Revamping How We Think About and Analyze Gift Planning Options Big 12 Development Conference Baylor University May 21, 2018 Laura Hansen Dean, J.D. lhdean@austin.utexas.edu

Gift planners silently analyze which gift planning options might work and which won't work while we meet with donors and learn more about their giving desires, financial details, and estate plans. 2017 tax law changes are projected to mean that very few gift planning donors may need income, gift, and estate tax-qualified charitable giving options starting in 2018. This session will discuss how our donor conversations and thought process may need to change.

2017 Tax Law Changes Federal Estate Taxes In 2018 each decedent can pass up to $11.2 million estate tax free with couples up to $22.4 million estate tax free plus unlimited amounts to spouses and charities. These amounts will be indexed for inflation each year through 2025. In 2026 these amounts revert back to $5 million/$10 million plus inflation since 2011. Depending on inflation, could be $6.5 million/$13 million in 2026. Result: Less than ½ of 1% of decedents will owe federal estate tax through 2025.

Charitable Giving in Estate Planning Include Charitable Contributions In Estate Planning When A donor wants to make an impact gift after his/her death or wants to increase the impact of a gift made during his/her lifetime. A donor expects to have more assets at death than he/she wants to leave to directly to his/her heirs. A donor wants to leave some of his/her wealth to benefit his/her heirs with the rest left as philanthropic inheritances.

A donor wants to make significant annual gifts to charities and eventually leave more wealth to “skip persons” (typically grandchildren) than the amount exempt from generation skipping transfer taxes. A charitable lead unitrust funded during lifetime or after death makes annual distributions to charities with assets passing to skip persons when the trust ends.

2017 Tax Changes Federal Income Taxes In 2018 the standard deduction increases from $12,000 to $24,000 for married filing joint from $ 6,000 to $12,000 for single taxpayers Result: These changes to itemized deductions are projected to reduce itemizers from approximately 20 to 30% of filers to 5% of filers.

Federal Income Taxes – Good News In 2018 and after (permanent) – cash gifts to public charities can be deducted up to 60% of AGI in the year of the gift with 5 year carryover. Pease amendment which reduced itemized deductions for high income taxpayers repealed.

Questions How does the likelihood that a donor will need an estate tax charitable deduction or will claim an itemized charitable income tax deduction affect how we 1) evaluate which gift planning options to present to the donor and 2) how we present those options to the donor? Are there any assumptions we should make about these issues when talking with donors and disclosing gift option limitations/tax consequences?

Thinking About and Analyzing Gift Options Case Study One A resident of California calls to inquire about making a gift of Texas mineral interests that he inherited after his mother’s death. She was a graduate of your university. He wants to retain income from the mineral interests for his and his wife’s lives (68 and 64) and for the lives of their children (the youngest is 24). He would also like the university to manage the mineral interests when he tires of doing so.

What Gift Options Come to Mind What Gift Options Come to Mind? What Else Do You Need to Know As You Think About the Gift Options? Any Issues With What the Donor Wants From the Gift Plan?

Case Study Two Mike wants to make a lifetime gift of part of his wide-ranging collection of artifacts to your institution to be sold and the proceeds used to support a specific program area.

Do Any Issues Come to Mind Do Any Issues Come to Mind? What Are the Possible Tax Consequences for Mike?

Case Study Three Sally wants to make a lifetime gift of some of her mineral interests to your institution. She wants to retain the surface rights for her lifetime and for her heirs.

Do Any Issues Come to Mind Do Any Issues Come to Mind? What Are the Possible Tax Consequences for Sally?

Case Study Four Gigi, age 70, wants to provide a lifetime income for her 42 year-old son who is not able to be financially independent as part of her estate plan. She wants her executor or trustee to determine how much income her son receives each year with the ability to use the gift corpus for her son if needed. The remainder of the assets will come to your institution.

She is not married and her estate is currently valued at about $4 million, including mineral interests. Her attorney believes that the value of the mineral interests could significantly increase before her death. Gigi has some health issues so her attorney is not sure if she will survive to 2025.

Do Any Issues Come to Mind Do Any Issues Come to Mind? What gift options could be included in her estate plan to address pre-2026 and 2026 and after?