PLANNED GIVING UPDATES FROM MARK HEFTER, NATIONAL ATS PLANNED GIVING DIRECTOR Contact: mark@ats.org (212) 407-6313   Check this site for news that can affect your estate planning. Here you can find information about planned giving as well as legislative proposals and changes in tax law. November 17, 2008 Gift of the Month: Charitable Gift Annuities The Charitable Gift Annuity (CGA) is one of the most popular types of planned gifts. In exchange for a charitable gift of cash or marketable securities, the ATS will pay the donor an income for life. Annuity payments are fixed so that once established the amount of income is not affected by economic conditions, interest rates or inflation. CGAs usually pay donors who are more than 65 years old a higher return on their investments as compared to a commercial annuity because the CGA has several tax benefits. Moreover, Technion students, faculty and research significantly benefit from CGAs. The economy is fluctuating now and even though the CGA rates decreased as recently as a few months ago, there is discussion that the CGA rates may decrease again before the year ends. In response to the current economic conditions, the American Council on Gift Annuities will meet for a special session to consider reducing the recommended annuity rates. What does this mean? If you or someone you know establishes a CGA now, you will lock in at the current rates before any further decrease comes into effect. Even if rates are steady, returns on CGAs exceed those of other fixed-income investments. There are additional benefits including a one-time charitable deduction for the current tax year; a guaranteed income stream for life; and the satisfaction of knowing that the Technion and Israel are being helped. For more information about this gift option or other planned giving opportunities with the ATS, please contact me at (212) 407-6313 or mark@ats.org Legislative Update: IRS Notice 2008-99 Regarding Charitable Remainder Trusts On October 31, the IRS issued Notice 2008-99 in which the IRS recognizes a certain type of transaction with a Charitable Remainder Trust (CRT) as a “transaction of interest” under the reportable transaction rules. A transaction of interest is a transaction that the IRS believes has a potential for tax avoidance or evasion, but for which the IRS lacks enough information to determine whether the transaction should be identified specifically as a tax avoidance transaction. When the IRS has gathered enough information to make an informed decision as to whether a transaction of interest is a tax avoidance type of transaction, the IRS may take further action in order to prevent abuse. In Notice 2008-99, the IRS identifies the transaction where a donor funds a CRT with appreciated assets, the trust sells or otherwise disposes of the appreciated assets, and the donor and charity then sell their interests in the CRT to a third party. When the third party receives its distributions from the trust, the donor claims no capital gains tax on the appreciated securities. According to the IRS, parties to this transaction may manipulate the basis rules and coordinate the transaction to avoid capital gains tax. For an in-depth summary of Notice 2008-99, please click here and here. We are interested in hearing your comments on this Notice. Have you or your clients engaged in this type of transaction? Are you familiar with this type of transaction? Please let us know your comments by contacting me at (212) 407-6313 or mark@ats.org Charitable IRA Rollover As you probably have heard, last month Congress extended through December 31, 2009 the Charitable IRA Rollover provision of Internal Revenue Code Section 408(d)(8). Please call me at (212) 407-6313, or email mark@ats.org if you'd like a copy of our comprehensive summary of the law, or information about year-end giving options. October 8, 2008 SPECIAL ALERT We would like to inform you that you once again have the opportunity to make a gift to the American Technion Society (ATS) from your individual retirement account (IRA) while also enjoying a federal tax benefit. If you are at least 70.5 years old, for the last few months of 2008 and all of 2009, you may be permitted to make tax-free contributions of IRA proceeds to a charitable organization if you direct the funds directly to a charity like the ATS. What does the new law mean for you? Without this law, withdrawals from IRAs for charitable gifts are taxable to the donor. Under this law, if you are at least 70.5 years of age and have an IRA, you will be able to make a tax-free gift of up to $100,000 per year to the ATS until the end of 2009. Moreover, the amounts given to the ATS under this provision will count in the amount that federal law requires you to withdraw every year from your IRA. Your tax-free gift may be a payment of an existing pledge or a new gift. How does this work? You must follow the requirements, including: 1. The gift may be any amount, up to a maximum of $100,000 per year. 2. The gift must be an outright gift, not a planned or deferred gift. 3. You may not receive a benefit, like participation in an ATS mission, in return for the gift. 4. You must be at least 70.5 years of age. 5. The gift must be from your traditional or Roth IRA, as opposed to another type of pension plan. 6. The amount you give must be otherwise taxable if distributed directly to you. 7. You may make a gift between now and December 31, 2008, and again between January 1 and December 31, 2009, when the law expires. 