Professional Planned Giving Web Pages for Gift Planning

DATE: July, 2002

The following is intended as general information and does not represent legal or tax advice. Individual circumstances vary - please consult your legal and tax advisors about your specific situation.

"There is a loftier ambition than merely to stand high in the world. It is to stoop down and lift mankind a little higher."
Henry Van Dyke

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NEWS SOURCES | ARCHIVES OF PAST MONTHS

06/27 House votes to lift debt ceiling

In a surprise move Thursday night, the House approved a free-standing, $450 billion increase in the debt limit-allowing the legislation, which passed the Senate a few weeks ago, to be sent to the president. Approval came on a tense, 215-214 vote, the second one-vote floor margin won by House Republicans in two days, following the dramatic trade vote a day earlier.

The debt ceiling extension also appeared to clear the way for action on the fiscal 2002 homeland security and defense supplemental, which had been paralyzed for weeks by a standoff over whether to join it to a debt ceiling increase. It probably will be finished the week after the July Fourth recess.

The debt limit move was a surprising one for House Republicans, who until Thursday resisted efforts to pass a clean debt-limit bill, prefering to see it attached to the supplemental to avoid a tough political vote for Republicans in vulnerable districts.
Bill Ghent, CongressDaily

6/29 Cost of Government Day

The Americans for Tax Reform have proclaimed July 1 as "Cost of Government Day." On this date, the costs of government have been paid for by taxpayers. Tax reform advocates claim that the total costs for federal and state government are as follows:

Cost	Number of Days
Federal Taxes	79
State Taxes	41
Federal Regulations	38
State Regulations	23

The President of Americans for Tax Reform, Grover Norquist stated, "Americans will have worked over half of their year to fund the activities of government." Mr. Norquist suggests that government expenditures are too large and that President Bush's tax reductions should be made permanent.
FROM GOVEXEC.COM

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06/29/02 Estate Tax Repeal - 5000 To 1 Ratio

During the month of June, the advocates of permanent estate tax repeal brought bills before both the House and the Senate. While permanent estate tax repeal passed the House, the vote in the Senate was 54 - 44, and fell short of the required 60 votes for permanent repeal. Both Republican and Democratic members of the House and Senate now generally support an increased exemption and an estate tax rate of approximately 45% - 50%.

The remaining issue is whether or not the estate tax will be entirely repealed in the year 2010. The Joint Committee on Taxation projects that estate tax repeal would cost approximately $56 billion the first year and over $700 billion during the first decade of the repeal. However, if the exemption is held at $3.5 million and the estate tax maintained at 45%, the cost for the first decade is cut from over $700 billion to under $350 billion.

By 2010, one-half of one percent of estates will exceed $3.5 million. Thus, there will be approximately 10,000 estates per year subject to estate tax. However, there will be over 50 million Social Security recipients. Dividing the number of Social Security recipients by the estates produces a ratio of 5,000 Social Security recipients per decedent who would pay estate tax. With the post 9/11/2001 change from a $3 trillion surplus to a deficit over this decade, there will be an obvious need for greater funding for Social Security and Medicare after 2010.

Politicians in 2010 will face the following ratio: 5,000 Social Security Recipients / 1 Decedent With a Taxable Estate

Social Security recipients vote in large numbers. However, with the exception of a few urban American precincts, decedents do not vote. Thus, the advocates of permanent repeal recognize that the political reality in 2010 will shift dramatically in favor of maintaining the estate tax with a higher exemption.
FROM GOVEXEC.COM

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CARE - Charity Aid Recovery and Empowerment Act

In a major step forward for the entire philanthropic sector, the Senate Finance Committee on June 18, 2002 passed on a voice vote the CARE bill (Charity Aid Recovery and Empowerment Act H.R. 7, as amended). The costs of the CARE bill will be offset by increased tax shelter disclosures (S. 2498), fewer corporate expatriations (S. 2119) and increased customs fees. CARE bill sponsors Senators Lieberman (D-CT) and Santorum (R-PA) have asked Senate Majority Leader Daschle(D-SD) to schedule a vote of the full Senate on the bill.

