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by Barlow T. Mann
The IRS discount rate used for gift
calculation purposes has fallen to
an all-time low of 2.4% for January
2009. The implications of this for
gift planners and potential donors
are significant.
Some gift proposals currently
under consideration may not qualify
for a charitable deduction depending
on when gifts are
completed, while
others will find
that the amount
of the charitable
deduction will
be reduced. On
the other hand,
certain gift plans
will be even more
attractive due to
the lower AFMR
and it may be
wise to send
revised proposals
that emphasize
that fact.
Review marketing materials
In some cases, marketing materials
including examples and rate
charts may no longer be accurate
and should be revised as necessary.
Charitable gift annuities and
charitable remainder annuity trusts
(CRATs) in particular for persons in
their 50s, 60s, and 70s may fail to
meet certain minimum remainder requirements and other rules,
thereby creating tax issues.
For example, using a 2.4%
discount rate, a 5.4% one-life charitable
gift annuity for a 57-year-old
and a two-life gift annuity for a
65-year-old couple both fail to
generate a required 10% charitable
gift portion. Likewise, it is impossible for a couple 75 and 70 to establish
a 5% charitable remainder annuity
trust (CRAT) because of a greater
than 5% probability that the trust
corpus will be exhausted. In another
example, a 6% CRAT for a 75-year-old
fails to pass the 5% probability
test!
Remember that in January and
February, donors may elect to use the discount rate from December
or November. This may provide
some temporary relief for gift proposals
that are currently under
consideration.
New rates offer solution
The American Council on
Gift Annuities acted in December
to lower gift
annuity rates
(see page 6)
and thereby
removed the
challenges for
younger gift
annuitants. In
order to make
it possible to
create charitable
remainder
trusts for
younger persons
with long life
expectancies,
however,
Congress will
have to act to
lower minimum payout amounts
or make other changes in the law.
In any event, it is no longer
a matter for professional debate
whether certain planned gifts
should be marketed to younger
donors than normal. It is no longer
practical as tax law limitations
have now been triggered.
If these lower discount rates continue into the
spring, gift planners will need to adapt quickly
to help donors discover alternative gift strategies
that may better meet personal and philanthropic
planning objectives for younger donors.
Remember that lower discount rates make
charitable lead trusts and remainder interests in
personal residences and farms more appealing
than ever before. These gift plans may be even
more attractive alternatives to major outright gifts
should current economic trends continue in 2009.
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