This is the second article in a series discussing various tax planning opportunities that should be considered in the wake of the recent elections.  The prior article discussed postponing sales until 2017.

There are at least three aspects of President Elect Trump’s tax plan that favor accelerating charitable gifts to 2016.

First, income rates will likely go down in 2017.  If you can make a gift in 2016 and reduce your taxes by 40% of the amount you give, this is likely a bigger savings than you will receive in future years.

Second, Trump proposes to cap itemized deductions at $200,000 per year.  This limitation will significantly reduce the benefit of making charitable gifts for certain taxpayers.

Third, Trump proposes to impose a capital gains tax on transfers of appreciated property to a private foundation.  It is unclear whether he intends for this rule to apply to lifetime gifts or just to testamentary gifts.  However, if this tax only applies to testamentary gifts, it could be easily avoided by making a deathbed gift.

Today, I met with a couple who are considering making a substantial charitable gift sometime between now and the first quarter of 2018.  These clients expect to receive substantial income in 2017.  I called my client’s CPA and she ran the numbers based on a hypothetical 2017 tax system consistent with Trump’s proposed plan.  The conclusion is that the clients will get significantly more tax savings by making a gift in 2016.  The gift will consist of some cash and appreciated securities given to a private foundation and some cash given to a donor advised fund.  The private foundation and the donor advised fund will allow my clients to make the gift now and pick the actual charities that will receive the funds later.  Giving part of the gift to a donor advised fund will allow the clients to save more taxes as compared to giving everything to the private foundation.

Do you have a clear vision of your foundation’s future? Do you know the charities you want your foundation to support? How long do you want your foundation to last? Who will make decisions regarding grants from your foundation after your death or incapacity?

I have been surprised that these questions have not yet been answered by a lot of my clients who have already funded a family foundation and/or plan to make substantial contributions to their foundation upon their death. As to lifespan, a recent study by the Foundation Center concluded that 63% of family foundations plan to last into perpetuity, 12% plan to have a limited lifespan, and 25% are undecided about their lifespan. It has been my experience that the undecided group is higher than 25%.

Setting up and funding your foundation is the most difficult step. Establishing rules for the management of your foundation should be the easy part. You owe it to yourself, your family, and your favorite charities to make sure that there are definitive guidelines for the management of your charitable legacy. 

Link to Perpetuity or Limited Lifespan: How Do Family Foundations Decide?