Stock Market Zooming Toward a Securities Giving Boom or Bust?

Stock exchange graph background

Last week the Dow Jones Industrials Average closed at over 20,000 points, a record high that was inconceivable eight years ago. Back in March 2009, the Dow had fallen 54 percent in 17 months, from over 14,000 in October 2007 to just over 6,500. Last week, the Standard & Poor’s 500 and the Nasdaq Composite indexes also reached record closings. With the stock market and household wealth at record levels, possible tax cuts on the horizon and recent income and capital gains tax increases, there may never be a better time to promote current and deferred gifts with appreciated securities.

Did you know that appreciated securities are the number one source of noncash gifts, according to the IRS, or that the average stock gift is in the $55,000 to $65,000 range or more? Or that in some years the dollar value of securities gifts has exceeded the value of all charitable bequests in America?

If you are unsure about whether you are doing everything possible to support your mission as billions of dollars in stock gifts occur through the year, consider seeking guidance from one of our Sharpe Consultants to help you develop a fundraising plan or better promote your planned giving program through marketing. Click here to contact us.

Read more about securities gifts from these recent articles published in Give & Take:

“Gifts of Securities: How to Motivate Donors to Make These Gifts”

“So, a Donor Wants to Make a Stock Gift . . . What Comes Next?”

“In the Market for Gifts of Stock”

“Creative Ways to Integrate Current and Future Gift Marketing

Sharpe Group also offers print and electronic resources to help you educate your donors on making charitable gifts from securities.

You can learn more by attending one of our gift planning seminars, each of which includes best practices for guiding donors in giving securities. Click here for dates and registration information for our 2017 offerings: “An Introduction to Planned Giving,” “Structuring Blended Gifts” and “Integrating Major and Planned Gifts.”

by Barlow Mann

What Do Rising Interest Rates Mean for Charitable Giving?

Growth chart and prgresso leading to success

Perhaps we’re about to see.

In the early to mid-1980s, interest rates were high and gift annuities were out of favor. Why out of favor? Because a fixed payment rate less than the prevailing safe interest rate is a sure money loser. Rising interest rates, even if not yet “high,” ratchet down the value of a fixed payment rate. So, as we enter 2017, if interest rates continue to push upward, we should expect to see headwind for gift annuity marketing efforts.

The wild card is what happens to asset values—the values of stocks and real estate, in particular. If interest rates rise because of rising economic activity, perhaps asset values will inflate. A widespread anticipation of growing asset values would logically portend well for charitable remainder unitrusts and charitable lead annuity trusts.

Rising asset values also would raise the value of residuary bequests. Residuary bequests have proven to be the real pot of gold for some charities.

The challenge for development officers charged with marketing planned gifts is to avoid being whipsawed by some sort of run-up in interest rates or asset values followed by a sharp reversal. The best approach to marketing planned gifts always has been to steer a steady course focused on mission.

If you want expert advice on how to market planned gifts in today’s changing economic situation, be in touch with your Sharpe Group representative.

by Jon Tidd

Some Possible Tax Changes for 2017

With the legislative and executive branches of the federal government about to be under the control of one party, the time is growing ripe for a major tax bill.

Already there is much being written about a push for a lower top federal income tax rate. A lower top rate would diminish the tax savings produced by the charitable deduction, but it would also leave certain individuals with more money to give to charity (e.g., in the form of cash annual gifts).

There is also talk of repealing the alternative minimum tax (AMT). The AMT doesn’t target charitable giving, though it did for a time in the 1980s. But it raises a lot of revenue. The irony is that it raises this revenue largely from middle-income earners, not from the upper-income earners it was aimed at when introduced in 1969.

Whether lower tax rates will spur the economy is anyone’s guess. Lower rates conceivably will spur a lot of saving, which, according to economists, includes individual debt reduction.

It will be interesting to see how the states react to lower federal income tax rates. The states are hungry for revenue, some more so than others. Conceivably, some states will raise tax rates on high-income earners. Doing this, however, may simply cause a state to export a lot of its upper incomers.

We all need to stay tuned. In the meantime, you can click the links to learn more about the House Ways and Means Committee’s tax proposal and President-elect Trump’s tax proposal.

by: Jon Tidd

Let’s Look at Some Gifts That Are Not Deductible

An illustration of a US dollar bill folded into a paper airplane and thrown as related to frivolous spending or expensive debt with little or no return.

That is, not deductible for federal income tax purposes.

Gift of services – A gift of services (say, specialized investment or accounting services) may be valuable to a charity; but the value of the services is not deductible. The provider of the services may be awarded gift credit, of course. The IRS doesn’t care about that. Any related out-of-pocket costs incurred by the provider (such as cab fares and airline tickets) are deductible, provided the provider obtains the necessary gift receipt(s) from the charity.

