Posted February 1st, 2004

Are Your Plans Being Deferred?

We have observed in recent months that some gift planners have postponed implementing various compo­nents of their gift planning marketing initiatives while they continue to wait for the passage of the CARE Act. Unfortunately for the nonprofits they represent, inactiv­ity may have led to a number of lost gift opportunities.

Time and again

In some respects, today’s situation is similar to the fund-raising environment in the late 1960s when devel­opment officers faced an uncertain future in light of a proposed major revision of the nation’s tax laws as they related to planned giving. The 1969 Tax Act eventu­ally codified the tax treatment of charitable remainder trusts, pooled income funds, and life estate agreements and changed a variety of tax rules affecting foundations and charitable giving. Despite the uncertainty gift plan­ners felt at the time about the changes and the result­ing lost gift opportunities, today the 1969 Tax Act is often cited as the seminal legislation in the creation of “modern planned giving.”

Today, gift planners anxiously await the passage of the CARE Act and other legislation intended to provide new incentives for charitable giving. As noted above, a number of nonprofits have put their marketing plans on hold while awaiting the passage of the new law. For some the delays began with the initial 1999 proposals to encourage charitable giving. More plans were affect­ed as gift planners followed the progress of charitable giving legislation dubbed H.R.7 in 2001. In 2002 things heated up on the legislative field and hopes were high for the passage of the CARE Act, which died yet another death in late 2002. The CARE Act was reintroduced in 2003, in addition to a new H.R.7, commonly known as the Charitable Giving Act. These legislative proposals were unable to be reconciled by the end of 2003, and now the battle is anticipated to be rejoined again this year.

Should we CARE?

The most popular incentives of the charitable giv­ing legislation currently under consideration include an expanded charitable income tax deduction that would allow a benefit for some non-itemizers and a provision for certain limited gifts from Individual Retirement Accounts. The non-itemizer deduction shapes up to be a targeted tax cut for persons that already make chari­table gifts as it provides a deduction only for gifts between $250 and $500. It likely will provide only a marginal incentive for those not already charitably inclined. The retirement plan provisions relate only to the IRA and exclude gifts from 401(k)s and other popu­lar retirement planning accounts, and will be subject to significant age and other limitations. Most taxpayers will be unaffected by the majority of the other provi­sions of the legislation as proposed. Other changes such as the 15% maximum tax on capital gains and dividends also serve to make deferred gifts funded from other types of property more beneficial from a tax planning standpoint.

Wait no longer

How many visits, calls, or other activities have been delayed awaiting the passage of this legislation? How much longer can the CARE Act delays be cited as a rea­son for lackluster planned giving results? It is difficult to say, but one thing is certain—the lost opportunity cost has in some cases been tremendous while others who have forged ahead have experienced double-digit increases in gift annuities and other planned gifts.

While everyone hopes that this will be the year for new charitable giving incentives, your program should not revolve solely around legislation that may or may not be passed—and whose final content may provide weaker-than-anticipated incentives. Instead, make your plans in light of your current surroundings and circum­stances. Then put your best foot forward to implement them.

Remember that you can always “write around” proposed legislation as Sharpe editors have done and include contingency plans in case the legislation passes. In the meantime, recognize the impact of tax legislation that has already passed (both in 2001 and 2003), keep in mind the changing economic environment, and plan your activities accordingly. This approach will help to maximize your organization or insti­tution’s success in 2004.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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