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Column 14

The Daily Camera

Enid Ablowitz

This changes everything…or does it?

The new tax plan has been revealed and estate taxes have been repealed.  Sort of.  Well, mostly.  Well, it depends.

So goes the saga of tax reform.  Many fundraisers have been worried about the impact of the elimination of the estate tax on charitable giving.  The truth is that only 2% of Americans pay estate tax anyway.  Maybe it will be 1% or even 0% for a while, until the tax laws change again.  Does that mean charitable gifts will disappear?  Not likely.

The tax rates for income taxes are going down too.  Are you less likely to make your annual gifts to the organizations you support?  I doubt it.  In fact, you’ll have more money to give!

Maybe some of the very sophisticated gifting techniques used by families with extraordinary wealth will change.  I suspect, though, that those who give now will continue to give. Besides, there is a growing awareness of the pitfalls of leaving too much money to heirs.  In a recent article in The Economist, a US Trust survey of the wealthiest 1% of Americans was cited which stated that about half fear that their children’s initiative and independence will be undermined by significant wealth.  More than three fourths want their kids to have a satisfying career, and the majority want them to earn enough to support themselves without a subsidy.  Charity is still a factor for many in their legacy planning.

The tax cuts come in a variety of forms.  First, there’s the rebate.  You can spend it, you can save it, or you can give it away.  If you don’t need the money, consider it social capital that the government is giving you back to redistribute.  That $300 or $600 can make a huge difference for a non-profit organization, and the communities they serve.  It might mean mobility for someone otherwise housebound.  Or, it might be emergency childcare for a working mom when the usual caretaker is sick. It could be a special wilderness program for at-risk teens, or a wildlife rescue initiative, or dental care for a homeless person.  You get to choose what matters to you.  You get to decide how to make a difference.

Then, there’s the reduction of tax rates.  You may see a difference in your withholding. Again, if you have more money because you are paying less in taxes, you could think of it as money you can distribute to support the social fabric through investments in non-profits.

As for the estate tax, the thresholds have indeed increased for tax-free transfers to your heirs. In 1998, there were less than 1500 taxable estates of over $10 million in the entire US. In that same year, there were 100,000 or so taxable estates of under $1 million.  The exempt threshold was already  scheduled to increase to $1million per person by 2010 before the new tax act.  Now, that $1 million exemption begins in 2002. By 2009, the exemption rises to $3.5 million, so using simple trusts, a married couple will be able to transfer as much as $7 million to their heirs, tax-free.

In 2010 there is no estate tax at all, but the unified credit for gift tax purposes remains at $1 million.  The top rate will be tied to the income tax rate of $35%. Further, inherited property may be subject to capital gains tax, since there will no longer be a stepped-up basis.

And here’s the kicker. The way the tax laws are written, there’s a “sunset” provision so that in 2011 we go back to the plan in effect before May 26, 2001.  Yes, really.

We know there are two national elections between now and 2011, so the tax laws are likely to change again. The attorneys, accountants and estate planning advisors will continue to be fully employed! 

We also know that the concept of values-based wealth distribution is becoming more and more important, as people are setting aside a portion of their legacy for the organizations that perpetuate their value system.  Imagine if everyone had a will and left just 5% of their assets to their favorite non-profits! 

There is a growing understanding of the impact of philanthropy, and the responsibility inherent in having wealth. Of course, wealth is relative, but most of us have a far better standard of living than humankind has ever known.  Philanthropy is a way of recognizing our abundance. 

Send your questions about making charitable gifts to Enid Ablowitz, Features, Daily Camera, 1048 Pearl St., Boulder, 80302 or e-mail???/Fax????

Ablowitz, the Asst. Dean for Advancement at CU’s College of Engineering is a Certified Fund Raising Executive and has been working with donors for over a decade.  She is writing a book called Making Money Matter: 8 Steps to Thoughtful Giving.

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