Gift the use of an asset – We’re considering here an asset such as office space or an airplane. Same rule here as to related out-of-pocket costs, such as airplane fuel or catering costs; they’re deductible if substantiated. But the value of the use of the asset is not deductible.

Frequent flier miles – These aren’t considered an asset for federal income purposes. So, no deduction for donating them.

Government papers – These are an asset for purposes of the charitable deduction only to the extent the donor has a basis in them; which would be the case, for example, if the donor bought them at auction.

Non gifts – Sometimes what looks like a gift isn’t a gift; so it doesn’t qualify as a charitable contribution. Example: Money paid to charity pursuant to a plea bargain (not voluntary, so not a gift).

Gifts for which little or no deduction is allowedExample: Gift of a work of art by the artist. Charitable deduction is limited to cost of materials.

This area of giving can be tricky, because it’s easy to confuse gift crediting with tax deductibility. It’s important to understand that non-deductibility is not the same as lacking value. For more details, contact your Sharpe Group representative, or see IRS Publication 526.

by Jon Tidd

Let’s Review the Date-of-Gift Rules: Part 2

Credit Cards on Bank Statements

Read part one here.

Let’s continue, beginning with credit card gifts. Charities typically don’t know the date of gift for a gift via credit card. Why? Because the date of gift is the date the charge is posted to the donor’s account as shown on the credit card statement. This is the date the donor borrows money to give to charity.

Next, “gifts in kind.” What is a gift in kind? I don’t know; the term has no formal IRS definition. Let’s assume it means gifts of tangible personal property. The law here is a mixed bag. The decided cases mostly require actual physical delivery, or a tender (offer) of physical delivery, to the charitable donee. A deed of gift, all by itself, is generally no substitute for delivery (or tender of delivery) from donor to charity.

What about charitable remainder trusts (CRTs)? The law here appears to be clear; namely, that the date of gift is the date the donated asset comes into the possession or other control of the trustee.

Now for a tricky one, gift annuities. Given that gift annuities are contractual arrangements and that the donee organization is in control of the contract terms, this one shouldn’t be tricky. Yet many charities make it tricky in the case of a gift annuity funded with a check that is mailed by treating the date of gift as the postmark date. It’s far better, clearer and simpler in my view to treat the gift annuity as being established on the date the charity receives the check. Same in my view for stock-funded gift annuities.

It’s the busiest time of the year for fundraisers. We hope these tips help. Good luck with year-end gifts!

For more information, see IRS Publication 526.

by Jon Tidd, ESQ

Let’s Review the Date-of-Gift Rules: Part 1

calendar page with selected 31 of december,2016 marking with a ball point pen

Year’s end is approaching, bringing with it the potential for some sticky date-of-gift questions.

First, let’s be clear about what’s meant by “date of gift.” This is the date the gift is made for federal income tax purposes. There is only one such date (day). For this year-end, it’s going to fall into either 2016 or 2017. And for noncash gifts, it’s the valuation date. So, a lot may be at stake.

The date-of-gift rules are clearest for gifts of cash and gifts of stock certificates. A gift by means of a check (one form of cash gift) is complete on the date of mailing if the check is mailed to a charity, provided the check clears donor’s bank in due course. Note that the mailing date may be different from the postmark date. A mailbox rule, as it’s called, also applies to stock certificates mailed with necessary signatures. Mailing, by the way, means via the U.S. Postal Service.

If a check, stock certificate or cash is hand-delivered to someone authorized to accept gifts on behalf of the donee organization, the date of gift is the date of delivery.

If a private delivery service (PDS) is used to deliver the donated item, the date of gift is the date of delivery to the donee organization; unless the PDS has been engaged by the donee (as opposed to the donor) to effect delivery, in which case the date of gift is the date the item is transferred to the PDS (the theory being that here, the PDS is acting as the donee’s agent).

We need to discuss some other situations, including gifts by way of credit card, gifts “in kind,” CRT gifts and gift annuities. Which we’ll do next time.

By Jon Tidd



How Does State Law Affect Charitable Giving and Gift Planning?

Law books (Law Cases) on a shelf

A lot, a whole lot. Here are just some highlights:

  • Pledges: Whether the donor’s executor must honor the donor’s pledge to the extent it remains unpaid at donor’s demise.
  • Trustee’s obligation to provide information: Whether and to what extent the trustee of an outside-managed trust has a duty to provide information about the trust.
  • Charitable deduction: Whether the donor can get a state income tax charitable deduction.
  • Validity of will: Whether the document offered up to the probate court as the donor’s last will is valid.
  • Charitable IRA Distribution: Whether an individual who makes a gift from his or her IRA has to pay state income tax on the gift amount. New Jersey says he or she does.
  • Registering to solicit gifts: Whether a particular charity or type of charity must register with a state in order to solicit gifts within the state.
  • Gift annuity regulation: Whether and to what extent a charity must comply with the law of a state before soliciting gift annuities within the state.

