What You Need To Know About Conduit Trusts

What You Need to Know About Conduit TrustsMuch has been written about use of a testamentary charitable unitrust as a technique to mimic the deferral aspects permitted under pre-SECURE law. Before concluding whether or not such a statement is true, there needs to be understanding of how noncharitable trusts can be beneficiaries of an IRA account.

Taxpayers sometimes create “look-through,” “pass-through” or “conduit” trusts. Prior to the SECURE Act, a properly drafted trust could use the life expectancy of each beneficiary to determine the amount of required distributions. If the trust were defectively drafted, the trust was required to pay the account out under the five-year distribution rule. After the SECURE Act, this strategy needs to be reassessed. Since many (if not most) conduit trusts provide for payment of the required minimum distribution to a non-spousal beneficiary each year, they would not need to make a distribution until ten years have passed.

Not only would the entire account be taxed in year ten to the beneficiary, the settlor’s original intent likely would be frustrated since the funds would be available to creditors. Given this result, many estate planners and their clients are looking to preserve the spendthrift protection of a trust yet continue the income tax deferral beyond ten years.

To understand the economics of conduit trusts and the trustee’s discretion to distribute more than a required minimum distribution amount, it is essential to understand the fundamental income rules for the taxation of trusts.

Small amounts of taxable income retained by a trust generate tax at highest marginal rate

The undistributed income of the trust is taxed at 37% on taxable income as low as $13,050. That is dramatically less than the entry point for the 37% rate on single ($526,600) or married filing jointly ($628,300) taxpayers. The 3.8% income tax on “net investment income” also applies at $13,050 which again is dramatically less than the entry point for individuals ($200,000) and married filing jointly ($250,000). These rates schedules for trusts discourage the accumulation of income. Let’s examine ways of managing the tax bite through the “distribution deduction.”

The basic tool for avoiding taxation on trust income: the distribution deduction

Fortunately, the Code allows a way to avoid the double taxation of distributed income. Trusts are allowed a deduction for what is distributed to its beneficiaries provided the trust instrument permits or mandates distribution. Only when there is income retained by the trust is it subject to income taxation. The distribution deduction is available to the extent the distribution carries out Distributable Net Income (DNI). So the trustee uses this provision to have income taxed at the likely lower rates of the beneficiaries. Whether or not the trustee is able to execute this income shifting strategy depends on how the trust is drafted.

The trap for the unwary: the “separate share rules”

The “separate share rule” applies to a trust that is allocated into separate shares which are functionally equivalent to separate trusts. The result is favorable to the beneficiaries if they both receive and are taxed on their share of DNI.

When a trust subject to the separate share rule receives an IRA distribution, the resulting gross income generally must be allocated proportionately among the shares—regardless of who it is actually paid out to—for DNI purposes. The result can be beneficiaries being taxed on “income” they have not received.

Example

Francine leaves her IRA to a trust that is to be paid on her death in equal shares to her daughters, Ann, Betty and Cathy. The trust has DNI of $60,000. The trustee cashes out the $60,000 IRA and distributes it to Ann in the current year because of her deductible losses from a business. Later in the year, the trustee plans to distribute assets to Betty and Cathy to equalize distributions. What is the tax result? Since the trust instrument permitted equal allocations to the beneficiaries, Betty and Cathy are deemed taxed on $20,000 they each did not receive! In effect the DNI rules treat Ann, Betty and Cathy as each receiving a third of the DNI.

Trust and retirement planning

In my next post, I will explain further the complications of qualifying for the distribution deduction. The planning, drafting and administration of a trust receiving an IRA requires great care to reach desirable results and avoid unintended taxation.

By Professor Chris Woehrle, Chair & Professor of Tax & Estate Planning Department, College for Financial Planning, Centennial, Colorado

 

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5 Ways To Show You Appreciate Your Donors (Beyond a Thank-You Note)

Five Ways to Show You Appreciate Your Donors

 

A donor’s impact on an organization is not only influential—it comes from a personal connection. Many donors give because they are passionate about the work and mission of your charity. Donors deserve appreciation for their generosity through a meaningful thank-you. Here are five impactful and creative ways to show your donors how much you appreciate them.

  1. Donor Profiles in Your Communications
  2. Donor profiles are a meaningful way to share their stories and what led them to give to your organization. A donor story in a newsletter, for example, will make donors feel recognized and valued, and others will be inspired by their legacy. Also, including donor profiles on your website can help it reach a larger audience. Donor videos are an appealing way to show why they support your mission—in their own words.