8. You must make the gift directly to charity by instructing your IRA trustee or custodian to distribute the funds directly to ATS or the organization of your choice. (ATS has form letters of instruction if you need them.) 9. The gift must be to a qualifying public charity such as the ATS. Gifts to donor advised funds, supporting organizations or private foundations are not eligible. Donors in an excellent position to take advantage of the Charitable IRA Rollover include those... ➢ who are already giving at their deduction limit. ➢ whose income level causes the phase out of their exemptions or itemized deductions. ➢ who do not itemize their deductions. ➢ for whom additional income will cause more of their Social Security income to be taxed. ➢ who wish to remove up to $100,000 from their taxable estate. ➢ who would like to avoid the possibility that the government will impose taxes of up to 75% on IRA funds not distributed during the donor's lifetime. To find out whether the IRA rollover law can benefit you, please contact your personal financial advisor, and ask him or her about the extension of the IRA Charitable Rollover under the Emergency Economic Stabilization Act of 2008 (H.R. 1424). If you want to take advantage of the law for 2008, you must act before December 31. Unless Congress makes this law permanent, this may be your last chance to take advantage of this unique opportunity. For further guidance, you may contact me at (212) 407-6313 or at mark@ats.org . We look forward to hearing from you. August 25, 2008 Gift of the Month: Charitable Bequest A charitable bequest enables a person to support the Technion without depleting current financial resources, and it may also reduce estate taxes. By customizing their bequests, donors can have the added benefit of designating their support towards a project of their choice, or honoring or memorializing a loved one. Bequest commitments can be made for a specific dollar amount, for one or more named assets, or for a percentage of the donor's estate. Charitable bequests are easy to understand and simple to add to a will. In fact, a charitable bequest provision in a will can be as short as one or two sentences. Many charitable bequests provide for endowment gifts: these allow individuals to provide continuing support for the ATS and to positively affect the world-class academic and research activities at the Technion far beyond their lifetimes. When donors indicate that the ATS is included in their estate plans, the ATS and the Technion benefit immediately because the Technion is better able to anticipate future cash flow. This disclosure also allows the ATS to recognize the donors during their lifetimes. We can also work with the donors and their families on appropriate designation of the bequests. In certain circumstances, Technion makes current funding available to match a donor's bequest; in such cases the donor has the satisfaction of seeing his/her project started. For example, for a bequest commitment of $1 million dedicated to graduate fellowships, the Technion will name a graduate fellow in the donor's honor. At the donor's passing, the bequest will be used to fund a permanent endowment to provide four graduate fellowships in perpetuity. Since the beginning of its $1 billion "Shaping Israel's Future" campaign, the ATS has received nearly $250 million in bequest commitments and about $130 million in receipts from decedents' estates. These gifts represent about 80 percent of all the planned gifts that the ATS has received during the campaign so far. We recognize that making a bequest is a serious decision. A donor who makes a bequest commitment to the ATS automatically becomes a member of the ATS Genesis Circle, our planned gift recognition society. Genesis Circle members are recognized as leaders in the ATS family. If you have any questions or comments about making a charitable bequest or other issues related to planned gifts, please contact me at mark@ats.org or (212) 407-6313. I look forward to hearing from you. Legislative Update: The IRS Proposes Guidance Regarding Substantiation and Record Keeping for Charitable Deductions Recently, the IRS issued proposed regulations concerning substantiation and reporting requirements for a donor to claim a charitable deduction. The proposed regulations provide guidance about provisions of the 2004 American Jobs Creation Act and the 2006 Pension Protection Act that impact cash and non-cash charitable contributions. The proposed regulations make clear that a donor can claim a deduction only if he/she maintains and provides the proper records. For cash gifts, the donor must maintain a record showing recipient's name, date, and amount of contribution. For non-cash gifts, the requirements are based on the amount of the charitable contribution as follows: Non-cash gifts less than $250 .................................. Donor must obtain a receipt from the charitable recipient. Non-cash gift greater than $250 but no more than $500........... Donor must obtain written acknowledgement of the gift. Non-cash gift greater than $500 but no more than $5,000.........Donor must obtain written acknowledgement and file Form 8283 with the tax return on which the deduction is claimed. Non-cash gift greater than $5,000 ............................ In addition to the written acknowledgement and Form 8283 filing, the donor must obtain a qualified appraisal. Non-cash gift greater than $500,000 ............................ In addition to the other substantiation and reporting requirements, a donor must attach the qualified appraisal to the tax return. The proposed regulations also address the statutory definitions related to "qualified appraisal" and clarify issues such as timing of the appraisal and limitations on charitable contributions of clothing and household items. The ATS complies with all accounting and tax reporting requirements. The Planned Giving and Finance Departments work closely with our donors to help ensure maximum tax benefits for the charitable contributions to the ATS. For a copy of the proposed regulations as they are posted in the Federal Register, click here: http://edocket.access.gpo.gov/2008/E8-17953.htm The IRS is accepting public comments on the proposed regulations until November 5th. Please send your comments to me at mark@ats.org. We would like to know if you anticipate that the proposed regulations will be helpful. July 29, 2008 Marketable Securities: A Versatile Type of Planned Gift In most cases, a donor can enjoy greater tax benefits from a gift of marketable securities than from a gift of cash. Some of these benefits are described below. Gifts of marketable securities qualify for charitable income tax deductions based on the value of the stock. The value of the gift is calculated by averaging the high and low of the security price the day the gift was made. If the donor has held the stock for more than one year, the donor may deduct up to 30% of his or her adjusted gross income, and any remainder may be carried forward for up to five years. If the donor has held the stock for less than one year, the donor may deduct up to the cost basis of the securities. Unlike the donor who makes cash gifts, a donor of marketable securities will avoid paying capital gains tax on the securities contributed. For example, a donor who makes a charitable gift of $10,000 using appreciated securities qualifies for a $10,000 charitable deduction on his/her income tax return. The same donor will avoid the 15% capital gains tax that he/she would have had to pay had the securities been sold instead of contributed. Sales of securities usually involve a commission as a cost of selling. When a donor contributes securities to the American Technion Society (ATS), the securities are sold for the ATS on a pro bono basis. Hence, neither the donor nor the ATS pays a commission. Moreover, if the securities have decreased in value while in the donor’s possession, the donor can sell the shares before contributing to the ATS and can then offset the loss against other capital gains to reduce capital gains tax. Gifts of non-cash securities are second only to cash gifts as the most common gift type. For example, while the number of people making non-cash gifts remained about the same in 2004 and 2005, the amount of non-cash gifts rose by about 11%, from $37 billion to $41 billion, according to Barlow T. Mann of the Sharpe Group. Legislative Update: Preventing Manipulation of Charitable Payments Proposed regulations related to Internal Revenue Code Sects. 642 and 643 of the federal tax code would ensure that a provision in a trust or estate document or a provision in a local law can expressly control whether a charitable payment is treated as from ordinary income or capital gains. The document or law could, for example, state the asset or income source out of which charitable payments are made. But, according to the proposed regulations, a trust or will or local law that specifies the tax character for example, ordinary income -- of charitable payments will only be respected if the provision has an economic effect independent of tax consequences. Absent a specific provision determining tax character, the amount of income distributed to charitable beneficiaries is treated proportionately to the income of each income class of the trust or estate. The Internal Revenue Service and Treasury Department state that the proposed regulations enforce the current regulations by providing clarity and guidance. These regulations prevent manipulating the way charitable payments are