Several recent planning articles have suggested that because of the increased applicable exclusion amount that end of life and testamentary charitable giving may be adversely affected. As of January 1, the the estate applicable exclusion amount, the amount a taxpayer can give away without having to pay a federal tax, increased to $5.34 million. This means that a mere 0.2% of estates will be subject to taxation. With the larger exemptions, estate tax charitable deductions may not be as important as a mechanism to reduce or avoid future estate tax.
For the charitable community, the question becomes: What will be the impact of rising exemptions on charitable gifts? In particular, will there be a future for testamentary gifts in a world where there is little or no need for estate tax deductions? If so, which testamentary gift options will remain viable long-term for marketing to donors?
The fear that testamentary gifts will fade away with increased estate tax exemptions is based on the assumption that gifts are made at death only to lessen the burden of estate tax. This conclusion is based on the assumption that estate tax deductions are the primary or only factor motivating testamentary charitable gifts.
However, those in the charitable community know that donors have a variety of motivations for making gifts, even testamentary ones, and that the charitable deduction is not the primary motivation for giving. Rather, donors make gifts because of a relationship with an organization, common identity with its members, association through volunteer work, strongly-held personal beliefs, a sense of satisfaction from helping a worthy cause and furtherance of personal and charitable goals.
In The Seven Faces of Giving, a book by Russ Alan Prince and Karen Maru File, the authors discuss these seven donor profiles including: the communitarian, devout, investor, socialite, altruist, repayer and dynast. The premise of the book is that fundraising professionals need to understand the different needs, expectations and motivations of these donors in cultivating gifts. Because people give for so many reasons, the increased exclusion amount, and a decreased need for estate tax deductions, should not lead to the end of testamentary charitable gifts. Donors will undoubtedly continue to provide for charitable causes at the end of their lives for a variety of reasons. The question for every gift planner is how to create a sustainable marketing strategy for testamentary gifts in this new world of mostly non-taxable estates.
MWR