  3. Personal Thank-You’s
  4. Recording a short thank-you video is a personal touch that will engage your donors and show the hard work of your dedicated supporters. The script for the thank-you video doesn’t have to be lengthy. In the first few seconds, simply address the donor by name, acknowledge and thank them for the specific gift and then explain what impact the donor will have by making this gift. Demonstrate gratitude and explain the next steps if there are any. Studies show that—compared to emails–video messages lead to 50% more repeat donations.

  5. Donor Appreciation Events
  6. Invite your donors to an event to recognize their support for your mission. This event is a way to express gratitude for their continued support by showing them how much they mean to you. Inviting a keynote speaker that will pique their interest is also a great way to encourage donors to attend.

  7. Personal Visits
  8. Personal visits with donors are not as easy these days with busy schedules and continuing social distancing, but it’s important to make an effort to see your most loyal supporters in person for some quality one-on-one time. Maintaining a personal relationship with your donors fosters a deeper connection and appreciation for your organization.

  9. The Tiered System of Recognition
  10. Thanking your donors by assigning them to a tiered system of recognition is a gift of new connections! For example, St. Jude Children’s Research Hospital set up donation recognition tiers. Everyone in the first tier, Partners in Hope, gives a monthly donation of $5 or more. St. Jude plans recognition events or volunteer opportunities for the different levels. This brings donors together to meet new people and is a creative way to thank them for their generosity.

While we should all send a thank-you immediately after receiving a donation, don’t let that be the only time they hear from you. Ongoing contact can establish a meaningful connection between you and your donors, so consider these five options the next time you receive a gift.

By Jana Lawyer, Senior Consultant

 

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Noncharitable Trusts as a Source of Charitable Funds!

Noncharitable Trusts as a Source of Charitable Funds!Section 642(c) of the Internal Revenue Code clearly describes the requirements for a trust to deduct any charitable distributions. A trust can deduct for “any amount of gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in Section 170(c).” The trust must explicitly be permitted under the document to distribute to charity. So if a trust lacks language naming a charity as a current or contingent beneficiary, does that mean a charity may not receive a distribution from assets of the trust? Surprisingly the answer is an emphatic no. Three practical solutions are use of the HEMS standard, limited liability companies (LLCs) and decanting.*

1. HEMS standard

Distributions from a trust pursuant to the health, education, maintenance and support of the beneficiary not only keep the assets from the gross estate of the beneficiary but also create a flexible standard. Could philanthropic giving be considered part of the beneficiary’s support? The most persuasive argument for allowing such a payment would be maintaining the beneficiary’s lifestyle which includes philanthropy. A thoughtfully drafted trust could specifically state that charitable giving is included in the HEMS standard. The fiduciary and beneficiary must, however, be alert to avoid inclusion of income from the discharge of a debt (pledge payment) pursuant to Section 108 of the Code.

2. Use of LLCs

Though a trust lacks charitable beneficiaries, its trustee(s) could contribute assets to a newly created LLC. Assets going into the LLC could be then distributed to charity. The trust would be the sole member of the LLC, and the deduction would flow through to the trust.

The trustee, of course, should fully disclose this plan of using the trust as an intermediary and confirm the agreement of the non-charitable beneficiaries. Because trusts reach the highest marginal tax rate at much lower dollars of taxable income than individuals ($13,050 in 2021), the deduction would be more valuable than if made by individuals.

Example

The ABC Trust (Trust) begins 2021 with a fair market value of $1,000,000. The corporate trustee projects it will earn about $14,000 in interest and qualified dividends. Its sole beneficiaries are Henrietta and Harold, who are equal beneficiaries of the Trust. Henrietta and Harold presently are in the 32% bracket, with sufficient income in 2021 to meet their financial goals. The trustee distributes some of the Trust into the ABC, LLC (LLC), whose sole member is the Trust. Henrietta and Harold remain the beneficiaries as before. The charitable distributions of the LLC follow through the Trust. So the Trust’s charitable contributions reduce its taxable income. The Trust now has a way to avoid paying the highest marginal rates on any accumulated income. A carefully designed trust could specifically state the discretion of the trustee to fund a limited liability company with trust assets.

