Age of Giving Suggests Better Planning PossibleSubmitted by American Endowment Foundation on October 30th, 2017
By Martin M. Shenkman, CPA, MBA, PFS, AEP, JD , Guest Columnist
IRS data indicates that a disproportionately large amount of charitable contributions, in terms of both the number of gifts and the dollar amounts of those donations, are made by taxpayers over the age of 55. The statistic is that 21% of itemizers over the age of 65 give one-third of all tax deductible charitable gifts. Taxpayers over age 55 also made average gifts nearly twice as large as those made on average by taxpayers who itemize.
The apparent fact that donations increase significantly at older ages might suggest several considerations that affect planning. Addressing these factors may help the donor improve his or her financial position. It may also provide some insights to planned giving professionals to raise more money sooner.
Older Donors Should Rerun Financial Planning Forecasts
Giving by some older clients may thus increase after the foundation of planning for their retirement finances was determined. The earlier planning may not have reflected, nor have been updated to reflect, the increase in charitable outlays. Budgets and forecasts based on a different level of giving may need to be updated to be accurate.
While encouraging clients to donate is a noble endeavor, be certain that the clients have had reasonable financial forecasts completed to an appropriate age so that the donations are in fact sustainable without adversely affecting the client’s ability to maintain their lifestyle for an appropriate time.
For example, an endowment construct for sustainable charitable giving might facilitate the client maximizing donations without undermining financial security. Incorporating a line item for gifts into the client’s financial projections and Monte Carlo simulations may provide a better method of analysis for determining appropriate gifts from an economic perspective, e.g. what can be given in any year without undermining long term financial objectives. This approach could free more wealth for transfer at earlier dates than the common approach of many professional advisers of focusing on tax minimization. Once the economic parameters are determined, then it can be evaluated how the gift transfer should be made from a tax perspective.
Make Gifts to Donor Advised Funds Earlier
It may prove advantageous for many future donor/clients to begin their donations at an earlier stage of their lives. If the prospective donors are in higher income tax brackets while working, i.e., before retirement at younger ages, they might be counselled to ramp up donations then, make them to donor advised funds (“DAFs”), and then determine which charities to allocate those donations to after retirement when perhaps, based on the statistics, they have more time to focus on philanthropic endeavors. The statistics might indicate a significant sub-optimal donation pattern for many taxpayers concentrating donations in post-retirement years when they are in lower income tax brackets and will garner lower tax benefits from donations that might be made earlier.
Be Certain Powers of Attorney and Revocable Trusts Reflect Intended Giving Standards
Powers of attorney and revocable trusts that address gifting should be reviewed to be certain that they permit charitable gifts. Many simply do not. If the client has a penchant towards charity, be certain that someone has reviewed what might have been a standardized form of durable power that simply did not authorize charitable donations.
Further, consider how the language in the power of attorney might affect donations. A common approach used in many powers of attorney that do permit charitable gifts by an agent might be to incorporate a phrase like: “My agent may make charitable gifts in accordance with my historical pattern of giving.” But if charitable giving drifts upward in later years, how might such language be interpreted if the pattern of giving has changed? Perhaps a more objective pattern might be used, or the general phrase clarified by suggesting donations in recent years be used to establish the pattern of giving.
While only limited conclusions can or should be drawn from the limited statistic noted above, it does suggest some common sense, relatively easy, and potentially significant changes be addressed when planning for charitable gifts by certain donors.
 Robert F. Sharpe, Jr., “Who Makes Charitable Gifts and Why?” May 18, 2017 http://www.wealthmanagement.com/high-net-worth/who-makes-charitiable-gif... .
Martin M. Shenkman, CPA, MBA, PFS, AEP (distinguished), JD, is an attorney in private practice in Fort Lee, New Jersey and New York City, New York. Author of 42 books and more than 1,000 articles. Editorial Board Member of Trusts & Estates Magazine, CCH (Wolter’s Kluwer) Co-Chair of Professional Advisory Board, CPA Journal, and the Matrimonial Strategist. Active in many charitable and community causes and organizations. Founded ChronicIllnessPlanning.org which educates professional advisers on planning for clients with chronic illness and disability and which has been the subject of more than a score of articles. American Brain Foundation Board, Strategic Planning Committee, and Investment Committee. Bachelor of Science degree from Wharton School, concentration in accounting and economics; MBA from the University of Michigan, concentration in tax and finance; Law degree from Fordham University School of Law. www.shenkmanlaw.com.
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