How did you first become interested in estate and charitable planning, and how does that inform your work now?
I decided to practice in this area because it’s really rewarding to help people plan some of the most personal areas of their life. Estate and charitable planning are about family, career, and legacy—it’s about the fruits of years of hard work and perseverance.
I love doing work for Harvard. The charitable giving component of my practice is especially satisfying because everyone is working toward a common goal: you have a generous donor who is interested in making a difference and an institution that is also making a difference. It’s a huge win for everyone.
What strategies would you recommend for people looking to blend family estate planning and philanthropic giving?
Split-interest gifts can benefit someone in your family or, in some cases, even yourself because you’re retaining an interest in the gift—the ability to receive a payment every year or every quarter, for example.
With a charitable remainder trust, you give property to a trust and retain an interest that allows for periodic payments from the trust to yourself, one of your family members, or other beneficiaries. When that stream of payments ends, the remaining amount is paid to Harvard.
Retirement plan assets can also be used to fund a charitable remainder trust at death, as payments can be stretched out for your surviving spouse, children, or other beneficiaries in an income tax–efficient way. Eventually, the remaining amount from your retirement plan assets in this trust can be paid to Harvard to fulfill your giving objectives.
A charitable lead annuity trust is the mirror image of the previous strategies. In this case, a stream of payments is paid to Harvard over a period of time. At the end of the term of the trust, the remainder is paid to your family, which can be structured on a tax-preferred basis.
Whether you have a particular estate planning goal or a philanthropic goal, the Harvard University Planned Giving team and Ropes & Gray can help you explore your options and find the right match.
This year has brought about a lot of tax law changes, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act. What planning considerations should people be aware of?
The CARES Act temporarily removes the 60 percent of adjusted gross income cap that usually applies to deductions for cash gifts to charity made by individuals who itemize their deductions. With this new law, taxpayers who itemize may claim a deduction of up to 100 percent of their adjusted gross income for cash gifts to qualified public charities in 2020. For people who don’t itemize, they can deduct up to $300 for such gifts.
An additional provision also allows taxpayers to suspend required minimum distributions from IRAs and other qualified retirement plans for 2020. The opportunity to make a direct gift from your IRA—which is called a qualified charitable distribution—remains an efficient way to deploy assets in your IRA and accomplish your philanthropic goals at the same time. There are some restrictions: You must be at least 70½ years of age, your gift can be no more than $100,000 in cash, and it must be given directly to a public charity. Likewise, despite the pandemic, the stock market has done well this year. Making gifts of appreciated marketable securities is still a solid way to give now and in the future.
How would you advise someone who has a portfolio of non-cash, illiquid assets?
A gift of illiquid assets, including real estate, partnership interests, or shares in a private business, can be a terrific opportunity for people who would like to stretch their giving portfolio. Since these assets tend to be a little bit more complicated, it’s important to drill down and carefully understand any applicable restrictions, debts, or liabilities that may exist with respect to these assets. Harvard has excellent resources to help you evaluate whether illiquid assets might be a good fit for charitable giving.
How might people benefit from the individual gift and estate tax exemption before it’s scheduled to change in 2025?
There’s a lot of attention right now on the gift and estate tax exemption, part of the Tax Cuts and Jobs Act that was passed at the end of 2017. The exemption is $11,580,000 per person in 2020—meaning that during one’s lifetime or at death, one can give away up to that amount, and a married couple can give up to $23,160,000. The exemptions are indexed for inflation.
Under current law, the exemption is scheduled to revert to significantly lower levels in 2025, but the exemption might revert back to lower levels even sooner if the law is changed. This exemption is applied to any taxable gift—whether it’s a gift to children or others, outright or in a trust. While there is an impetus to use the exemption before it goes away, it’s also important to maintain one’s own financial security when considering large lifetime gifts.
In this historically low interest rate environment, are there gift vehicles that are particularly advantageous?
Some of the techniques we’ve talked about previously are especially beneficial when there are low interest rates, specifically the charitable lead annuity trust. When interest rates are low, it is easier to structure the trust to ensure that the giving technique provides the intended benefits both to charity and the donor’s family in a tax-efficient way.
Another technique that is very useful is the ability to give a remainder interest in your personal residence to charity and to retain a life estate. For example, if I were to give Harvard a remainder interest in my house—and retain the right to live there for as long as I like—the tax deduction for my gift to Harvard of the remainder in the house is larger in a low interest rate environment.
This story is featured in the Winter 2020 issue of the Gift Strategies Newsletter. For more information about charitable giving techniques, please visit our webpage or please contact us here with any questions.