3. Decanting

The irrevocability of a trust is not a barrier to its modification. One such technique of modification is decanting. Decanting is a method resulting in the trustee changing the terms of the trust by distributing the original assets of the trust to a newly created recipient trust. Most states give a trustee a right to decant based on either the terms of the trust, state law or judicial precedents. The decanting statutes of some jurisdictions permit addition of new beneficiaries, including charity, if the trustee has absolute discretion.

Notwithstanding the growing use of decanting in some states, the guidance from the IRS on the income, gift, estate and generation-skipping consequences will not be forthcoming. Pursuant to IRS’s continuation in Rev. Proc. 2019-3 of Rev. Proc. 2011-3, decanting is an area “under study in which rulings or determinations letters will not be issued.” The IRS explicitly lists it will not rule on whether the decanting distribution is a taxable gift, triggers the loss of the GST exempt status or whether the decanting qualifies as a distribution deduction under Sec. 661 or is an inclusion of gross income under Sec. 662.

If properly structured, the decanting should not trigger adverse income and transfer tax consequences. In a future post, I will show the tax traps that may (or may not) be avoided or managed.

By Professor Chris Woehrle, Chair & Professor of Tax & Estate Planning Department, College for Financial Planning, Centennial, Colorado

 

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* For a detailed examination of these and other techniques, see Kim Kamin & Kirk Hoopingarner, “Charitable Giving with Non-Charitable Trusts,” Trusts & Estates (October 2021), pp. 38-44.

Flexible Deferred Gift Annuity in Retirement Planning

Donors and board members looking for new ways to support charity need look no further. The flexible deferred gift annuity offers several key benefits.

First, charitable gift annuities allow unlimited contributions to enable a donor to meet current and future income needs. The IRS regulations limit contributions to IRAs, 401(k)s, 403(b)s and other retirement plans including those makeup provisions for people over 50. The creation of one or multiple flexible deferred gift annuities is not constrained by those limits.

Second, a donor can create a deferred gift annuity that maximizes their current income-tax deduction while retaining the flexibility to elect payments earlier than may be planned.

Third, a flexible deferred gift annuity provides “protection” should an income need arise due to some unforeseen emergency or an important life event.

Additionally, a donor facing an uncertain future event (such as placing a relative in an assisted living facility or helping someone with in-home care) can use the flexible deferred gift annuity like a “flip” arrangement which enables them to elect the payments to start if or when the need arises.

Example:

Jane Maximus, a 60-year-old corporate executive and a board member of the charity, has extra resources to supplement her retirement income. She needs more income-tax deductions, and she appreciates the charity’s work in the community. However, she also has an 80-year-old mother who may need assisted living in about five years. With the flexible deferred gift annuity, she can manage all the above!

Jane considers creating a two-life flexible deferred gift annuity using $150,000 cash and wants the option of electing the additional payments beginning at age 65 (or her mother’s age of 85). She sets a target date for the deduction of 10/31/2031 with a start date for elective payments of 10/31/2026. For her gift, she will receive an income tax charitable deduction of $82,286. Since she itemizes, she may be able to deduct this gift amount up to the limit allowed against her adjusted gross income (with a five-year carry over of any excess amount).

What goals can be met for Jane?

  • Jane will know she has met part of her charitable giving goals and has a large deduction to use against her current income.
  • Should her mother need help with assisted living costs, Jane can elect the payments to begin as early as 2026.
  • Should Jane pass away, her mother can elect the payments whenever she needs them.
  • Should her mother pass away, Jane can elect the payments for her retirement needs be delayed until 2041 when she reaches age 80.
  • Jane may elect to rescind her payments from the flexible deferred gift annuity to meet more of her charitable giving goals and would receive an additional income tax deduction for that gift.

Since Jane is making a gift for her mother for the value of her mother’s interest that is in the future, she would need to retain the right to revoke her mother’s interest in order to avoid the gift tax consequences.

Most importantly, the charity now has established a long-term relationship with Jane, which opens the door for additional giving opportunities provided the charity stewards the relationship over the years. If larger payments were needed beginning in 2026, Jane could choose that alternative and receive a smaller income tax deduction.

