As I have said before, many people look to coaches for solutions. I have been involved in a charitable planning strategy called GIVE for a while now, and wanted to see what the fiscal cliff resolution would do or not do for charitable planning.

So, I interviewed the creator of the GIVE Strategy, Thomas Lee, to find out how you can use the new tax deal to grow your practice. 

To give you a little history on Tom and his firm, Tom and his team at Lee, Sipe and Associates have done over 25 CRUTs and redirected over 28 million to charity in the last 24 months. They have been recognized by The American Heart Association, The American Cancer Society, The Salvation Army, The American Red Cross, Boys Town, and Cross International for their tireless work to change the face of planned giving. 

This team knows CRUTs (Charitable Remainder Unitrusts) and charitable planning. I thought sharing his wisdom with you would be a great way to kick off 2013. Charitable planning can be a great initiative in 2013, here is how you can use the fiscal cliff to add a play (charitable planning) to your play book.

Tom, can you please tell me, is the fiscal cliff legislation positive for charitable planning or not?

Tom: The resolution of the fiscal cliff was overwhelmingly positive for charitable planning.  In general, charitable planning is more powerful with higher taxes, not just because of the math, but because of the psychological motivation to avoid taxes:

  1. Long Term Capital gains tax and Dividends:  for tax payers with AGI over $400,000 (Single) and $450,000 (joint), rate = 23.8% which is a 58% increase over the old rate! (5% increase in rate 3.8% Medicare tax/15% old rate)
  2. Short Term Capital gains tax and interest income:  AGI over $400,000/$450,000, rate = 43.4% which is a 24% increase over the old rate.
  3. Earned Income:  AGI over $400,000/$450,000, rate = 39.6% which is a 13.1% increase over the old rate
  4. Medicare tax on investment income:  AGI over 200,000 (single) and $250,000 joint, rate = 3.8%
  5. Pease limitation:  AGI over $250,000/$300,000 phaseout = 3% of income over threshold up to 80% of itemized deductions
  6. Personal Exemption Phaseout:  AGI over $250,000/$300,000 phaseout = 2% of every $2500 over threshold
  7. Estate Taxes:  Estates over $5M single/$10M married, rate = 40% which is a 14.3% increase over the old rate

Those are powerful points! There are a lot of positives, are there any drawbacks?

Tom: There is only negative, if you can call it that, is the PEASE Limitation which, for the vast majority of the wealthy, is not a negative at all for ADDITIONAL charitable gifts. 

Example: Married taxpayer who has $1M in AGI is $700,000 over the threshold amount which equals a $21,000 reduction in deductions ($700,000 X 3%). 

That same couple who receives a $100,000 deduction as a result of some charitable strategy will have no effect on deductions as long as itemized deductions are at least $26,250--which for someone with over $1M in AGI is a pretty good bet.  In states that have a state income tax, it is almost an automatic given that state taxes are deductible on the federal level.

What would you tell your fellow financial advisors?

Tom: The bottom line is this; the tax savings from charitable deductions, exemption from estate taxes and the tax exempt nature of many charitable trusts makes charitable planning more compelling now than it has been for many years.  Add to this the ability to pair charitable deductions with Roth conversions and the stock market nearing all-time highs--you need to be bringing up charitable strategies with wealthy clients.

Where can people find out more about charitable planning and your GIVE Strategy?

Tom: The American College has an amazing program called the Chartered Advisor in Philanthropy. It is a great program to teach you about all forms of charitable financial planning. The GIVE Strategy focuses on educating GIVE Alliance members on CRUTs, how to identify the right clients/prospects, how to create a GIVE Plan, and how to market in this arena.

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