The CARE Act of 2002 is perhaps the most significant charitable legislation in many years. It includes eight specific provisions that will dramatically impact charitable giving. Based upon the Senate bill, the provisions as of date of publication are as follows:

Non Itemizer Deduction over $250

Direct IRA Charitable Gifts over 70 ½

IRA to CRT or CGA over 59 ½

Wholesome Food Gifts

Capital Gain 25% Conservation Exclusion

Conservation Deduction - 50% AGI

Sub S Basis Rule

CRT 100% UBI Tax

Due to the current Legislative calendar and the issue of how to pay for these tax breaks, there is a strong possibility this legislation will not be acted on during this Legislative session and will have to be reintroduced next session.
FROM GIFTLAW

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Charitable Deductions for Gifts of Artwork Affirmed

The Internal Revenue Service has recently ruled that a couple's gift of artworks, subject to a gift and loan agreement (GLA), to a museum will qualify as a charitable contribution.

The taxpayer and spouse own a collection of related artworks and want to establish an art collection at a tax-exempt museum. Some of the works will be donated to the museum while others will be loaned. The arrangement is governed by a GLA that sets guidelines for the museum's display of the works and restricts the couple's abilities to transfer the works. The couple requested rulings from the Service on the charitable deduction, gift tax, and estate tax implications of the arrangement.

The Service determined that the mere execution of the GLA would not constitute a completed gift of the artwork. However, the Service concluded that any transfer of an interest in any work would qualify as a charitable contribution under section 170(c) and a completed gift for purposes of the gift tax deduction under section 2522. In addition, the Service ruled that any interest in the artwork retained by the taxpayer at death would be includable in the gross estate. In addition, the Service ruled on the valuation of the art works for purposes of the charitable deduction, gift tax, and estate tax.
FROM GIFTPLAN NEWS

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Charitable Gifts of Life Insurance

Life insurance is an excellent tool, according to authors Michael Brink and Bryan Clontz, for making charitable gifts for a number of reasons. Life insurance provides an "amplified" gift that enables you to purchase immortality on an installment plan. Through a relatively small annual cost (the premium), a benefit far in excess of what would otherwise be possible can be provided for charity. This sizeable gift can be made without impairing or diluting the control of a family business or other investments.

There are a number of methods for including life insurance in a charitable gift plan.

Make an absolute assignment (gift) of a life insurance policy currently owned, donate a new life insurance policy, or have the charity purchase life insurance on the donor's life and pay the annual premiums (assuming insurable interest and state law permits). Each of these allows a current income tax deduction.
Use of dividends from existing policy. Assign all annual dividends to charity. This eliminates out-of-pocket contributions, yet still creates a deduction as dividends are paid. Amplify the gift by having these dividends purchase a new policy of which the charity is the irrevocable owner and beneficiary.
Name a charity as the primary or contingent beneficiary of an existing or new life insurance policy. Although this will not yield a current income tax deduction, it will result in a federal estate tax deduction for the full amount of the proceeds payable to the charity, regardless of policy size. This can be particularly applicable in situations where there is only one logical beneficiary, or where insurance is used to fund a supplemental retirement benefit and the death benefit is of little importance to the insured.
Group term life insurance can also be used to meet charitable giving objectives. By naming a charity as the beneficiary of the group term insurance for coverage over $50,000, a donor can not only make a significant gift to the charity, but also avoid any income tax on the economic benefit for the amount over $50,000 (Table I or P.S. 58 rates are IRS published schedules that specify the employee's "economic benefit" per $1,000 of coverage for employer-provided group term life insurance). While the initial $50,000 could also be given, no income tax deduction would be generated.
For example, a 60-year old executive with a combined state and federal income tax bracket of 40%, and who had $200,000 of coverage would save $842.40 each year (i.e., 40% of the $2,106 annual "Table I cost" that would be reportable as income). The advantage of this technique could be further enhanced by the introduction of higher Table I rates for individuals over age 65 who receive group term insurance.
From Charitable Gifts of Life Insurance by Michael Brink and Bryan Clontz

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The preceding is meant as general information and does not represent legal or tax advice. Individual circumstances vary - please consult your legal and tax advisors about your specific situation.
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