PG Calc Featured Articles

Each year, many of us breathe a collective sigh of relief when April 16 rolls around. Aside from those filing for extensions, and aside from those few who are affected by lesser-known categories, the majority of Americans have completed the filing of their annual income tax returns. And for most, the relief is not just from having fulfilled their federal obligations, but also from having met their obligations under the tax filing requirements of states, cities, and other districts.

Now that the frenzy of “tax season” is over, we can shift gears and look at issues we pushed aside prior to April 15. One of the most frequent questions we at PG Calc receive from our clients is regarding the “tax savings” line on the Summary of Benefits Projection chart. And in order to understand the tax savings concept, we need to understand the charitable income tax deduction. For planned giving professionals, the charitable deduction has always been at the focus of the process, rather like the proverbial pot of gold at the end of the rainbow.

Charitable lead trusts, as we know them today, were created in the Tax Reform Act of 1969. It didn’t take long after that for sophisticated estate planners and planned giving officers to recognize that charitable lead trusts offered wealthy donors a great way to provide for heirs, make a generous charitable gift, and potentially save a lot of taxes in the process.

When the Tax Reform Act of 1969 was passed, the federal estate tax exemption was just $60,000. Any estate larger than $60,000 would owe federal estate tax. Fast forward to 2026. The federal estate tax exemption is now $15 million per person, $30 million per married couple. Fewer than one in 1,000 estates closed in 2026 will owe any federal estate tax. For these estates, the charitable lead trust still offers a way to reduce federal estate tax.

What about the other 999 estates? Can the charitable lead trust provide them with any tax benefit? As with many things in life, it depends!

In the world of fiduciary investment portfolios, we’ve been on a fairly steady roll over the past few years. We saw economic collapse on a global scale in 2020 as a result of the worldwide pandemic, but somehow, at the end of the year, the major stock and bond indices produced positive returns. On the other hand, both the stock and bond indices produced disastrous results in 2022. It was one of the only years in recent history wherein both stocks and bonds sustained significant losses. And yet, investment performance the very next year was quite strong, and 2024 was another good year.

There were myriad reasons for investment values to drop in 2025 – major layoffs and job losses, rising inflation, implementation of fairly severe tariffs, economic uncertainty – to name the most obvious. There was also tremendous upheaval in the federal government – massive firings by the Department of Government Efficiency (DOGE), a major effort to combat illegal immigration, and a Congress more divided than ever before. But somehow, the values of traditional mainstream investments still managed to rise over the course of the year.

Here are some of the facts . . .

Congratulations, you’ve made it through the gauntlet of calendar-year-end activities! But before you sigh with relief, here’s a list of items you should review annually. Ideally, these are completed in the peaceful window between the mailing of your 1099-Rs to annuitants in January and the filing of 1099-Rs with the IRS in March.

Planned giving professionals often spend time with the wealthiest of donors, those for whom the tax aspects of their giving is frequently a significant driver. For these conversations, the technical details and legal aspects of charitable gift vehicles, such as charitable remainder trusts, can be an essential element in the pursuit of an optimum gift.

However, it is important to consider what drives the majority of donors who make up the lion’s share of planned gifts. Charitable bequests continue to be a huge source of giving, even though they don’t afford tax benefits for most donors. According to Giving USA, testamentary gifts hover between 8% and 10% of total giving each year. Our clients regularly receive more than 90% of their planned giving revenue through charitable bequests, beneficiary designations, and other revocable forms. These ratios have not changed much in the past 40 years despite changes in various tax laws.

The democratization of charitable gift planning – ensuring the tools of charitable gift planning are accessible to all, not just a few – can take many forms, some familiar and some newer. Understanding and appreciating these concepts and trends is critical for today’s planned giving officer.

A qualified charitable distribution (QCD) counts toward the donor’s required minimum distribution (RMD), and that’s a great way to avoid some of the income tax on the RMD. However, some donors miss the fact that RMDs apply to all qualified retirement plans. In addition, donors may not fully understand that withdrawals from any qualified plan are taxable income unless the withdrawal is a QCD or a tax-free rollover to a different qualified plan.

So, while it’s accurate to say “your QCD will reduce the tax on your RMD,” that’s true only for the IRA account from which the QCD is made. And that’s the trap that snared your hapless donor: there is an RMD on their 401(k) which they will have to take this year. But they cannot make a QCD from a 401(k) to offset that RMD. Even worse, their retirement plan custodian cannot make a tax-free rollover to an IRA until after this year’s RMD has been withdrawn from the 401(k). Alas, it’s too late for this year but, fortunately, it’s easy to avoid this trap next year … if they act now.

Your gift acceptance policy is more than a formality. In some ways, your gift acceptance policy is like the steering wheel in your car: you use it to steer toward the best gifts and away from costly potholes. Of course, your steering wheel is equipped with an air bag that might save your life, and a well-crafted policy can quite literally save your organization’s life too. However, the steering wheel analogy goes only so far. Unfortunately, gift acceptance policies are optional, not standard equipment like a steering wheel. And, in contrast to a steering wheel, you’ve got to build your gift acceptance policies yourself.

The One Big Beautiful Bill Act (OBBBA) reshapes many aspects of tax planning. How these changes will affect donor behavior remains to be seen. For fundraisers, understanding the key changes – when they start, when they end, and how they’ll affect your donors – is critical to informing fundraising strategies and messages.

Most of the provisions of the OBBBA with significant potential impact on charitable giving take effect beginning in 2026 and, importantly, many of the charitable provisions are permanent and do not sunset. These changes provide a new, but complex, basis for charitable gift planning.

Here is a breakdown of several key provisions and their potential implications for donors . . .

Qualified Charitable Distributions (QCDs) and Donor-Advised Funds (DAFs) are lucrative sources of philanthropic dollars available for current use. Donors often use QCDs and/or DAFs to make tax advantaged annual gifts. In addition, donors make tax smart major or even principal gifts from one of these sources. However, both QCDs and DAF grantmaking rely on donor and charity self-reporting to comply with the rules regarding permissible gifts from these sources. 

It is hornbook law that a QCD to charity will only qualify as a QCD if the “entire distribution would be allowable under Section 170” as a charitable deduction. Likewise, it is universally understood that using a donor-advised fund (DAF) to make a grant for a quid pro quo donation is also prohibited. Therefore, both DAF donor advisors and QCD donors may not enjoy quid pro quo benefits that exceed the insubstantial value rules applicable to these gifts. Following tax law, even when the IRS isn’t looking, establishes the credibility and philanthropic motive underlying the preferential tax treatment of charitable gifts.

Charitable giving totaled $592.5 billion last year according to research conducted by the Lilly School of Philanthropy and published in Giving USA, The Annual Report on Philanthropy for the Year 2024. This is the first annual increase since 2021, when a record $643.8 billion was contributed, and represents a 3.3% increase over 2023 after inflation. Nearly three quarters of all giving was from individuals, including $392.5 billion in current giving and $45.8 in bequests, while giving from foundations was $109.8 billion and corporate giving totaled $44.4 billion.

Beyond the broad totals, the Giving USA report points to some interesting trends . . .