These are just a few issue highlights. To be sure, a lot of charitable gift planning issues arise under federal law, especially federal tax law and, to an extent, federal securities law. State law, however, often cannot be avoided or safely ignored.

By Jon Tidd

IRS Publication 526: “Charitable Contributions”

Tax and credits concept. Getting refund from the income tax return. Calculator, glasses and black pen on financial documents

IRS issues publications on many tax topics. An especially valuable publication for charitable gift planners is Pub 526, “Charitable Contributions”.

Pub 526 is updated each year, so if you download it, try to get the most recent version.

Like all IRS publications, Pub 526 technically cannot be relied upon, in the sense that IRS is free in court or upon audit to disavow anything written in it. Nonetheless, Pub 526 is a good guide on settled, non-controversial issues.

One such cluster of issues deals with the date of gift for federal income tax purposes. Pub 526 provides in part:

Time of making contribution.

Usually, you make a contribution at the time of its unconditional delivery.

A check you mail to a charity is considered delivered on the date you mail it.

Credit card. Contributions charged on your bank credit card are deductible in the year you make the charge.

Note the rich detail in just these three sentences. The first sentence lays out the general rule of unconditional delivery, which applies for example to gifts of tangible personal property. The second sentence carves out an exception to the general rule for a check that’s mailed to charity. The rule here is that the date of gift is the date of mailing (by the US Post office and not other delivery or mail systems), assuming the check clears the donor’s bank in due course. The third sentence deals with credit card gifts. The date of gift here is the date the charge is made to the donor’s card.

Pub 526 needs to be read and interpreted carefully. Even so, it’s a useful guide for donors, gift planners and advisers.

by Jon Tidd

Can Assets in a Trust Be Used to Make a Charitable Gift?

This question arises all the time. How do we think about it?

The starting point is the trustee of the trust. The trustee holds legal title to all trust assets. That is, holds legal title for local law purposes. If the trust is revocable by its creator, the creator is deemed to own all the trust assets for federal tax purposes.

Wow. Already we’re deep in the weeds. But that’s OK.

We go back to the fact that the trustee holds legal title to all trust assets. That means if assets held in the trust are to be transferred directly from the trust to charity, the trustee will make the transfer.

Which raises this question: Does the trustee have authority to make the transfer? The answer to this question exists possibly in the trust instrument, possibly in local law. Which means we may have to look at both. Local law is unlikely to empower trustees to make charitable gifts, so that’s a very long shot. If the trustee is given power to make charitable gifts of trust assets, the grant of power almost surely will be found in the trust instrument (at least, that’s the first place to look).

The call here may need to be made by a lawyer familiar with both the trust instrument and local law. Local law may be silent on a trustee’s power to make charitable gifts but may provide rules for interpreting a trust instrument. That’s where the lawyer comes in.

If you’ve got a situation like this and are unsure how to go forward, contact a pro. Your Sharpe Group representative is a good place to start.


Let’s Look at the 1974 Jordan Case from Florida

In the shadow of the press surrounding Duke University’s recent suit against a donor’s estate (and subsequently dropping of said suit), we’ll look at another case that bears resemblance and how the courts ruled on it.

The 1974 Jordan Case is an important state court case on the enforceability of pledges. It arose because an individual made a pledge to a hospital, paid part of the pledge, then died. The hospital sought to recover the unpaid balance of the pledge from the individual’s estate.

The pertinent part of the pledge document was this:

In consideration of and to induce the subscriptions of others, I (We) promise to pay to Mount Sinai Hospital of Greater Miami, Inc. or order the sum of Fifty Thousand and no/100 dollars….

The language on which the Florida Supreme Court focused was:

In consideration of and to induce the subscriptions of others….

The court held that this statement, all by itself, did not constitute consideration for the pledge. Some courts in other states have held that such language does constitute consideration for a promise to make a charitable gift. But not the Florida Supreme Court in 1974.

So, according to the Florida Supremes, the only way the hospital could recover the unpaid balance of the pledge from the donor’s estate was to show two things: [1] that the pledge was made for a particular purpose, as opposed to general purposes; and [2] that the hospital actually relied on the pledge.

The pledge was not made for a particular purpose, and there was no evidence the hospital actually relied on the pledge. So, the hospital lost.

Takeaway: Pledges need to be drafted carefully with an eye toward the state law governing the pledge.

Reality: Many pledge agreements are cranked out using templates that need to be discarded.

By Jon Tidd