Here is the chart to show the results of her gift. Flexible Deferred Gift Annuities Table

The flexible deferred gift annuity gets very little publicity, but in some conditions, it may be an outstanding option for giving. Learn more about flexible deferred gift annuities from our previous blog posts:

By Lewis von Herrmann

Flexible Payments From Flexible Funding

A flexible gift annuity permits payments to be deferred until a commencement date of the annuitant’s choosing. A schedule of possible start dates with payment amounts is created when the annuity is funded. The longer the deferral of commencement, the greater the annuity payments. The income tax deduction will be based on either a set target date or the earliest possible date payments could begin. Let’s examine the two broad ways of structuring the flexible gift annuity.

Technique 1 – Flexibility with a single lump sum gift

Dorothy Deferral is 66 years old and the owner of a successful management consulting company. While enjoying her position, she knows no one works forever, regardless of how much their work fulfills them. While she would like to work to age 74, Dorothy believes 70 would be the earliest likely time to retire and the latest point for receiving the maximum Social Security benefit. Pandemic-related spending and deficits convince her inflation is likely to be much higher than it has been in the last 20 years. She intends to begin traveling extensively for her favorite charity during retirement and wants to supplement her retirement income as soon as she retires.

A flexible gift annuity could be structured to meet this plan with a minimum deferral of four years and a maximum of eight. In fact, the range of deferral periods can be whatever a donor deems useful within a maximum of a 20-year deferral.

 

Flexible Payments From Flexible Funding Technique 1 - Lump Sum Payment

 

If Dorothy is willing to delay the payments to age 74, the annuity increases by $1,200 ($6,400-$5,200), an increase of 24%. The major disadvantage of a single gift flexible annuity is she must make a $100,000 gift to create the flexible gift annuity.

Technique 2 – Flexibility with a series of “step” gifts

After consulting with her advisors, Dorothy asks to review how a flexible annuity would work if the same gifting amount of $100,000 creates five agreements using five (5) equal installments.

The notable difference would be the income from all the annuities once elected would be $5460, which is less than $6,400 from the lump sum arrangement. The reduced income will be attractive enough to Dorothy because she is not losing access to the principal of $100,000 at once. Should her financial plans or philanthropic objectives change, she need not make any additional installment gifts.

Flexible Payments From Flexible Funding Technique 2 – Flexibility With a Series of “Step” Gifts

Documentation

Dorothy decides the simplest approach would be to execute multiple agreements for the five flexible gift annuities she funds.

Target audience

Donors can coordinate the election of the annuity payments with their other retirement income sources based on their unique lifestyle plans. Also, the flexible gift annuity offers a way for those who have maxed out their contributions to regular retirement plans to expand their retirement income further while achieving their charitable goals. More on this in a future blog.

One additional group could be those donors with bequest intentions. Many of your legacy society members often have the capacity to make lifetime contributions but are reluctant to do so out of an abundance of caution. The flexible gift annuity provides an income stream to your supporters if needed. The charity has not only the certainty of result of the commitment but also the potential for donors to give more in the future through their estate.

By Professor Chris P. Woehrle, JD, LLM and Lewis von Herrmann, Senior Consultant

 

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Year-End Marketing: The Clock is Ticking

Year-End Marketing: The Clock Is Ticking With Dec. 31 right around the corner, another calendar year is drawing to a close. Traditionally, the final quarter is the most generous time of the year for charitable giving. Many charitable organizations receive between one fifth and one quarter of their yearly gifts in December alone!

In addition to your other fundraising activities, you may wish to provide your donors with information about your mission and the importance of gifts, especially in times like these. These special appeals may be spread out over the final quarter and include a variety of contacts, including personal visits (when practical), virtual visits via Zoom or video conferences, personal phone calls and text messages, as well as traditional direct mail, online appeals, mobile outreach and special events (or nonevents).

This year, you will want to inform your donors about how the CARES Act and the SECURE Act continue to impact their charitable giving in 2021 with quick updates such as:

  • Gifts of cash have special benefits again this year. For example, a bonus deduction of up to $300 individuals/$600 couples is available for cash gifts to public charities, offering savings for taxpayers who don’t itemize. Another tax benefit available this year is the usual limit on deductions for cash charitable gifts (up to 60% of AGI) is suspended, meaning taxpayers are allowed to claim 100% deductions on their 2021 tax returns.
  • Last year, the SECURE Act permanently increased the age for required minimum distributions from retirement accounts from 70½ to 72.
  • Also, the CARES Act waived required minimum distribution for 2020.There is no longer a required minimum distribution waiver for 2021; anyone age 72 or older as of Dec. 31, 2021, must take their required minimum distribution by year-end to avoid the 50% penalty―unless this is their first required minimum distribution, in which case they have until April 1, 2022.

