Lead Trusts • NOT treated as tax-exempt • Generally will not receive an income tax charitable deduction • Gift (estate) tax charitable deduction equal to value of charity’s right to receive payment. • Gift tax to the extent of the value of the remainder that will benefit non-charitable beneficiaries at the end of the term. • Very attractive for a donor who otherwise makes large charitable contributions, and would like to benefit his descendants with any appreciation on the assets. • Very attractive for a donor who has used much of their estate and gift tax exclusion. • VERY attractive with low interest rates!!! 26
Charitable Lead Trusts ď‚„ EXAMPLE:
In September 2020 Michelle transfers a $2 million to a charitable lead trust that will pay to a donor advised fund at the Hawaii Community Foundation a 10% annuity for 10 years. The donor advised fund will receive $200,000/year. If the trust grows at 6%, at the end of 10 years there will be approximately $787,000 remaining for the donor’s family, free of gift and estate tax. However, due to the low interest rates in September, the taxable gift is approximately $35,740. So with very little use of gift tax exclusion, the donor has given $2M to charity and left $787,000 tax free to her family.
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Questions?
MAHALO
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Disclaimer Neither the Hawai`i Community Foundation nor its representatives engage in the active practice of law. The purpose of this presentation is for educational purposes only and is being provided with the understanding that the authors are not engaged in rendering legal, accounting or any other professional services. Due to the rapidly changing nature of the law, information contained in this presentation may become outdated. Thus, this presentation should not be utilized as a substitute for your own research and analysis to update the information and ensure accuracy. If legal advice or other expert assistance is required, the services of a professional should be sought. The authors specifically disclaim any liability, loss or risk incurred as a result of the use and application, either directly or indirectly, of any advice and information contained in this presentation, whether or not negligently provided. All examples, illustrations, tips and recommendations are suggestions only, and changes must be made depending on the specific circumstances in each case. Any federal tax advice contained in this communication (including any attachments or enclosures) is not intended and cannot be used for purposes of avoiding penalties imposed by the IRS or to promote, market, or recommend to another party any tax related matter(s) addressed herein. Š 2020 Hawaii Community Foundation
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