The Year of Donor-Advised Funds?

Many charities dislike donor-advised funds – they want direct donations now, not gifts, possibly larger, in the future. Many individuals and families love them.

According to data in the WSJ,  contributions to donor-advised funds have grown by double digit rates for seven years in a row. At the end of 2015, donor-advised funds held more than $78 billion. And that was after paying out over $14 billion to charities during the year.

Could President-elect Trump's proposed income tax changes, including a large standard deduction and a cap on itemized deductions, slow the growth of donor-advised funds in years to come?

Will donors try to beat the tax changes with a surge in donations this year?

Charity Navigator Lists Fake Philanthropies

Directing money to worthy causes draws increasing attention in wealth planning. First step should be to separate the worthwhile charities from the worthless. Charity Navigator has compiled a list of more than 30 fake charities, annotated with suggestions of worthy alternatives.

CRUTs, Collectibles and a Punch Bowl

For those with high incomes, Ashlea Ebeling points out in Forbes, the federal tax on long-term capital gain from the sale of collectibles, such as art or antiques, has risen to 31.8 percent. To eliminate tax the collector might use a charitable remainder unitrust. The charitable trust can sell the high-gain assets tax free, the donor may retain a generous lifetime income from the trust, and he or she gets a tax deduction for the estimated value of the trust "remainder."

Federal tax on capital gain from the sale of securities now rises as high as 23.8 percent, so here, too, selling via a CRUT might prove attractive.

One significant difference: When a donor moves publicly-traded shares into a CRUT and sells them tax free, the donor knows approximately how much the shares will fetch. A collector putting a family treasure up for auction ventures into the unknown.

To illustrate, consider this punch bowl. (We came across it while seeking an avatar for the figurative punch bowl that the Federal Reserve is about to take away). The silver bowl is venerable, made in New York around 1700-1710, only a few decades after the British renamed New Amsterdam.

Punch Bowl by Cornelius Kierstede

Descendants of a Boston Tory family put the bowl up for auction in 2010. Sotheby's expected it to sell for $400,000-$800,000. Instead, bidding escalated until only two contenders remained, one bidding by phone, the other an "anonymous bidder" in the auction hall.

Two million. Three million. Four million. Five million!

The anonymous bidder finally won the bowl for $5.9 million. That's by far the highest price paid at auction for a piece of American silver.

Wonder how a donor would feel if he or she realized such a windfall when selling via a tax-sheltered CRUT. Delight that what was expected to be a trust fund of $600,000 or so had ballooned to almost $6 million? Or remorse? "Why on earth did I tie up that much money!"

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As to why the punch bowl sold for such an amazing price, that remains something of a mystery. Was it a matter of provenance? You may not know the bowl's Revolutionary-era owner, Joshua Loring, but in your school days you probably read about his pretty young wife. After the Loyalist Lorings fled their suburban home (possibly leaving the punch bowl behind) for the safety of Boston, Elizabeth Loring earned trans-Atlantic celebrity as the mistress of the British general Howe.

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Note the sidebar to the Forbes article: Three Donors Tell Why They Set Up CRUTs.

Charitable Bequest Wins, 4-6, 7-5, 6-3, 6-4

What with Andy Murray winning Olympic gold and then the U.S. Open, I missed this Wimbledon story about a charitable bequest.

Nick Newlife

Nick Newlife is variously described as a recluse or shut-in. Like tennis fans everywhere, he was dazzled by young Roger Federer when Roger won his first Wimbledon championship in 2003. Nick wagered that Roger would win seven Wimbledons by 2019. Seven!

Federer had won but six Wimbledon championships when Newlife died in 2009. Nick left his estate – apparently consisting largely of betting slips for future wagers – to the charity Oxfam.

When Federer beat Murray to win Wimbledon again this year, Newlife''s bet, at odds of 66 to one, paid off. Oxfam gets about $158,000 to use for its good works.