Sharpe Group has a variety of resources available to help you communicate these and other advantageous ways to give at year-end, including donor data enhancement services and digital and print communication materials to assist with special targeted appeals or campaigns for larger gifts such as stocks, cryptocurrency and qualified charitable distributions from retirement accounts. For more information, download our complimentary Year-End Fundraising Toolkit or contact us at 800.342.2375 or info@SHARPEnet.com.

By Kristin Croone, JD, Sharpe Group Senior Consultant

 

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How to Be Fixed and Flexible During Inflationary Times

Introduction

The price index for American consumer goods rose at an annual rate of 4.2% for the month ending in July. This is the fastest pace since January of 1991. While Fed Chairman Jerome Powell believes the inflation spike is temporary, now might be an appropriate time to examine how an inflationary environment would impact the attractiveness of charitable gift annuities.

At first blush one might conclude the charitable gift annuities would be unattractive. As the chart below demonstrates, the purchasing power of the fixed payments would be meaningfully diminished even over short periods of time. But is there a way for an annuity agreement to provide a fixed payment yet be flexible enough to respond to inflationary environments?

Hedging against inflation using a flexible deferred gift annuity

In a conventional deferred charitable gift annuity, the start date for the payments is determined at the creation of the agreement. The flexibility in the flexible deferred gift annuity arises from the agreement offering a range of times for when the first payment starts. The longer the deferral of commencement, the greater the amount of the payments. The cost of this flexibility comes in the form of a smaller income tax deduction, which must be based on the smallest deduction amount allowed under any of the permissible payments. This cost may be more than reasonable to be borne to afford the opportunity for the highest payments, which are especially attractive in an environment of rising inflation.

 

How to Be Fixed and Flexible During Inflationary Times

 

In Private Letter Ruling 9743054 (Oct. 24, 1997), the IRS issued a favorable determination letter to a deferred annuity with a to-be-determined starting date. The arrangement permits a 60-year-old annuitant to elect payments to start no earlier than age 61. Once a donor begins the payments, the annual payment would be based on her age under the pre-existing tables incorporated as part of the annuity agreement. The charity was required to provide the donor-annuitant a calculation of the charitable tax deduction based on the maximum possible noncharitable value of the annuity.

Some planners were concerned that the ability to elect the start date of the income meant the annuitant was in “constructive receipt” of income from the earliest possible date of receipt. Private Letter Ruling 200742010 (Oct. 19, 2007) plainly stated that “no amount will be constructively received by the annuitant until the annuitant actually begins receiving payment.”

Example

Patricia Philanthropic is 57 and hopes to retire at 70, as she enjoys her work as a data scientist. She would like to support her house of worship “at some point before I die.” Her tax advisor recommends a flexible deferred gift annuity. The first payment could start as soon as 70 with a range of payment dates between age 65 to 85 (20-year maximum requirement). If she decides she needs the payments before age 70, she will receive payments, albeit reduced, to reflect her age at commencement of payments. She could even defer payments to 85 and receive a high payment to reflect the length of the deferral. In all cases, the income tax deduction will be based on the target start date of age 70.

The likely market

For the philanthropically inclined, the flexible deferred gift annuity might be coordinated with the retirement-income planning of the donor. Any high-earning professional participating in a qualified plan knows that all of their working income will not be replaced with their qualified plan benefit, and many have maxed out their retirement plan participation. ERISA imposes a cap known as the “covered compensation limit.” For example, only the first $290,000 of compensation is considered. A flexible deferred gift annuity might be a way to address at least a portion of the shortfall. Further, there is no maximum contribution limit imposed on the creation of charitable gifts, including those to create any form of gift annuity, such as the flexible deferred gift annuity.

Future planning

Since the letter rulings did not specify a minimum starting age for payments, the flexible deferred gift annuities afford additional opportunities in creative gift planning.

In my next blog, I will be suggesting other possible uses of the flexible deferred gift annuity and some of the design options which can enhance its philanthropic impact.