treated in order to maximize the tax benefits to the non-charitable beneficiaries. For a copy of 26 CFR Part 1, published in 34670 Federal Register, Vol. 73, No. 118, June 18, 2008, click on http://www.smartpdf.com/register/2008/Jun/18/34670A.pdf For more information please contact us at mark@ats.org . June 17, 2008 Time is Running Out for the Best CGA Rates A Charitable Gift Annuity (CGA) is a popular gift option for donors over 65 because a CGA pays an income (in the form of an annuity) to the donor and supports a charity, like the American Technion Society (ATS). If you act before July 1 you and people you know still have the opportunity to lock in CGA annuity payments at higher rates. These rates are scheduled to drop as of July 1, so you must act now to maximize your annuity payments through a CGA. With only about 2 weeks left to lock in a higher annuity rate, we encourage you to spread the word to family, friends, and clients. There is enough time to contact us to establish a CGA, but you must act soon. So what exactly is a CGA and why is it the gift of choice for so many older adults? A CGA is a life income gift established by execution of a simple agreement between you and the issuing organization. In exchange for a gift of cash or marketable securities, the issuing organization will pay you a fixed income for life, based on your age. Annuity payments, once established, are guaranteed and will not be affected by inflation, financial market corrections, or fluctuations in the economy. By establishing a CGA, you will also enjoy an immediate income-tax deduction, which will provide you tax savings. Upon your passing, the assets of the annuity revert to the charity for its use. When you establish a CGA with the ATS you will not only enjoy all of the financial benefits described above, but you will also have the satisfaction of knowing that you are contributing to Israel's well being and the good of all humanity. The Technion is Israel's premiere science and technology university and one of the major research centers in the world. The Technion leads the world in groundbreaking research from counter-terrorism to finding cures for diseases like cancer and Alzheimer's disease. To see the current annuity rates for a one-life or two-lives CGA, go to http://support.ats.org/site/R?i=LgHqlK_dSV_AZZsf4URjrg For more information about this gift option or other planned giving opportunities with ATS, please contact me, Mark L. Hefter, Esq., at mark@ats.org or at (212) 407-6313. May 22, 2008 Gift of the Month: Charitable Gift Annuity (CGA) Why is the CGA our “Gift of the Month”? Because the suggested annuity rates from the American Council on Gift Annuities (ACGA) will decrease on July 1 -- the first decrease in five years. What does this mean? People who wish to make a philanthropic gift while locking in a guaranteed income for the rest of their lives should act before July 1. The ATS, like most non-profits that offer CGAs, follows the suggested rates from the ACGA. As a result, now is the time for people to consider establishing a CGA. Here is a link to the ACGA suggested annuity rates: http://www.tigertables.com/CgaRates.htm For more information please contact me at mark@ats.org or at (212) 407-6313 Legislative Update Charitable Lead Trusts (CLTs) are extremely favorable in current economic conditions because the Sec. 7520 Applicable Federal Rate (AFR) is at a historic low. As a result, the IRS calculation of tax benefits assumes that the CLT will earn a low rate of return. If, however, the return exceeds the low AFR, the earnings pass tax-free to the trust’s beneficiaries. But as more and more people recognize the current favorable use of these trusts, some have found methods for abusing the tax benefits. These abuses can leave little reward to the charitable beneficiary and big tax breaks to the non-charitable taxpayers. Last month, the Senate Finance Committee heard testimony about the importance of CLTs as well as suggestions for reform to deter abuse. Here is a link to the informative testimony of Diana Aviv, President and CEO of Independent Sector, a leadership forum for charities and foundations: http://www.independentsector.org/programs/gr/20080403_Aviv_Oral_Testimony.pdf Have you seen a recent increase in the use of CLTs? What is your opinion about their efficacy in estate planning and charitable giving? We’d like to know. Please mark@ats.org or at (212) 407-6313 April 30, 2008 Legislative Update The Tax Technical Corrections Act of 2007, signed into law by President Bush on December 29, 2007 contains at least two items of interest to charitable gift planners: 1. The Act corrected a potential estate and gift tax anomaly for gifts of partial interests in art works to several charities created by the Pension Protection Act of 2006. Donors of fractional interests in the same work to multiple charities will be able to deduct the entire value of the work. 2. Effective January 1, 2008, whenever a charity disposes of gifted tangible personal property, an officer of