New Tax Legislation Offers
Key Planned Giving Opportunities
As the calendar races toward the fall 2012 meeting of the Board of Trustees, we are all scrambling to find that next big gift. But even with the $1 billion goal of The Campaign for Syracuse University looming on the horizon, I'm confident we'll meet our goal—and exceed it! Why?
Because by using gift planning techniques, we've been able to sustain our fundraising momentum over the past two years despite the economic downturn. Did you know nearly $300 million of the $830 million already raised in the campaign has come from bequests, bequest expectancies, life income gifts, and other deferred and tax-advantaged gifts? It's clear that many of our donors are using gift planning to support the campaign to the maximum of their abilities.
Last year, many individuals put tax and estate planning on hold because of the uncertainty of the U.S. tax law. But in December 2010 Congress did something right, when the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law, finally offering some clarity to taxpayers and giving us the tools to use with donors that can make everyone a winner!
The two-year window to implement wealth transfer plans and take advantage of the new law is brief, but offers some tremendous benefits. The $5 million gift tax exemption and the $5 million generation-skipping tax exemption are two examples that can help close the really large gifts we've all been looking for.
Example #1
For those who are charitably inclined and who wish to provide future income for parents, siblings or friends (non-spouse individuals), donors may use life income gift arrangements to provide a gift to SU while also benefitting others.
In the case of a $500,000 gift annuity for the benefit of a 75-year-old sister, a donor would enjoy a $212,605 income tax deduction, but there would be a taxable gift of the remaining $297,395 to the sister. With the new $5 million gift tax exemption, the taxable portion of this gift is exempt! The sister would receive an annual annuity payment of $32,000—much of it tax-free.
Similar life income gift arrangements might provide educational support for children or grandchildren or guaranteed income for parents or special needs individuals. This is a great opportunity for donors to use highly appreciated assets to guarantee income to friends and family.
Example #2
The legislation also presents an incredible opportunity for high income taxpayers who wish to pass assets to children or grandchildren. The charitable lead trust offers an amazing opportunity to make significant gifts to support the University while passing large amounts to grandchildren, free of gift and estate taxes. The $5 million generation skipping tax exemption coupled with historically low AFRs present opportunities for wealth transfer to future generations that have not previously existed.
A great example recently appeared on the Planned Giving Design Center web page:
If, for example a donor funds a $10 million charitable lead annuity trust paying 5.5 percent for 10 years, he will be making a gift of $5.5 million at the rate of $550,000 per year over that time frame. The charitable gift tax deduction under today’s historically low AMFR would be $5 million, leaving a taxable gift of $5 million. The net result is to transfer the amount remaining in the trust to heirs free of gift and estate tax ($10 million if the trust earns at least 5.5 percent), after first making a $5.5 million gift to charity.
This will undoubtedly be one of the ways that some choose to structure significant charitable transfers over the next two years while the $5 million window of opportunity is open. And the picture may be even brighter for those who wish to transfer significant amounts of assets to grandchildren!
Warning!
Pundits predict that these opportunities are not likely to be renewed when the current law expires two years from now. So the time to act is now!
It's important to be aware of these aspects of the new tax law so that you can spot opportunities and communicate with donors about the benefits. Over the next few months, we will offer programs to provide you with additional background about these techniques.
As always, the Office of Gift Planning is ready to assist with detailed discussions with donors and to help bring the gift to closure. Who knows, maybe that “lead donor” for the campaign will surface sometime in the next 18 months! The opportunities are endless!
For more information, please contact:
Mike Mattson
Office of Gift Planning
315.443.4414
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