PG Calc Featured Articles

With the … let’s just call it “excitement”  … of the 2024 election now in the rearview mirror, it’s time to consider what comes next. Political swings are often accompanied by uncertainty, sometimes even chaos. Charitable giving is voluntary behavior, and in the face of uncertainty and chaos the rational choice is to postpone voluntary decisions like whether to make a charitable gift. The savvy planned giving officer will pivot to reinforce the reasons for giving. As tempting as it is to fret over politics, tax policy, the economy, and the stock market, we really have no control over these factors. Instead, this is an opportunity to focus on the mission, explain the community's needs have not changed, and help our donors understand the difference they can make with their next charitable contribution.

Still, it is worthwhile to review the impact of past changes in the balance of political power on overall charitable giving. 

The Qualified Charitable Distribution (“QCD”) from traditional IRAs is not new; it has been around since 2007. The Tax Act of 2006 ushered in this unique provision that allows distributions from traditional IRAs made directly to charities to escape the normal income tax on money taken out of a retirement plan. The donor is allowed to exclude the amount of the QCD from taxable income, but the offset is that there is no charitable income tax deduction for the gift being made to charity.

There has been confusion about the QCD ever since 2007, because it deals with aspects of IRAs that many are unfamiliar with. The biggest area of confusion has been distinguishing the RMD for a traditional IRA from a QCD. They are not the same thing. Not at all. And it is dangerous to confuse the two.

As they reshape philanthropy, the Millennial and Gen Z generations are prioritizing social impact, embracing technology, and seeking innovative ways to engage in their giving. A report, Shaping Tomorrow: How Gen Z and Millennials View Charitable Giving, based upon a survey conducted by Foundation Source, offers new insights.

These generations proactively seek opportunities to give back through a wide range of charitable activities based upon values and attitudes shaped by the tumultuous years during which they grew up. They are determined to play a role in communities they care about, believe they have an obligation to make an impact, and are ready to get to work!

We’ve been hearing quite a bit about the Federal Reserve system (“the Fed”) likely cutting the Fed Funds rate – the key interest rate that it controls – at its next Open Market Committee meeting, which is September 17-18. The Fed aggressively hiked the Fed Funds rate from February 2022 to August 2023 in a determined effort to bring down inflation, which peaked at over 9% in 2022. It has kept the Fed Funds rate at the same relatively high level for the past year. Lately, however, there have been various reports showing that the economy is showing signs of slowing down, and inflation in recent months has approached the Fed’s 2% target. This has led the Fed to signal it is finally comfortable with reducing interest rates.

When the Fed cuts the Fed Funds rate, other interest rates tend to follow suit – especially short-term and medium-term interest rates. Even long-term interest rates, such as mortgage rates, are eventually affected. And that brings us to the topic of charitable gift annuities (CGAs). We’ve been receiving calls over the past few weeks from gift officers questioning if, how, and when the declining interest rates in the economy will affect CGAs. Our client organizations are asking, should they be promoting gift annuities at current rates – so donors can “get in” before an overall reduction in payout rates?

That’s a great question and something worth talking about.

Here we are some 20 months after the passage of the Legacy IRA Act, and questions remain. That law updated Section 408(d)(8) of the Internal Revenue Code to allow Qualified Charitable Distributions (QCD) from IRAs to fund charitable gift annuities and charitable remainder trusts. After all this time, there remains some ambiguity.

Americans gave a record $557 billion in charitable gifts during 2023, according to estimates provided by the Lilly Family School of Philanthropy at Indiana University in Giving USA 2024, The Annual Report on Philanthropy for 2023, published by the Giving USA Foundation. Giving, on an inflation-adjusted basis, continues to recover after retreating from the all-time peak in 2021. In current dollars, giving from all sources was up 1.9% over the previous year but down 2.1% when adjusted for inflation.

Giving by individuals was estimated to be $374 billion, growing at an annualized rate of 4.3% over the last five years. An additional $43 billion came from individuals in the form of charitable bequest giving, an increase of 4.8% over the previous year. Corporate giving was up 3% to $37 billion. Giving by foundations was estimated at $104 billion, an annualized rate of 8.3% over the last five years. (Note, the Giving USA Report counts new contributions to donor advised funds as individual giving in the year of the contribution. Subsequent distributions from donor advised funds are not reported as foundation giving.)