the charity must certify that the charity's use of the property was not only related to its exempt purpose, but that such relation is substantial. Failure by the charity to comply results in the donor having to limit his/her deduction to the cost of the property. Here's a link to the Joint Committee on Taxation's explanation of the new law: www.house.gov/jct/tx-119-07.pdf or http://support.ats.org/site/R?i=u6XNArcEr1fZtJ46uHqp9g.. Subjects of Future Legislation? Two recent news stories are likely to draw a regulatory response. The Los Angeles Times reported that half of all art donations audited over the past 20 years by the IRS were appraised at almost double their actual value. Sen. Charles Grassley (R-Iowa), the ranking Republican on the Senate Finance Committee, has asked the IRS to study this issue further and is considering new legislation to curtail this abuse. Here is a link to the article: http://support.ats.org/site/R?i=blyJAjGAmmHxiAziemGGiw.. Also widely reported was a study by a New York University finance professor that posits that corporate CEOs may be taking advantage of inside information to maximize charitable deductions for company stock transferred to their own private foundations. According to the study, such gifts are often followed by sharp declines in the price of the donated stock. He even suggests CEOs may be backdating their gifts in a way similar to recent stock option backdating practices in collusion with the charitable donee and others in order to increase their personal deductions. Here's a link to an article about the study that originally appeared in the New York Times: http://support.ats.org/site/R?i=wr8xqqoMOTaYG8ze4Q1UdA.. Gift of the Month-Retirement Assets While proposals to extend or expand the Charitable IRA Rollover provisions of the Pension Protection Act of 2006 continue to languish in Congress, other gifts of retirement assets remain an effective means of supporting the ATS while providing personal benefits to our donors and their families. Do you know that simply naming the ATS as beneficiary of your IRA, 401(k) or 403(b) account will allow you to make a gift of those retirement assets to the ATS at a tax cost of as low as 30 cents on the dollar? Did you know that you could save up to 40 percent on taxes associated with owning retirement assets and provide your heirs with a substantial income for a period of years? Please contact me at mark@ats.org or at (212) 407-6313 if you'd like more detailed information or a confidential personal gift proposal. As always, we would love to hear from you. What topics would you like us to cover in future updates? What interesting item would you like us to share with other list members? Please feel free to contact me at mark@ats.org or at (212) 407-6313. April 4, 2008 BREAKING NEWS: NEW CHARITABLE GIFT ANNUITY RATES ANNOUNCED Today, the American Council on Gift Annuities released its revised CGA rates for one-life CGAs, which will take effect July 1, 2008. The new rates are 0.2 to 0.8 percent lower than those currently used. Nearly all of the steepest reductions will affect older donors. In sharing this information with your clients, we suggest stressing the following four main points: 1. If they do a CGA now, their rate will be higher than if they wait. 2. Once they do the CGA, their rate cannot decrease. 3. The current rates offer returns 2-3 times higher than those available from other investments. CGAs also provide givers with a substantial income tax deduction. 4. This is a great way to support the Technion, Israel and themselves. A full CGA rate table is available upon request. Feel free to contact me at mark@ats.org or at (212) 407-6313 for this or any other information that would be helpful for your clients. March 8, 2008 Gift of the Month-Charitable Gift Annuities In this period of economic uncertainty, our Charitable Gift Annuity (CGA) program is quite popular with ATS supporters. The CGA program permits you to make a gift to ATS and earn a high guaranteed income at the same time. For example, if you're 75 and you have a $100,000 CD, you're probably earning $2000/year in interest, after taxes. If you give the ATS that CD and establish a CGA, your gross interest will increase to $7100 per year, and your after-tax income will be about $6100 per year. This income is payable for your life, and cannot go down, regardless of changes in the financial markets. You also earn a substantial income tax deduction for your gift, and you remove the amount of your gift from your taxable estate at a savings of up to 45% of the gift amount. What better way to support the Technion and triple your income, while saving on taxes at the same time? If you'd like more information on our CGA program for yourself or for a client, please contact me at mark@ats.org or at (212) 407-6313. I'd be happy to take the necessary information in confidence and prepare a personalized proposal for you. Focus on Interest Rates The IRS recently announced its March discount rate for determining the tax benefits of charitable gifts will be 3.6%. Since 1989, when the IRS began computing discount rates under Internal Revenue Code Section 7520, the rate has been this low only once, in 2003-04. March's rate is more than 2.5 percentage points below what it was in August 2007. This trend is reflective of a general decline in market interest rates since the middle of last year. When the discount rate is this low: 1. Individuals age 70 and under may find it difficult or impossible to structure a CGA or Charitable Remainder Trust (CRT) that meets the requirements of federal tax law. (CGAs and CRTs still may remain attractive to those over 70). 