Many advisors were preparing for a slower year in charitable giving, following the 2003 capital gains tax reduction, which called for a 5% rate drop from 20% to 15%. But the slowdown may not have materialized.

Mari Ramsey, Associate Director and Legal Counsel for the Austin Community Foundation, said that her foundation has actually seen a steady increase in giving since the end of 2003. "There is an understanding that the '90s are not returning," Ramsey said.  "There is a psychological element – even when people had resources to give they held back. That seems to be changing. People are returning to a 'normal' giving pattern."

John Bedosky, a Vice President and Wealth Management Specialist with Wells Fargo Private Client Services, concurs with Ramsey. "Some organizations are reporting an increase for most clients,” Bedosky notes. This seems to be true for gifts of cash as well as appreciated stock. "The general thinking was that a reduction of the capital gains rate would discourage giving of appreciated stock – the lower the tax rate, the less anxious people would be to avoid the tax," he said. "But it hasn't really discouraged it."

Advisors say that's because most people give for reasons other than tax incentives. And with world events creating increased needs around the globe, charitably inclined people are feeling an even greater need to give.

Guiding Charitable Clients
According to Bedosky, there are two kinds of charitable donors: those who don't plan to give, and those who do. It's an important part of the advisor's work to determine which type of client he or she is dealing with.

"The first one doesn't have much in a coordinated giving effort," he says. “There's no pre-planning of gifts, and most don't do it for a tax reason.” 

Not so with the planners, he notes. "They're really interested in making a difference – not only with money but time."

This second group of people is the one that comes to advisors seeking help with tax, estate and philanthropy planning. The first step is to help the client determine their personal needs and goals. How much money do they need to live on? How do they want their retirement picture to look? Do they want to provide for their children in the future? After that, discussions of estate planning and philanthropy can take place.

At this final stage, Bedosky said, advisors can discuss several tools available to help their clients achieve their philanthropic goals while minimizing their tax burden. Advisors who recommend vehicles that meet donors’ personal giving wishes can help these philanthropists give tax efficiently at year end – and year round.

Public vs. Private
Donor advised funds have surpassed private family foundations in popularity in recent years for a number of reasons. For one, gifts to donor-advised funds provide more tax advantages than to private foundations. Donors can take a deduction of up to 50% of adjusted gross income (AGI) for cash gifts and up to 30% of AGI for gifts of long-term appreciated assets such as stocks or real estate. By contrast, gifts to private foundations allow donors to take a deduction of only 30% of AGI for cash gifts and 20% of AGI for gifts of appreciated assets. Deductions for gifts to either vehicle can be carried forward for five years if the amount donated exceeds the amount allowed by law in the first year.

Besides larger tax deductions, donor advised funds provide other advantages. According to Lynn Andrewsen, director of development for the Community Foundation for Greater New Haven, donor advised funds give donors more flexibility and privacy. She notes that donors can make anonymous and named gifts from the same fund.

This is not the case with private foundations, which must disclose both the names of their donors and the names of their grantees. "Private foundations are a lot more restricted," Bedosky said. "With increased government regulations and scrutiny over foundations, it is easier to get caught in abusive transactions where they were never intended.

Giving and Receiving
Charitable gift annuities remain another popular strategy for donating to charity. Experts note that gift annuities are especially attractive to older donors because they can contribute money that is locked away in a money market fund or CD, potentially double or triple their cash flow, and receive a charitable income-tax deduction. This is especially attractive in the current low interest-rate environment.

Most charities require a minimum of $10,000 to establish a charitable gift annuity.  This makes gift annuities an attractive option for a wide range of donors, not just those who are wealthy.

Gifting Over Multiple Generations
One strategy that Bedosky says is being underutilized is the charitable lead trust. Experts agree that advisors can go much further in helping their clients to understand the tremendous benefits that CLTs offer. In short, Bedosky says, "The CLT helps people move money down through generations, give to charity and remove taxable income from their balance sheet.

Charitable lead trusts come in two flavors: grantor trusts or non-grantor trusts. The grantor trust offers a tax deduction, but the non-grantor trust does not. The charitable income tax deduction for a grantor lead trust equals the present value of the future payments to charity and is limited to 30% of AGI. As with charitable gift annuity, the unused portion of the deduction can be carried forward up to five years.

To get the deduction under the grantor trust, the donor must own the trust. That means the owner must pay taxes on income generated by the trust, including any amount going to charity. The non-grantor trust is considered a separate entity; therefore, the donor doesn't pay income taxes on money placed in the trust. One advantage of the non-grantor CLT is that a donor can greatly reduce his or her taxable estate through the trust.  Experts note that the CLT is especially advantageous in the current low-interest-rate environment.

Estate Tax Concerns
One issue that not only has advisors and their clients concerned but also many state revenue officials is the ongoing phase-out of the estate tax. No one seems quite certain how a full repeal of the tax would affect charitable giving, but Bedosky feels fairly confident that the federal estate tax will remain.

"Given where government budgets are, the estate tax will not permanently go away," Bedosky says. "Exemptions will be frozen where they are or slightly higher. As soon as there is some certainty, people will feel more comfortable." Advisors should be able to get a much clearer view on the estate tax's future following the upcoming presidential election.

Despite any pending changes, advisors who can help donors navigate the ever-evolving tax law will help donors create a successful, tax-efficient giving plan in any year.