Planned Giving News Magazine

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. As a monthly news source, some information may remain on this page for several weeks.

NEWS SOURCES | ARCHIVES OF PAST MONTHS

Retail Sales Fall 1.1 Percent in June - (7/15/04) - U.S. retail sales fell sharply last month, dragged down largely by automobile sales that plunged as major automakers tried unsuccessfully to curb incentives.
Overall retail sales dropped 1.1 percent in June, the biggest dive in 16 months, following a 1.4 percent gain in May, the Commerce Department reported yesterday.
Even after excluding autos, retail sales fell 0.2 percent last month after rising 0.9 percent the previous month, the report showed, providing another sign that the U.S. economy has cooled slightly in recent months amid rising prices and interest rates, analysts said.
Sales also fell last month at clothing stores, department stores, and food and beverage stores, and in the category that includes restaurants and bars, the report showed.
The retail sales report followed others indicating that economic growth slowed a bit in the April-June period, as household and business spending were crimped by rising interest rates and higher prices for gasoline, food and many other items.
A slightly cooler rate of economic expansion would ease inflation concerns and make it easier for the Federal Reserve to stick to its plan of raising short-term interest rates gradually in coming months. But if growth drops too much, the Fed could stop raising rates or even cut them again to prevent the recovery from stalling.
Washington Post

Jobs - (7/6/04) - According to numbers released Friday by the Labor Department, "the U.S. economy created fewer jobs in June than economists expected, fueling debate over whether the report signaled a cooling of the economy or a temporary setback," the Wall Street Journal reports. The department "said the U.S. economy created 112,000 jobs in June, less than half of the 250,000 jobs economists had projected for the month."
www.govexec.com

Employment - (7/4/04) - "The National Association for Business Economics said its quarterly survey on business conditions showed that 41% of the respondents expect their companies to increase employment over the next six months, up from 34% three months earlier," the Wall Street Journal reports. "In the latest survey, conducted between June 8 and 23, 45% foresaw no change in employment and 14% expected decreases through attrition or layoffs."
www.govexec.com

Consumer Confidence Hits 2-Year High - (6/30/04) - Consumer confidence increased sharply this month, beating analysts' expectations by jumping to its highest level in two years, the New York-based Conference Board reported today.
Consumer confidence, which barely budged in May, rose nearly 9 points to 101.9, up from the revised 93.1 in May.
The consumer confidence index is a closely watched indicator of economic health because consumer spending fuels a large part of the overall economy. Americans' assessment of current economic conditions also improved considerably in June.
The Conference Board reported that the percentage of consumers who said business conditions are "good" rose more than 3 percentage points, to 25.6% from 22.2%, as those claiming jobs are "hard to get" fell to its lowest point this year, dropping almost four points, to 26.5% from 30.3%.
LA Times

Interest Rates - (6/30/04) - "The Federal Reserve began the long climb back from a historic period of cheap money by raising its target for short-term interest rates to 1.25% from 1%" Wednesday, the Wall Street Journal reports. "In a statement, the Fed suggested it will continue to raise the federal-funds rate a quarter-point at a time, saying it can move 'at a pace that is likely to be measured.'"
"Average mortgage rates already have jumped from 5.38 percent to 6.25 percent in anticipation of the Fed's move," while "the rates on shorter-term loans such as credit cards and second mortgages will rise as banks mimic the Fed," the Washington Times reports. "Major banks started that process by raising the prime lending rate a quarter-point to 4.25 percent" Wednesday.
In addition, "Wall Street scored modest gains on Wednesday as investors digested the widely expected news," the Financial Times reports. By the market's close, the Dow Jones Industrial Average, S&P 500 and Nasdaq were all slightly higher than their opening numbers.

Fed Funds Rate - (6/24/04) - Next week, the Federal Reserve is "almost certain to boost their target for the federal-funds rate, charged on overnight loans between banks, to 1.25% from 1%, when their two-day meeting ends Wednesday afternoon," the Wall Street Journal reports. Officials are still "wrestling with whether to indicate... that future rate increases will be 'measured,' a euphemism for moving in quarter-percentage-point increments."
www.govexec.com

The IRS has released two different publications to assist both donors and charities with programs involving car donations.
For charities, IRS Publication 4302 "A Charity's Guide to Car Donations" explains several guidelines for running a proper program.