By Professor Christopher P. Woehrle, JD, LLM

 

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Making Inertia Work for the Worker

Nudge theory suggests positive reinforcement and indirect suggestions can influence the behavior of an individual. The concept became mainstream with the 2008 book “Nudge: Improving Decisions About Wealth and Happiness” by professors Richard H. Thaler and Cass R. Sunstein. They argued that more people would have more saved for retirement if employers created default retirement options for employees. Though employees could adopt any plan they choose—or opt out altogether—they would automatically be enrolled in the default plan. In other words, it would require action to leave a plan.

Changing incentives at the federal level

In my blog post dated August 20, 2021, Encouraging Americans to Save Act, I reviewed the proposed reforms to the saver’s credit and how a federal matching contribution for certain middle- and low-income employees would work. The Treasury would need to coordinate it with state and local efforts to enroll workers into retirement savings plans. Additionally, the Secure Act of 2019 made it easier for small businesses to “band together” to offer sec. 401(k) plans through pooled employer plans.

New incentives at the state level

There are extremely promising retirement income security reforms emerging at the state level. Oregon, Illinois and California have launched auto-IRA programs, which require most employers without qualified plans to enroll their workers. These privately managed plans are Roth IRAs with the ability to opt out of the Roth IRA option. All three states have a default contribution rate of 5% of compensation. California has an escalating percentage of 1% per year to up to 8%; Oregon’s is up to 10%. Employees may elect out of the higher percentages. Illinois’s plan lacks an escalating contribution rate.

A recent Pew study of the programs in California, Oregon and Illinois suggests that auto-IRAs appear to complement the private sector market for retirement plans such as the 401(k). In analyzing the annual filings of employer-sponsored plans in states with auto-IRAs, it appears employers continue to offer qualified plans (see Figure 1). Those employers without qualified plans are adopting new ones at rates as high or higher than before the creation of a state option. There is not any evidence these state programs are “crowding out” the private market. Nor does there appear to be any increased termination of existing plans (see Figure 2).

 

Data shows share of new plans steady or up after state-sponsored savings options enacted

 

Little change nationwide or in states that enacted auto-IRA plans

 

Importance of multiple venues to save

The efforts at the state and federal levels to provide default vehicles represent yet another policy prescription to reduce the “access” gap of an estimated 57 million private-sector workers. Reduction of that gap is needed to improve the retirement income security of many who are presently unprepared for retirement.

Pew Research studies show that if employees are “nudged” through positive reinforcement and indirect suggestions by their employer, they are 15 times more likely to save for retirement. These incentives aim to prepare the unprepared for retirement without negatively affecting the private market, and in the long run, will directly reduce wealth inequality and allow communities of color and other historically underrepresented communities to build capital through an individual account retirement plan.

By Professor Chris Woehrle, Chair & Professor of Tax & Estate Planning Department, College for Financial Planning, Centennial, Colorado

 

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5 Things To Consider Now for the 2021 Year-End Season

5 Things To Consider Now for the 2021 Year-End SeasonThe final three months of the year are traditionally the busiest for fundraisers at charitable organizations, and now is the time to prepare. Many nonprofits receive between 30% and 40% of their yearly gift total during the final six to eight weeks of the year. Understanding how and why people choose to give at this time can help you make the most of the season. In this blog, I will cover the most important things to consider now, so you are ready for year-end.

5 Things To Consider Now

  1. An Effective Year-End Campaign
  2. This usually includes a targeted mailing as well as other means of communication. Send donors brochures, postcards, inserts in scheduled mass appeals or newsletters that detail ways to give this year. Utilize your website for fundraising and provide detailed information about giving to your organization. Be sure that your website is clean, user-friendly and up to date, especially for donors who choose not to give via an online portal. Your website should clearly outline ways to give, how to give and who to contact.

  3. Important Dates for Year-End Marketing
  4. Messaging and timing are critical to the success of your year-end campaign. A few important dates to keep in mind are:

    • National Estate Planning Awareness Week is Oct. 18-24. This week offers an opportunity to partner with estate planners in your area to educate your donors about charitable bequests and other planned gifts that offer income and other financial benefits.
    • National Philanthropy Day is Nov. 15, which is designated to shine the spotlight on volunteers and donors.
    • #GivingTuesday comes on Nov. 30, shortly after Black Friday and Cyber Monday, on Nov. 30. #GivingTuesday encourages donors to add their favorite charities to their gift list.
    • And lastly, Year-End, Dec. 31 is the charitable giving deadline for the roughly 20 million taxpayers who itemize charitable gifts and is traditionally one of the most popular days of the year for online and direct mail gifts.

