Time to Revisit Your Bequest Program

Time to Revisit Your Bequest Program

Article posted in Practice on 21 March 2018| 1 comments
audience: National Publication | last updated: 22 March 2018


The new tax law has forced us to change the way we plan and to review the way we may have planned in the past. Even the simple bequest has changed for many, and all advisors should be on the alert to review and re-envision how they are structured.

By: Randy Fox, Editor-in-Chief - Originally published on NonProfit Pro

Bequest programs are a fundamental building block of any planned giving program and for good reasons: They are simple to establish; they represent the largest segment of planned gifts (over 65 percent by some estimates); and they do not change the donor’s life one iota. While there is some effort in getting the message out to donors and keeping track of potential bequests, most programs lie dormant until the donation appears at the death of the donor.

The new law passed at the end of 2017, now being known as Tax Cuts and Jobs Act should cause every bequest program to take another look at their bequest files and to make contact with all of their potential donors.

The reason for this is complex and simple at the same time. First, with the new estate exemption at $11.2 million per person, most estates will no longer be taxable. While that’s good news for most, it also means that the intended bequest will have no tax effect at all on the donor, the donor’s heirs or the donor’s estate, except for the removal of the gifted asset. For some, that will be fine. For others, however, there are gain some tax benefit without changing very much.

Change a Bequest to Current Planned Gift

One idea would be to discuss changing the bequest to a current planned gift. If the donor was intending to leave their residence to the charity, have them consider changing to a life estate agreement, thereby gaining a current income tax deduction and still retaining the right to live in their home until they pass away. This small change can have a huge impact on both the charity and the donor, securing the relationship and the gift. Any asset that a donor is leaving in bequest form should be reviewed and options for it explored. If there’s a better, more tax effective way for the donor, the charity that approaches their donors with these solutions will become heroic in stature.

Convert Asset Gifts to Gifts of Income

A second idea to consider is a little more complex, however, just as effective. Since the gift of an asset from an estate may no longer make a difference from an estate tax perspective, perhaps it’s time to make a gift that will make a difference from an income tax perspective. Consider that estates are separate taxpayers and pay income taxes on their earnings. They can also deduct expenses, including charitable gifts, without the limitations that individual taxpayers face. Therefore, it would make some sense to analyze the bequest portfolio and to convert asset gifts to gifts of income.

For instance, consider that a donor may have a bequest that says “I leave $100,000 of cash to XYZ charity for such and such purpose”—a nice gift for the charity, but tax inefficient for the donor. Instead, consider helping the donor re-frame the bequest to state, “ I leave the first $100,000 of taxable income to XYZ charity for such and such purposes.” Same result for the charity, better result for the donor since that $100,000 will be deductible from the estate’s income tax return, saving the heirs income tax.

These are treacherous times for charities as it relates to funding. Many fear that the inability of many taxpayers (from 30 percent to 5 percent by most estimates) to itemize deductions on their tax returns will cause a precipitous and deadly drop in donations. Nonprofits need to step up and proactively find ways to communicate effective giving strategies with their donors in order to secure their futures. Discussing innovative and effective ways to utilize bequests in light of the new law is certainly one step in that process.

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Re: Time to Revisit Your Bequest Program

Interesting read - I like the term "Life Estate Agreement" as a small non profit with a robust PG program - Life estate agreement could be a solid strategy. Do you have further information on best to market?
Suzanne Shaheen

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