First, some charities will actually use the donated cars for their exempt purpose. This is permissible.
Second, some charities receive cars, clean and maintain these cars and then sell them. This is also acceptable.
Third, some charities will hire an agent to run their car donation program. This plan is acceptable if the charity monitors the agent, creates rules of operation and approves all advertising.
Fourth, if the charity simply gives a car donation company the right to use its name with no control, then there will be no income tax deductions for donors.

After receiving a gift, the charity is obligated to provide an acknowledgment of the gift. Charities should also emphasize to donors that the deduction must be at fair market value, not "Blue Book" value.

IRS Publication 4303 is a similar brochure, but is intended for donors. It indicates the requirement for a receipt or written acknowledgment from the charity for gifts of $250 or more. In addition, if the donated vehicle is over $5,000 in value, there must be an appraisal by an independent third party.

The major controversies in the past have centered on the actual value of the vehicle. The brochure specifically notes that value is not "Blue Book," but rather the fair market value that reflects correctly the full condition of the car.
GiftLaw 7/5/04

As Greenspan Chases Inflation, Critics Shout, 'Faster!'

Inflation and market interest rates are far ahead of Alan Greenspan's federal funds rate, which he raised yesterday to 1.25 percent. Now the nation will see how well Mr. Greenspan, the Federal Reserve chairman, plays the game of catch-up.

Fears that Mr. Greenspan has opened wide the door to inflation in the United States by keeping interest rates too low for too long prompted a sell-off in the bond market recently. That has pushed short- and long-term rates far above the federal funds rate and produced the worst quarter for bond investors in almost 25 years.

Since falling to 3.68 percent in March, yields on 10-year Treasury securities have risen nearly a point, to 4.58 percent yesterday. Yields on two-year Treasuries have risen to 2.69 percent from 1.46 in March.

When inflation outruns a central banker, price increases on goods and services not only take hold, they tend to feed on themselves, rising ever higher. Inflation is exceedingly difficult to bring under control once it has gained a foothold.

So it came as a surprise to some economists and portfolio managers that Fed policy makers thumbed their nose at inflation worries in the statement accompanying the rate increase. "Although incoming inflation data are somewhat elevated, a portion of the increase in recent months appears to have been due to transitory factors," the policy makers said.

As a result, many say that Mr. Greenspan has two battles to fight: one against inflation and one against the view that he has been far too accommodating in keeping interest rates low.
Gretchen Morgenson NY Times 7/1/04

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Senators Plan To Reform Charities

At a hearing on June 22, 2004 with the title "Tax Abuse of Charitable Organizations," Senators Charles Grassley (R-IA) and Max Baucus (D-MT) highlighted the need for reform with respect to charities. Senator Grassley has been a strong supporter of charities. However he stated, "The testimony we will hear will suggest that far too many charities have broken the understood covenant between taxpayers and nonprofits-that charities are to benefit the public good, not fill the pockets of private individuals. Too many well-meaning charities have fallen prey to the charlatan's pitch about easy money." Senator Grassley indicated that he hoped that the result of the reform would be "a vibrant and engaged charitable sector that enjoys the confidence of the American people."

Senator Baucus, the ranking Democratic member on the Senate Finance Committee, specified four areas that were in his view the principal problems. These are:

Senator Baucus stated, "I'm eager to hear from the rest of the witnesses on this panel about what we should do to keep the bad guys out of charities, without hurting the good charities in the process."

Avoiding Abusive Charitable Schemes Two of the witnesses at the Senate Finance Committee hearing highlighted areas of potential charitable abuse. IRS Commissioner Mark Everson and J. D. Adkisson, editor of charitable watchdog site Quatloos.com, specified areas of concern.