  5. Cash Gifts
  6. Making online contributions and giving by cash or check are the most common ways to make charitable gifts and are key components of most year-end campaigns. This year, gifts of cash have special benefits. For example, a deduction of up to $300 is available for cash gifts to public charities ($600 for couples), offering tax savings for taxpayers who don’t itemize. Also this year, the usual limit on deductions for cash (up to 60% of AGI) is suspended, meaning taxpayers are allowed to claim unlimited deductions on their 2021 tax returns. Remind your donors that mailed checks should be postmarked by Dec. 31 or direct them to your online giving portal for a quick and simple gift.

  7. Other Giving Options
  8. Include communications that highlight the benefits of noncash gifts such as stocks or mutual funds, gifts through a will or living trust, or making a qualified charitable distribution through a retirement plan. By taking the time to present an opportunity for donors to carefully consider what to give, you can help ensure their gifts are made in a timely manner and in the most effective and tax-efficient ways.

  9. Thank Your Donors
  10. This is an important step in any giving campaign. Sending an email, making a call or writing a letter thanking a donor can go a long way toward building a relationship. However you choose to thank your donors, be sure to provide insight on how their donation will help your organization by explaining your goals and anticipated accomplishments for the upcoming year. Following up with donors is also an opportunity to suggest other beneficial ways to give that increase income, provide for others, reduce taxes or memorialize a loved one.

By Jana Lawyer, Senior Consultant

 

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Sharpe Group 2021 Year-End Brochures

What Happened to Wealth During the Pandemic?

Spring falls in 2020

The global pandemic sent shockwaves through the economy and led to a major stock market correction and recession in the spring of 2020. The U.S. GDP fell 33.1% during the second quarter of 2020. Many would expect the overall number of wealthy Americans would fall significantly. Initial reports indicated this was indeed the case as the population sheltered in place and stock markets fell, along with commercial and residential real estate. As the pandemic worsened, things looked bleak.

Disaster averted

Prompt action by the federal government, including the U.S. Treasury and Federal Reserve, cushioned the fall, and the markets regained confidence in a low-interest-rate environment. The resulting increase in asset values led to larger gains in household wealth in the U.S. with much of those gains accruing for the affluent and wealthy population.

Record numbers of millionaires

Wealth reports by Credit Suisse and Spectrem indicate that the number of affluent and wealthy Americans is at an all-time high and expected to grow. At the end of 2020, the estimated number of Americans worth at least $1 million was estimated to fall between roughly 14 million and 22 million. The chart below depicts those numbers from the end of 2019 (before the global pandemic) until the end of 2020 (after the wealth recovery). Some people permanently fell from the ranks of the wealthy in 2020, but others replaced them by buying stocks, real estate and other assets at bargain prices.

 

What Happened to Wealth During the Pandemic? Number of U.S. Millionaires Table

 

The Credit Suisse Research Institute Global Wealth Report included the value of the households’ primary residence and other assets and estimated that the U.S. was home to 22 million, or 39.9%, of the world’s millionaires. Furthermore, their study projects the number of U.S. millionaires will grow more than 25%, from 22 million in 2020 to more than 28 million in 2025.

 

What Happened to Wealth During the Pandemic? Number of Dollar Millionaires by Country 2020 (% of world total) pie chart

 

A bright spot for philanthropy?

We know 2020 was a challenging year for philanthropy, but according to the Giving USA Annual Report on Philanthropy for the Year 2020, charitable giving reached a record level with living individuals providing the greatest portion of total giving, despite the percent of individual donors falling to an historic low of 69% of total giving. The growth in the value of individual giving was driven by a smaller number of affluent donors making larger gifts.

While this may be a long-term challenge, in the short term, the number of affluent wealthy and ultra-high-net-worth individuals has grown, thereby increasing their capacity to give. Additionally, there is a very strong likelihood that income, estate and capital gain taxes will be increasing in the very near future. This may lead to the sale of assets, stocks, farms, businesses, etc. this year which will create charitable planning opportunities to reduce or eliminate taxes.

If you are not sure who your millionaires are, we can provide the latest wealth and income data enhancement information for your donor files. A Sharpe consultant can also help you understand who your likely donors are based on demographic information gleaned from the IRS, Sharpe studies and generational interests.

By Barlow T. Mann, General Counsel

 

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