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.

While it may seem esoteric, understanding gift tax is very helpful if you’re working on a life income gift that benefits someone in addition to, or other than, the donor. In these situations, the donor is making two gifts: one to the charity and one to the income beneficiary, and this second gift may be taxable.

It is also helpful to have a basic understanding of gift tax when you’re discussing an estate gift, since gift tax and estate tax are linked together by the “Unified Credit.” This credit is applied to gifts that would otherwise be taxable transfers, whether made during lifetime or at death.

What happens when there is money left in a donor advised fund after the last donor-advisor has died? Where does that money go? Who decides how the money is used? Like a street urchin in a Charles Dickens novel, an “orphan donor advised fund” can sometimes achieve great expectations or, sadly, pass invisibly without much impact. And, like Dickens’ obsession with orphans, there are those who are concerned about the growing orphan population and some who would exploit these orphans for their own purposes.

It’s that most wonderful time of year again – lots of good cheer, too much fruitcake, not enough eggnog – and gifts – so many gifts! We see lots of gifts this time of year, and many different types of gifts – those between persons, certainly, but also gifts by employers, exchanges within groups, and of course, donations to charity. And in certain cases, the gifts fall into more than just one of those categories. In our world of planned giving, we frequently work with gifts that benefit both individual persons and charitable organizations. All of that is good, of course, but some gifts involve potential costs for the person doing the giving. It may seem counter intuitive, but in some cases, there are potential costs of giving.

To make sense of this apparent contradiction, let’s take a step back. If we leave out the charitable piece for a moment, we can focus on just the gifts that are made between persons. Most people would agree that one can never have too much money, but there are consequences of having great wealth under our tax structure. Since the early twentieth century, the United States has had a tax on the transfer of significant amounts of wealth between individuals. When we talk about “transfer taxes,” we are typically speaking about the taxes on transfers of wealth between living persons – “gift tax” – or taxes on the transfers of wealth from a deceased person to living persons – “estate tax.”

No doubt, you have heard about looming changes threatening the long-established rules governing donor advised funds (DAFs). Some commentators are sounding the alarm. The Philanthropy Roundtable says the changes “would stifle charitable giving, harming those in need.” Others welcome the effort to free up charitable dollars they believe have been squirrelled away for far too long. We will leave the Wagnerian sturm und drang to others, but it is important to understand these proposals and what may be coming our way.

On June 9, 2021, Senator Angus King (I-ME) introduced Senate Bill 1981, the Accelerating Charitable Efforts Act (the “ACE Act”) with Senator Charles Grassley (R-IA) as a co-sponsor. The bill was referred to the Committee on Finance. As of this writing, there are no additional co-sponsors and no companion legislation in the House. Although legislative prognosticators give the ACE Act only a 1% chance of becoming law in its current form, parts of it could find their way into other legislation. In addition, the ACE Act is heating up long-simmering debates about donor advised funds and private foundations.

Although the ACE Act includes some significant changes to the private foundation rules, donor advised funds are the primary focus – some will say “target” – of the bill. Following is a summary of major provisions of the ACE Act that apply to donor advised funds.

The combination of extremely low monthly IRS discount rates, a stock market at or near record highs, and the possibility of increased estate taxation before the year is over creates ideal conditions for turning lead trust prospects into lead trust donors. Take advantage of the moment! Completing even a handful of lead trusts could make a big difference to the finances of your organization.

Non-grantor lead trusts offer wealthy individuals the opportunity to pass assets to their heirs at substantial tax savings while providing immediate benefits to one or more charities they care about. Grantor lead trusts offer a wider range of donors a tax-efficient way to fulfill multi-year pledges or to offset an income windfall while fulfilling their charitable wishes.