Commissioner Everson noted that a number of "listed transactions" or tax shelters now involve charitable giving. First, Notice 2004-30, 2004-17 I.R.B. 828 described a Subchapter S charitable income tax shelter. The shelter involved transfer of 90% of Subchapter S stock to charity with a reduction in income taxes of 90% for several years. Eventually, through a complex maneuver, the economic value of the S Corporation is returned to the owners with a huge tax saving and a small payment to charity.

Second, Type III supporting organizations have frequently been created to produce charitable deductions while retaining donor control and allowing the potential for major benefits to flow back to donors and their families.

Third, the tax protester movement continues to create "Corporations Sole" and claim that the tax-exempt entities allow an individual to forego payment of all future income tax. Fourth, some donor advised funds have been used to pay personal expenses, to compensate donors for "volunteer work" and make gifts back to donors. Fifth, there has been serious overvaluation of intellectual property and vehicle donations. Mr. Adkisson highlighted many of the same problems and added one more. Long, convoluted and complex opinion letters typically justify the charitable tax shelters.

Mr. Adkisson suggested that the opinion letters should be filed with the IRS as a way of reducing the number of opinion letters that take extreme positions.
GiftLaw 6/28/04

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New approaches to life insurance policies that offer charities the prospect of a small benefit at little or no cost to them or their donors are beginning to raise eyebrows in Washington and elsewhere, the New York Times reports.

In one approach, wealthy, elderly donors allow insurance companies, hedge funds, and other investors to insure their lives in exchange for a promise that part of the death benefits will go to the donors' favorite charities. Investors, who hope to profit substantially, buy the insurance and pay the premiums. Caroline Rose Hunt, an eighty-one-year-old oil heiress who built a second fortune in hotels and resorts, has allowed unknown investors in four pools to insure her life for a total of $70 million. "I was insurable, somebody else put up the money, and on my death, charity gets the money," she told the Times. "That makes me feel good, makes me feel I'm worth something."

A more complex approach employs year-old products known as Life Insurance and Life Annuities Based Certificates, or Lilacs, in which investors put money into a trust that buys annuities and life insurance policies on participating donors. The income from the annuities is used to pay premiums on the insurance and provide a return to investors. When a donor dies, the insurance proceeds first go to repay the investors and any extra benefits go to the charity.

Until recently, Lilacs had been legal only in Texas and Virginia, but after vigorous lobbying, the legislatures in Louisiana and New York are considering allowing them. Last month, two life insurance trade associations, the Association for Advanced Life Underwriting and the National Association of Insurance and Financial Advisors, came out against the modification of state laws to allow them. "Allowing unrelated third parties to purchase life insurance products on the lives of consenting strangers is akin to a form of gambling," the two organizations said in a joint statement. "We believe it cheapens life insurance products and subjects them to criticism."

Critics of such schemes argue that they blur the boundaries between the nonprofit and commercial worlds in a way that is less than transparent. "Charities are selling their exclusive right to insure their donors to help investors build wealth, and its is remarkably unclear what charities actually get when it all settles out," said Vaughn Henry, an estate planner with insurance licenses from several states. Henry's concern is echoed by Sen. Charles E. Grassley (R-IA), chairman of the Senate Finance Committee, which has been looking into the potential abuse of tax exemptions and is reviewing some of the plans. "In entering any transaction, charities need to be very careful that their tax-exempt status is not providing inappropriate benefits to a corporation," said Grassley. "A penny of benefit to charities doesn't excuse a pound of profit to the corporations."
York Times 6/05/04

Once you write your will, you can file it away and forget it, right? Wrong. Life situations change and in many instances it becomes necessary to review and, perhaps, even update your will. Below, we've listed a few of life's events that might trigger another look at your last testament (taken from It's Your Money, May 2004):

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Please note, individual financial circumstances will vary. The information on this site is meant as general information and does not represent legal or tax advice.. As with all tax and estate planning, please consult your attorney or estate specialist. All material is copyrighted and is for viewing purposes only. This News and Information section has been compiled by Future Focus.
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