Nice going, Roger.

The Man Who Left Millions to Brigadoon

Once in the Highlands, the Highlands of Scotland,
two weary hunters lost their way . . .

The National Trust for Scotland has been struggling financially. Thanks to a reclusive American, William Robert Lindsay, that struggle should be millions of dollars easier. See Love of 'Brigadoon' inspires Vegas tycoon to leave fortune to Scotland.

Lindsay had Scots ancestors but never visited Scotland. (Let's hope he didn't become a decedent without seeing a live production of Lerner and Lowe's glorious musical. The Hollywood version of "Brigadoon" was an abomination.)

Lindsay's earlier gifts to the National Trust for Scotland helped to maintain Culzean Castle, at right.

Lindsay's largess helped fix up Robert Burns' birthplace.
The Birthplace Museum holds its official opening this month.

Donor-Advised Funds

Even the much-maligned financial services industry comes up with a good idea once in a while. Simplified philanthropy, for instance, made possible by donor-advised funds.

A couple of years ago, before the Great Recession, assets in donor-advised funds were estimated at $28 billion or more. The current figure is probably a bit lower, but Schwab and others report new donations are flowing freely.

Last year the WSJ reported that donors are closing down their private charitable foundations and moving the assets into donor-advised funds. Advantages: less regulatory hassle, less paperwork, lower annual running costs.

Will higher tax rates on income and capital gain help donor-advised funds attract even more philanthropists next year?

Planned Gift? See a Trust Officer

A generation ago, Mr. and Mrs. Gotrocks might have needed the services of a trust officer at their friendly bank in order to set up a planned gift. A charitable remainder annuity trust, for instance.

In this century, donors find it easy to eliminate the trust-officer middleman and set up planned gifts, including annuities, directly. Easy, but not always safe. See Charity Bankruptcy Leaves Many Donors in Distress.

Banks aren't so friendly anymore (your's excluded, of course!) but maybe prospective donors should get back in the habit of consulting the bank's trust and investment pros.

Do Charities Need the Death Tax?

If the federal estate tax were repealed, would charitable donations dip by 6% to 12% per year? Would charitable bequests decline by 16% to 28%?

Those estimates by the Congressional Budget Office are cited in this Dow Jones column.

Are charitable donors really so estate-tax sensitive? Aren't they more likely to be influenced by income tax deductions (likely to become more valuable for those with incomes over $500,000) and the ability to take capital gains tax free (via charitable remainder trusts)?

Charitable bequests no doubt would drop off without the estate tax, but probably not by much. Significant bequests usually spring from other motivations. Case in point, the (reportedly) $7.5 million bequest to The Metropolitan Opera left by Mona Webster, the lighthouse keeper's daughter who became in later life the wealthy widow of an investment manager.

Mrs. Webster, who died at age 96, didn't even earn her estate a tax deduction, according to the NYT account.

Tax Deductions For Gifts To Foreign Charities

Gifts to charity are often income-tax deductible; bequests to charity are usually exempt from federal estate tax. But those tax incentives apply to gifts to U.S. charities. Individuals intending to give or bequeath significant sums to foreign charities need special planning if they hope to gain similar tax benefits. In US tax treatment of gifts to foreign charitable entities, G. Warren Whittaker explores various strategies, including private foundations.

If Mr. Whitaker's name sounds familiar, that's probably because he is the distinguished estate lawyer who succeeded Brooke Astor's longtime lawyer, Henry Christensen III, after Astor's son, Tony Marshall, had Christensen fired.

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In his fourth day of testimony at Marshall's trial, Christensen said he distinguished between Mrs. Astor's competency to execute a codicil and her ability to comprehend a whole new will:

After he was fired, Mr. Christensen said, he warned Mr. Marshall that while his mother could follow narrowly focused changes to her will, she was in no condition to seismically alter her estate plans. “I did not believe she was competent to sign an entirely new will,” Mr. Christensen said.