December 22, 2011

Understanding Where the Big Gifts Will Come From in 2012

While the still-struggling economy poses fund-raising challenges in 2012, the potential for changes in the tax code will motivate some wealthy people to step up their giving, two fund-raising consultants say.

The consultants, Robert F. Sharpe and Barlow Mann, have made available a free hour-long Webinar on fund-raising advice and predictions for the coming year.

Among the tax issues likely to spur giving, they say:

Charitable deductions. President Obama has proposed limiting how much the wealthiest Americans can write off on their taxes for making gifts, and though Congress has not agreed so far, concern about the deficit could give the plan more traction in 2012. Donors who are worried about the potential for new limits in 2013 may be motivated to give in 2012, or accelerate payments on pledges from past years, so they can get a healthy tax break.

Estate taxes. People can give or leave up to $5-million to heirs tax-free in 2011 and 2012, but unless Congress takes action, much more of their estates may be taxable in 2013. The potential change has already prompted many wealthy people to think about how best to arrange their finances and provide for their families. A growing number of donors are  creating charitable lead trusts, which provide payments to a charity for several years before the assets revert back to the donors’ heirs.

Because the estate-tax law will prompt so many donors to review their wills, the consultants say nonprofits should be sure to remind older people to make charitable bequest plans.

Beyond tax issues, Mr. Sharpe and Mr. Mann urge fund raisers to focus on offering wealthy people options to give stock, real estate, or other noncash donations. Because interest rates have been at historic lows the past few years, donors who live off the earnings on their investments probably feel cash poor.

Charitable gift annuities may also be popular with donors in their 70s or older, they note. With annuities, older donors give assets to a charity to invest; in return, they receive payments for life and a tax break. Gift annuity payments are typically worth more than donors can realize from  treasury bonds, certificates of deposit, or money-market funds.