“Update on Planned Giving Tax Strategies”

Hampton Roads Gift Planning CouncilJanuary 8, 2015

Jennifer Pierson, Manager Estate, Gift and Trust Services

Items to cover

Comparing Planned Giving Techniques – 2013

Charitable Stats from 2013 and 2014 (mid year)

Charitable Giving Trends

Impact of “NEW” tax law on Planned Giving

Planned Giving TechniquesNumber of Vehicles Established and the % Change over 2012

Donor Advised Fund – 217,367 [5.7%]Charitable Remainder Unitrust – 90,380 [-1.0%]Private Foundation – 84,350 [7.3%]Charitable Lead Trusts – 6,480 [-.3%]Charitable Remainder Annuity Trusts – 13,660 [-6.5%]Pooled Income Funds – 1,230 [-7.2%]

Source: IRS and National Philanthropic Trust

Planned Giving Techniques – cont.Value (in billions) of Charitable Vehicles and the % Change over 2012

Donor Advised Fund – $53.7 [19.8%]Charitable Remainder Unitrust – $88.1 [3.4%]Private Foundation – $614.9 [5.7%]Charitable Lead Trusts – $26.8 [13.2%]Charitable Remainder Annuity Trusts – $6.2 [-3.7%]Pooled Income Funds – $1.2 [-2.4%]

Source: IRS and National Philanthropic Trust

Charitable Giving 2013 (billions)

Individuals - $241.32 72% Foundations - 50.28 15% Bequests - 26.81 8% Corporations - 16.76 5%

Total - $335.17 100%

Source: IRS & Giving USA Foundation

Charitable Giving 2013 – Change over 2012

Individuals - 4.2% Foundations - 5.7% Bequests - 8.7% Corporations - (1.9%)

Overall 4.4%*

Source: IRS & Giving USA Foundation*3.0% increase adjusted for inflation

Charitable Giving Sectors (Billions) - 2013

Religion- $103.89 [31%] Education- $53.62 [16%] Human Services- $40.21 [12%] Public Society/Benefit- $23.46 [7%] Health- $33.51 [10%] Arts, Culture, and Humanities- $16.75 [5%] International Affairs- $13.40 [4%] Environment/Animals- $10.05 [3%]

Individual Giving – % of Disposable Income (40 years)

Disposable Income – As defined by Bureau of Economic Analysis (US Department of Commerce)

1972 - 2.2%1982 - 2.0%1992 - 1.8%2002 - 2.2%2013 - 2.0%

Source: Giving USA Foundation

Individual Giving – 2013 Giving Trends

Last 4 Years – 12.3% increase since 2009 (end of recession)

Key Factors 95.4% of households give to charity Per capita by individuals - $1,016 Per US household - $2,974 As financial situations improve…so does giving

Source: Giving USA Foundation

Corporate Giving – 2013 Giving Trends

Decline – Slower growth in pre-tax profits

Corporate Giving as % of pre-tax profits = .8%

Source: Giving USA Foundation

2013 Giving Trends – Gift Recipient Educational gifts – most growth Religious giving remains slow

Declining affiliations Increase in religious-oriented charities

International affairs slowed Fewer disaster-relief contributions

Public-society benefits, arts, environment/animal, and health orgs All experienced growth

Source: Giving USA Foundation

Charitable Receipts – Mid 2014

Percentage or responding organizations reporting change in charitable receipts, mid-2014 compared with mid-2013

What Lies Ahead? Substantial growth in Donor Advise Funds (DAF)

gifts in 2013 +9.9% to Community Foundations Consistent with prior years Grant payouts continue to be HIGH >20%

Projections – DAF “will” continue to grow DAF grant-making at $10 to $53 billion in assets Private Foundations at $54.7 to $614.9 billion in assets

Source: NPTrust.org

Comparison of DAF and PFsDonor Advised Fund Private Foundation

Start-up Costs Nominal; Services provided by custodian

Substantive legal, accounting & admin.

Income Tax Deduction Limitation

Cash: 50% AGISecurities: 30% AGI

Cash: 30% AGISecurities: 20% AGI

Estate Tax Deduction 100% 100%

Excise Taxes None 2% of annual income

Required Distribution None 5% of average FMV annually

Donor’s Responsibilities Recommend charitable beneficiaries

Manage assets, keep records, prepare federal & state filings, select charities, administer grants & verify non-profit status

Public Exposure Donor may remain anonymous

Form 990-PF is public record

What Lies Ahead? – cont. Gifting of Different Types of Assets

Not been a common practice

Non-Traditional Assets Private equity interest Closely held entities Illiquid Hard to value

Real estate/Tangible property More frequently

Organization are advancing strategies

Source: NPTrust.org

2013 Estate Tax Return – Charitable Bequests

# of Returns - 10,568

# Charitable Bequest - 2,527

# of Virginia residence - 266

# of Charitable bequest - 63

Source: IRS

Estates and Trusts – 2001 to 2013

Total income increased $58 million (2003) to $175 million (2008) Declined to $87 million in 2010 $161 million in 2013

Types of Returns 2001 to 2013

• Complex trusts - 1.2 to 1.5 million annually• Simple trusts – 700,000 annually• Estates (Form 1041) – 400,000 annually• Grantor trusts – 600,000 annually (largest decline)• Bankruptcy estate, charitable trusts, etc. – 37,000 annually

Source: IRS (SOI)

Impact of Charitable Giving - Estate & Gift Tax

$14,000 Gift annual exclusion Exemption

$5.34 million for 2014 $5.43 million for 2015

Top Rate 40%

Portability Allows Surviving Spouse to use Deceased Spouse

Unused Exemption Many estates (2011, 2012 and 2013) filed returns in order

to obtain decedent’s exemption

Tax Rate Changes – “Continue” to Impact on Charitable Giving

Discretionary Trusts 2013 returns caught fiduciaries “off guard”

Top Rate 39.6% - > $ 12,150 Taxable Income (2014)

Net Investment Income Tax – 3.8% Big impact for capital gains

65 Day Rule

Individuals – 2015 Rates New 39.6% rate applies…

MFJ > $464,850 AGI Singles > $413,200 AGI HH > $439k AGI MFS > $232,425 AGI

Medicare 3.8% Surtax * applies… Taxpayers MAGI > $200k/$250k Net Investment Income

Supplemental Medicare Tax * .9% applies… Taxpayers MAGI > $200k/$250k Part of FICA (Hospital Insurance Tax)

* The Patient Protection and Affordable Care Act

Charitable Organizations 2013 – 1,536,084 charitable organizations in US

Public charities in 2012 Reported over $1.65 trillion in revenue Over $3 trillion in total assets

Source of revenue 73% - Program services 21% - Contributions, gifts & government grants 6% -Dues, event income, rental income, etc.

Foundations in US 86,192 in 2012 5.3% increase over prior year

Online giving 2013 increased by 13.5% Of all 2013 charitable giving – online giving represented 6.4%

Conclusion Charitable giving on the rise

Tax law continues to impact charitable giving

Focus on planning for the 3.8%

Thank you!!