Law Tips – Friendly Charitable Gift-Planning

This week in our Law Tips blog I am pleased to share a popular topic for this time of year: “How The IRS Can Be A Friend In Charitable Gift Planning.”  Sound unlikely?  Advice provided by one of ICLEF’s faculty explains how this is a very reasonable scenario.

Pamela Jones Davidson, J.D., is President of Davidson Gift Design, Bloomington, Indiana, a consulting firm specializing in gift planning, planned giving program design and implementation, and training. She is also a Senior Vice President for Thompson & Associates, offering estate planning services to nonprofits. Ms. Davidson offers her expertise for fellow lawyers advising their nonprofit clients during ICLEF’s seminar on “Representing Indiana NonProfit Organizations.” Pamela outlines several options for helping clients structure gifts under the IRS rules that are beneficial to charities and donors.   Following is a summary of her valuable tips on this subject.

Pamela reminds attorneys how the IRS regulations help charities every day in charitable gift planning:  They help us negotiate gifts that a charity really wants, that work to advance the donor’s goals, and help all parties avoid pitfalls. Charitable giving deductions are still intact, though vulnerable.  Currently, it is one, along with home mortgage interest, of the very few protected deductions.  There is no floor to charitable gifts except that one must be an itemizer to deduct the gift, and some ceilings pertain to the type of gifted property (cash vs. noncash) that can be easily planned for six total years to fully write off a charitable deduction.  And, a client can lose if their income level subjects them to the 3% phaseout of itemized deductions.

Charitable estate planning options may be the very best still available. This is true both for charity and in furtherance of the financial and estate planning objectives of many prospective and current donors. The issue is how you use these advantages presented by the IRS. These advantages can be found within pre-tax giving of charitable plans, charitable remainder trusts, gift premium reporting, fair market value, discounts for minority interests, capital gains savings….even appraisal and substantiation rules and UBIT implications can improve the gift.

In Ms. Davidson’s conclusion, she states that often the choice is charity vs. government. Giving does have cost to the family, but government takes the biggest loss from a variety of lost tax revenues. This is the golden opportunity to give locally to the community, for donor or family to oversee uses of funds, to memorialize and pay tribute to people they care about, to endow their much-needed annual support to a beloved charity, to make a lasting and meaningful difference, all while depriving Uncle Sam – a passion for some. And all this comes to pass while the donor determines how the gift is ultimately used.

The goal always of charities is education and awareness. They can be option makers. Charitable planning is one of the last, best planning options – last only because only now are they enjoying popular appeal by nonprofits and practitioners and prospects.  Charities can use IRS rules and regs as leverage with donors.  Require them to document better, be more realistic, face practical and business issues, e.g., if they can’t sell an item of real estate, why would they think charity could, and without liability and expense? The charity creates its own reputation for business, both from its own vantage and from the donor’s, in helping devise a plan to achieve many of the donor’s financial, estate and retirement planning objectives in an ethical and arms-length manner.

Advisers should call on charity (especially the more sophisticated like higher education foundations, hospitals foundations, community foundations) to help communicate, explain…especially if the gift is irrevocable.  More specialized knowledge, like discussing the tax implications of holding retirement plan assets until death without significant draw-downs, is an added benefit; but the donor’s practitioner should be involved, who represents the donor as a charity cannot do. Your role in the relationship – you can (and often should) check with an expert about the legal technicalities. Donors have come to rely upon charities as often the best source of information about charitable giving techniques. Advisers should too.   An enabling “can do” approach will be most effective, even possibly when the rewards to the charity initially seem remote.

This knowledge on our part as planners can, because of the tax code and IRS requirements, lead donors to the natural conclusion that a charitable gift can be attractive and appropriate in their own personal situations. It’s something they can do. The Model Standards of Practice for the Charitable Gift Planner and legal codes of conduct should be followed to guard against potential abuses, providing restraints on us as well as protection for donors.

The IRS is putting more burdens on the charity.  However, remember that the Service, too, is sometimes wrong, and that a rational argument, derived from reasonable interpretations and motivations, can prevail. It is good from the charity’s perspective to educate the donor, to make gift negotiation business-like. The charity should be thoughtful and deliberative, do its homework and carefully consider any and all gift proposals…actually even refuse some.

In Pamela’s final words to lawyers representing nonprofits, she amicably reminds you: Not all gifts are good gifts, which the IRS has helped charity protect itself against. IRS as Partner? What a Concept!!

I want to express our appreciation to Pamela Davidson for sharing her expertise in the charitable giving arena, specifically for reminding her fellow attorneys how to identify a more friendly IRS.

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If you would like to learn more about “Representing Indiana NonProfit Organizations,” ICLEF’s video replay of this six-hour CLE is scheduled for March 5, 9 and 20 in Indianapolis, Chicago and South Bend respectively.  The seminar offers thorough coverage of current nonprofit law from thirteen faculty participants.  If you are interested in the Video Replays, Online / On Demand Video or e-Publications, Click Here.

We appreciate you reading Law Tips.  Your comments are always welcome:  nancy@iclef.org or www.facebook.com/ICLEF.  Look for updates on Facebook or sign up for the RSS feed here on ICLEF’s website for the  “Law Tips Blog” as we continue to sift through the treasure trove of knowledge of our legal experts.

ICLEF • Indiana Continuing Legal Education Forum, Indianapolis, IN

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