We get a lot of calls from clients regarding how to handle unclaimed payments related to life income gifts. We can help clients with the mechanical aspects in GiftWrap, of course, but the real challenges have more to do with policies and protocol. What is the right way to manage the payments that are due to people whose whereabouts are unknown? And how long is a charity – or an agent thereof – supposed to hold those funds before state laws dictate specific actions under abandoned property laws? We will go over those issues in this article.

Approximately 10,000 American baby boomers will turn 65 today. And tomorrow. And every day after that until 2030, when all baby boomers will be over the age of 65. This “gray tsunami” is predicted to set new firsts, including in the area of longevity. According to the Society of Actuaries, for a married couple who are currently both age 65, there’s a 50% chance that one spouse will live to be 90.

While longevity is on their side, the “longevity threat,” defined as outliving your retirement income, is not. Boomers started their careers at the dawn of the earliest 401k plans, and only 6% of boomers from the tail end of this gray wave have pensions (also known as a defined benefit plan). According to the Center for Retirement at Boston College, retirees who depend on a defined contribution plan, such as a 401k or 403b, are predicted to spend down their wealth more quickly than previous generations that depended on pensions. But they point out that the more a retiree’s resources come from “an annuity-like form” – including charitable gift annuities – the slower this cohort is expected to deplete their wealth. This is where a flexible deferred gift annuity (FGA) can step in to assist both the donor AND the charity with long-term planning.

Fifteen years ago, articles about the “fiscal cliff” were all over the news. The “fiscal cliff” referred to the looming expiration of a basket of tax reductions that had been included in the Economic Growth and Tax Relief Reconciliation Act of 2001. To pass muster with Congressional budget rules that limited the cost of that legislation, the tax reductions were set to expire on December 31, 2010. As the sunset date grew nearer, the big question was would Congress act to extend the tax reductions or allow them to expire and revert the U.S. to a higher tax regime?

Well, here we are again.

The Tax Cuts and Jobs Act of 2017 (TCJA) included a variety of changes designed to reduce federal taxes. The most dramatic of these were a doubling of the gift, estate, and generation skipping tax exemptions and of the standard deduction. The TCJA also eliminated or limited several popular itemized deductions, such as for mortgage interest (reduced from interest on the first $1 million to interest on the first $750,000) and state and local taxes (limited to $10,000 instead of unlimited). In addition, it reduced somewhat federal income tax rates and raised the income brackets at which they kicked in. In the wake of these changes, the fraction of estates that pay federal estate tax declined from an already very low 1% to a miniscule 0.1%, and the fraction of taxpayers who itemize their deductions declined from about 30% to about 10%.

Unless Congress acts, these tax reductions will expire on December 31, 2025. Donors and their advisors are beginning to plan for this possibility.

A year ago, we published an article under the tongue-in-cheek title of “That’s Alright, It Was Only Money.” We wanted to update our understanding of historical performance results for traditional investment portfolios after the disastrous conclusion of the year 2022. We used the S&P 500 Index as the benchmark for stocks and Barclay’s Aggregate Bond Index as the benchmark for fixed income. In 2022, the former ended the year with a return of minus 13.01%, and the latter ended the year with a return of minus 19.44%. That meant our prototypical investment portfolio, invested 50% in stocks and 50% in bonds, saw a blended investment return of minus 16.23%. At the time, we pointed out that the aggregate performance for 2022 was actually worse than the aggregate performance for the Great Recession year 2008, which was “only” minus 15.88%.

And now, after another year in the books, but with quite different results in 2023, we ask the question, “Are we back to normal?” It’s probably a rhetorical question, and it begs a more specific question: “What is normal, anyway?” The S&P 500 return in 2023 was 24.23%, and the Barclays Aggregate Bond Index return was 5.53%, resulting in a blended return of 14.88%. It was a great year for investment portfolios holding traditional asset classes! The improved numbers should make everyone feel a little better off. Does it give us greater confidence to make the argument that over many years, a prudent investor strategy results in positive returns? Let’s take a look at the actual numbers.