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Advising Your Clients on Philanthropy: Whither the Federal Estate Tax?


Advising Your Clients on Philanthropy:  Whither the Federal Estate Tax?

by Stephen C. Lande, Director

The Foundation of the Greater Miami Jewish Federation

Much has been written on the potential impact of tax reform on charitable giving. Many studies have concluded that, while those who contribute to charity are not solely motivated by tax considerations, no one associated with philanthropy would ever deny that the tax benefits of giving are a factor. We hear about a significant increase in the standard deduction, lower tax rates and the complete elimination of the federal estate tax. Your clients are hearing the same thing. Even in the current uncertain political climate, you don’t need to be an expert to know that change is coming.

From the charity’s perspective, increasing the standard deduction would mean that fewer taxpayers would itemize, so fewer would get a tax benefit from making charitable contributions. Lowering the tax rate would have the effect of raising the cost of philanthropy to the individual donor. Eliminating the estate tax would certainly simplify one of those age-old alternatives you have been presenting to your clients and we have presenting to our donors. How many times have we spoken about the three choices people have for the distribution of their assets when they die – their family, their favorite charity or Uncle Sam ?

One theory is any change that has the effect of reducing taxes – increased exemptions, lower rates or elimination of the federal estate tax – reduces the donor’s incentive to make a charitable contribution. The counter theory to that is any change with the effect of reducing taxes leaves more of their money at the disposal of donors, who might just chose to give some of it away. As counterintuitive as it might seem, experience tells us that saving taxes is not the primary motivation for our donors. I am reminded of a pithy observation usually attributed to accountants (no offense intended), which has been true at least since the early 1950s, something to the effect that, “It’s never cheaper to give your money away than it is to keep it.”

In point of fact, our donors have been less and less motivated by the estate tax for a very long time. In 1941, the top estate tax rate was 77% and the exemption was very small. Today, the top rate is 40% and there is a lifetime exclusion of $5.49 million. The Tax Policy Center estimates that while 2.7 million people will die in 2017, only 11,300 estate tax returns will be filed and estate tax will be owed by only 5,500, or about 0.2% of those decedents. Americans did significant philanthropy before the modern incarnation of either the income tax or the estate tax in the second decade of the 20th century. There is no reason to believe that will not continue.

How will the Greater Miami Jewish Federation and your clients’ other favored charities respond if the estate tax is eliminated? As always, we will be talking to our donors, your clients, suggesting they take advantage of their new freedom to distribute their assets at death without having to consider the estate tax consequences. We will also suggest that the elimination of taxes at death should make the lifetime giving opportunities we have been offering them even more attractive. After all, there will still be income and capital gains taxes to consider and if stepped-up basis goes away with the estate tax, there will be new planning challenges.

Charities will offer giving opportunities that provide the donors and their families with lifetime benefits, tax and otherwise. Charitable gift annuities and charitable remainder trusts, with up-front income tax deductions and payout rates often better than the investment markets, offer the opportunity to “do good while doing well.” Gifts of a remainder interest in a personal residence or vacation home also provide a substantial up-front income tax benefit, and the property is theirs to enjoy for as long as they choose. Life insurance policies, both newly issued and policies purchased long ago, but no longer needed, leverage the philanthropic impact of the gift and are very much tax-advantaged. The charitable contribution of retirement plan assets, both during life and at death, will continue to present an attractive option. While these assets will no longer be subject to estate tax, both the owner of the plan and his/her heirs will owe income tax on any distributions.

In summary, charities are optimistic that many committed Americans will discover that the elimination of the estate tax will broaden their horizons and provide a new potential pool of resources to pursue their philanthropic objectives.

The resources of The Foundation of the Greater Miami Jewish Federation are available to you and your clients, in complete confidence and without obligation, as you consider this and other issues related to charitable gift planning.  

The future of the federal estate tax will no doubt influence your clients as they seek to fulfill their charitable objectives in a tax-advantaged manner, inspire and engage the next generation of their families and create a lasting legacy. For more information, please contact Foundation Director Steve Lande at slande@gmjf.org, or at 786-866-8623, or consult JewishMiami.org.

Steve Lande is director of The Foundation of the Greater Miami Jewish Federation and serves as the Greater Miami Jewish Federation Authorized House Counsel. Before joining the Greater Miami Jewish Federation, he directed the Jewish Federation of Greater Pittsburgh’s endowment program for 18 years. A native of Iowa, Lande earned a law degree from Drake University and practiced law in Des Moines before joining the professional staff of the Jewish Federation of Greater Pittsburgh.

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