Updated: Feb 3, 2020

Recent studies estimate that some 42%* of planned gifts come from bequests. Yet, these gifts only represent 8%* of all giving. Reading between the lines of these results tells me that many of the planned giving departments at all of the major institutions are waiting a very long time for the preponderance of their gifts. In fact, it seems that many of the planned giving leaders are missing some big opportunities to bring gifts forward sooner through other planning methods. Further, with the increase of the estate exemption, the utilization of the bequest as a method to eliminate estate tax at the end of a donor’s life will likely become less and less meaningful and bequest are very likely to diminish in the future. Are there better gifts to consider than bequests? Let’s consider these “final four.”


Four Bequest Alternatives for Planned Giving

  1. The LEGA-C plan™ which utilizes a retained life estate in the donor’s residence (principal or otherwise) and then transfers the remainder in exchange for a Charitable Gift Annuity. In this modern age of the dispersed family, in many instances, the children don’t want the family home for themselves. In fact, having to market it after their parents pass away is often a huge burden. Take the home out of the estate, grant income to the parents, let them age in place for as long as possible and secure a gift immediately.

  2. Testamentary CRT: Consider the taxable estate loaded with illiquid real estate or a closely held business. Using a CRT or CRTs for the next generation will transfer a remainder interest out of the taxable estate and can provide some estate tax relief. While this may seem like a reach, experience tells me that there are a countless estates that have very little planning done and many families are caught by unpleasant surprise at the death of the business owner. While not a perfect solution, proper structuring can help keep things together.

  3. Testamentary IGNIT Plan™ also known as a multi-generational young pooled income fund. This will look like the testamentary CRT from above but with the ability to add income beneficiaries who are much younger than the limited ages allowed by the CRT. Again, the “discount” to the estate can be significant enough to reduce or eliminate the estate taxes significantly and the simplicity of the transaction is beguiling.

  4. TCLAT with a twist: I wrote about this in a prior article with Dan Rice. The testamentary charitable lead annuity trust is an often used strategy to “zero out” the estate by taking all of the assets that are over the exemption amount and dropping them into a TCLAT using a formula for time and payout percentage that gives a “zero” gift amount. The complaint from heirs is that they may have to wait twenty or thirty years for the CLAT to terminate. With the twist of buying the assets with a note, that complaint should disappear. It’s a little complicated but worth it if the stakes are high enough.

There you have it, my final four. Who’s going to win is yet to be determined. Seriously, these alternatives to bequests should be in every planner’s playbook. One of the fundamental duties I undertake when reviewing estate plans is to look through the documents to see if they contain bequest language. It provides a wonderful opportunity for further discussion and for more effective planning.


*2016 “The 2016 Planned Giving Study” Pentera and IUPUI Lilly School of Philanthropy    

#testamentaryCRT #plannedgiving #TCLAT #The2016PlannedGivingStudy #bequestalternatives #LEGACplan #plannedgifts #TestamentaryIGNITPlan

Updated: Feb 3, 2020

by Randy A Fox, CFP®, AEP®

I attended the recent Heckerling Institute on Estate Planning for the first time in a dozen years. While it is considered to be among the top estate planning conferences in the country for all things estate planning, I found the program to provide very little in the way of creative applications of charitable planning strategies and information.


With the raised estate exemption, the general theme focused on income tax planning as the new direction and focus for planners of all types. While there were throngs of practitioners listening to wonderful ideas to preserve basis step-up, income tax reduction by using the new 199A provisions and fully understanding the implications of §1202 qualified small business stock, the best we got in charitable planning was how to make qualified charitable distributions from an IRA and simple donor advised fund rules.


Charitable planning appears to be the vast wasteland of tax planners with little interest shown. Yet, in a time of income tax focused planning, Charitable Lead Trusts, Charitable Remainder Trusts, Young Pooled Income Funds and other gift types all can provide significant income tax benefits. I’m not sure why the Heckerling committee bypasses mainstream charitable planning on a regular basis. Yes, this is not a conference meant to be focused on philanthropy as is the National Association of Charitable Gift Planners annual event, but it is the pre-eminent estate planning conference in America and certainly charitable planning is part of estate planning.


If this sounds like whining, it’s not meant to. It is meant to be constructive. The other 4,999 attendees all have their own experience and their own opinions. I felt a lack in an important area and am giving it voice.


#estateplanningcourses #heckerlinginstitute #heckerlingreview

Updated: Feb 3, 2020

Advising clients on their philanthropy represents the pinnacle of advice giving: an area where personal fulfillment meets creative tax planning and beautiful solutions arise. Those advisors who practice in this area can appreciate elegance of the many tools we have at our disposal. There are powerful benefits available to donors and to charitable organizations that are allowable that it is distressing to find those who seek to abuse the system. Yet, there they are. Almost, weekly I’m made aware of a “transaction” that is positioned as a gift structure but is nothing more than an abusive tax dodge. Totally unnecessary personally upsetting and asking for trouble from the IRS.


Here is an example of language from a website that offers one such structure:

…“while addressing the traditional problems of charitable gifts – (1) Loss of control over the money (2) Loss of control over the disposition of the money (3) Loss of investment control (4) Loss of access to use of the funds for financial planning purposes. This strategy is able to overcome these problems in a conservative manner from a tax perspective.


I never realized that the “problem” with a charitable gift was loss of control over the money or better, having access to funds for my own purposes after having given it away. The website goes on to offer a Family LLC structure which gives 99% of its non-voting interests to a Donor Advised Fund (DAF) and allows the family to keep and control the assets with a 1% voting interest. Actually, that part’s fine. It goes on to say, however, that the 1% owners should be entitled to compensation for management citing hedge funds 2-3% management fees and 20-30%. This is more than abusive. In fact, it’s prohibited.


Section 1232 of the Pension Protection Act of 2006 (“Act”) amends the excess benefit transaction rules to add new IRC § 4958(c)(2) (“Special Rules for Donor Advised Funds”) under which, effective for transactions occurring after August 17, 2006, a grant, loan, compensation and other similar payment from a donor advised fund to a donor, an advisor to the fund or a related party is automatically considered to be an “excess benefit transaction.” The entire amount of the grant, loan, compensation or similar payment, therefore, is treated as an excess benefit, notwithstanding the value of the consideration provided in return for such payment.


When you consider how much control we can give donors in DAFs and how much can be given in young polled income funds, there is no reason for any of this nonsense. If you need to make these kinds of agreements with your donor, they’re not truly a donor. These schemes that sound too good to be true are just that. It’s so easy to do this work properly it’s a shame to see so many take these illegal shortcuts.


#illegaltaxpractices #taxevasion #taxplanning #toogoodtobetrueschemes

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