The Tax Cuts and Jobs Act left many representatives of non-profits wringing their hands about the anticipated effect on charitable giving. The estate, gift and generation skipping transfer tax exemption doubled from $5,490,000 per person for individuals dying in 2017 to $11,180,000 per person for 2018 decedents. Reduction in individual income tax rates and increases in the standard deductions are also perceived to result in decreased charitable giving.
While I do not have enough data to provide a statistically useful sample, over the years, I have worked with many clients who are charitably inclined and incredibly generous. For what it is worth, my observation has been that while donors appreciate the tax benefits of charitable giving, it is not what motivates them.
For estates in excess of the exempt amount, the estate tax is a flat 40%. There is an unlimited charitable deduction from the estate tax. One way to create an estate plan to zero out the estate tax is to provide that the estate tax exempt amount passes to family members and the excess passes to one or more charitable organizations, qualifying for the unlimited charitable deduction. If a client were largely motivated by the tax savings, it would seem to be a huge benefit that the children can now receive $11,180,000 with no estate tax. Despite the increase in the estate tax exemption, and potential tax savings, some clients are modifying their plans to increase the amount passing to charity and reduce the amount passing to the children despite the increased estate tax exemption.
In situations such as this, two planning concepts are at work: philanthropy and a consideration of how much is enough. Most are familiar with the Warren Buffet quote that the perfect amount to leave your children is “enough money so that they would feel like they could do anything, but not so much that they could do nothing.”
My current experience is also that individuals continue to support their favorite charities with lifetime donations regardless of the amount for which they can take a charitable deduction, for income tax purposes.
What motivates these charitable givers? Some are humbled by their good fortune and are inspired to give back. Others are passionate about the causes that they support.
Many of the changes in the 2017 tax legislation are temporary and will sunset after 2025. It will be interesting to see what the data reveals: did individuals give less to charitable organizations because of the decreased tax benefits? My guess is that the decrease, if any, will not be significant.