On May 26, 2001, Congress enacted major changes in the nation’s tax laws.  The nonprofit community had hoped that several components of earlier versions of the legislation such as the non-itemizer deduction and the charitable IRA rollover provisions would be included to encourage charitable giving.  Unfortunately these provisions were not included in the final bill.

Early press reports have been confusing.  Some have predicted gloom and doom for charitable giving in the wake of reduced income tax rates for the wealthy and elimination of the estate tax.  For example, a New York Times article reported predictions of  “…a 90% drop in charitable giving at death.”  On May 30, the Washington Post in a front-page article entitled, “Charities Decry Tax Bill Setback,” reported predictions that “the bill would deprive nonprofits of up to $6 billion a year from bequests.”  Because charitable provisions in estates not currently subject to tax would presumably not be altered, this means that upwards of $6 billion of the $10 billion deducted from federal estate tax returns in the most recently reported year would disappear, a 60% decline in bequests by the wealthy! In its June 14th issue, the Chronicle of Philanthropy  in an article entitled, "Phase-out of Estate Tax Will Make It Tougher to Raise Funds Over Long Term, Experts Say," conveyed mixed messages regarding the impact of the bill.  This article will be read by many nonprofit managers and volunteers who are not actively involved in major and planned gift development on a daily basis.

Fortunately, other reports, most notably a study that wealth transfer expert Paul Schervish conducted for Banker’s Trust Private Banking, would indicate an INCREASE in charitable giving when estate taxes are eliminated.

Which school of thought is correct?

Perhaps both.  Those who are silent in the face of negative press reports that may be molding the thinking of their donors, top management, and volunteers could be among the ones that suffer from the effects of dire and possibly self-fulfilling prophecies.  Meanwhile, charities that act quickly to communicate the positive benefits of reduction in estate taxes will stand to benefit.

It is now up to leaders in the charitable community to highlight the positive aspects of the changes in the law - even while we continue efforts to pass charity-friendly measures in the future.  

What to do now?

1. Communicate with your constituency.

It has perhaps never been more important that you send positive messages to your internal and external constituencies as soon as possible.  It is important that they receive a message that will counter what they are learning from the mass media.  Major donors, volunteers, and nonprofit managers outside development are reading the press reports such as the New York Times article mentioned above. They need to know that predictions of a 90% drop in bequests are wholly based on conjecture and not a foregone conclusion by any means.

2. Prepare yourself.

As quickly as possible, learn what you need to know about the content of this tax bill and how it affects your programs.  It will impact different organizations in different ways.  In some cases where the majority of donors are very wealthy, very old persons, it will be largely business as usual.  In other cases, strategies may need to be changed immediately  on account of the relatively rapid phase-out of the estate tax for most Americans.

Of the 97,868 people who died with taxable estates in 1998, 49,705, or 51% of them died with estates valued at between $650,000 and $1 million.  Note the distribution of estates by size in 1998.

This means that 51% of people currently subject to estate tax will no longer be burdened with this liability as early as January 1, 2002, NOT January 1, 2010, as commonly reported in the press.

For planning purposes, nonprofit executives should assume that upwards of 90% of Americans who were previously  subject to estate tax will now be exempt from this tax in a matter of a few months to a few years as a result of the near-term increases in exemption amounts.  Estate planning experts predict a huge increase in planning activity as a result of the new law (see link to New York Times article of 6/14/01 below) and there is thus a tremendous window of opportunity to encourage inclusion of charitable gifts in estates as they are revised.  Those who respond appropriately to this legislation have a very short time period in most cases to deal with its influence, not the nine years one might assume from a cursory review of the new law.

There are great opportunities for increased funding in all of this.  All development officers need to learn what they are -- and fast.

3. Prepare your staff.

Once you understand the impact of the law, it is important to inform your fellow development and other staff members about what it means.  This should also be done as quickly as possible.

We are here to help you

Our team of experts in charitable gift planning has analyzed the impact of the new law and prepared materials to help you respond in a timely and positive manner. Among new and updated services:

• A booklet designed to inform donors, staff, and advisors is now available.  A copy may be downloaded for review and ordered directly from this Web site.  Click on “Tax Act Booklet”.
  
  

• All other Sharpe publications have been updated where necessary to reflect changes in the law and new planning opportunities. For information regarding our publications replacement policy and shipping schedules, click HERE.

More resources

Listed below are several other resources you may wish to explore as you study the impact of the new law on charitable giving.

• Special Trusts & Estate magazine report on "Charitable Giving and the Great American Wealth Transfer" including in-depth analysis of impact of tax law changes by Robert F. Sharpe, Jr. Trusts & Estates frequently publishes articles and other materials of interest to charitable gift planners.
  
  

• Report and analysis of Bankers Trust Study that predicts increased giving from wealthy with reduced estate taxes - Click HERE for May 2001 Give & Take.
  
  

• Analysis of source of charitable bequests, taxable versus non-taxable estates - Click HERE for March 2001 Give & Take.
  
  

• For software that illustrates the impact of the latest tax law changes, visit PG Calc.
  
  

• Link to June 14, 2001 New York Times  article,  “Lawyers and Accountants Expect Windfall From Estate Tax Repeal” referred to above.
  
  

• The June 14, 2001 Chronicle of Philanthropy article, "Phaseout of Estate
  Tax Will Make It Tougher to Raise Funds Over Long Term, Experts Say" can be
  downloaded from www.philanthropy.com
  
  

• The New York Times article, “Questions Raised On New Bush Plan To End Estate Tax,” January 29, 2001, may be downloaded from www.newyorktimes.com using search feature.
  
  

• Link to Washington Post article, “Charities Decry Tax Bill Setback” referred to above.
  
  

• Interview with advisor to high net worth individuals on impact of law - Click HERE for the interview with John Goodwin in the  May 2001 Give & Take.