2. Any CGA or CRT proposal that has been sent out to a donor or prospect more than two months ago needs to be recalculated. 3. Charitable lead trusts become more attractive to donors who want to make a gift and pass assets to heirs at lower estate and gift tax cost. It is uncertain whether the downward trend in discount rates and interest rates will continue. The American Council on Gift Annuities (ACGA) meets in early April to fix recommended CGA rates for 2008-2009. After decreasing the recommended rates by an average of almost 200 basis points in 2004 and 2005, the ACGA has left CGA rates alone. The recent drop in rates to near historic lows would suggest a further reduction is in the cards. However, problems in the credit markets and a possible resurgence of inflation lead some economists to think that interest rates will rise dramatically by the end of this year, and ACGA may follow suit. We are watching these developments closely. Again, stay tuned. Legislative Update It has been a very quiet month in Washington. There has been no action at all on the legislation of interest to the charity community, notably the reinstatement of the IRA rollover under the Pension Protection Act of 2006. Will we have any major tax legislation this year? If it passes, we plan to report it as soon as it happens. Check our website often for the latest news. I'd love to hear from you. Please feel free to contact me at mark@ats.org or at (212) 407-6313. February 11, 2008 Recent U. S. Supreme Court Decision Regarding Trust Investment Advisory Fees The Supreme Court recently put an end to the long-standing circuit split among the federal appeals courts as to whether investment advisory fees paid by a trust are fully deductible for income-tax purposes. The Supreme Court ruled “no.” Instead, in interpreting Section 67(e) of the Internal Revenue Code, the Court held that such fees are subject to a 2% floor for miscellaneous itemized deductions. Oral arguments were heard in the Rudkin case in November 2007, and Chief Justice John Roberts wrote the unanimous decision that was handed down on January 16, 2008. A report on the decision by CCH can be found at: http://www.centerfortaxstudies.com/blog/taxnews/2008/01/17/p4950 Gift of the Month: Donate Your Appreciated Stock; Sell Your Loser Stock Although we celebrate the generosity of many philanthropic Americans, a recent study estimated that donors who make their charitable contributions via check, are forfeiting collectively over $2 billion of tax savings. This was reported in the January 16, 2008 issue of The Boston Globe, “Donating Stock Can Help a Charity and Save You A Lot at Tax Time.” Gifts of appreciated stock provide the donor with an income tax charitable deduction and the donor may also save on capital gains tax. The donor could pocket these savings or increase the gift amount. Either way, it is a win-win situation. But the reverse is true for stocks that have decreased in value. Now may be the time for people to sell their stock to take a capital loss, which, in turn, can offset capital gains. As much as the ATS would like to encourage charitable giving, we often say, “don’t donate loser stock.” But it does not have to be all bad news. Instead, the donor can sell loser stock, take the loss for tax benefits, and donate the sale proceeds to the ATS or another qualified charity. Please contact me at mark@ats.org or (212) 407-6313 if you would like a copy of the Boston Globe article. ATS Planned Giving Programs. Mission to Israel and the Technion. The Planned Giving missions program attracts estate and financial planning professionals to help the ATS with planned giving efforts. This past November, ten top quality participants traveled with the ATS to the Technion and Israel. During the two days at the Technion participants met with students, faculty and visited labs and classrooms, seeing first-hand the Technion’s ongoing world-class academic and research activities. The next Planned Giving mission is scheduled for November 8-14, 2008. Experts discuss estate and gift tax reform. Another ATS program that helps educate estate planning attorneys, accountants, and financial advisors is sessions with top government staff members. In January 2008, professional advisors from the Chicago area met with Russell W. Sullivan, Democratic Staff Director of the US Senate Committee on Finance, and Tiffany P. Smith, Tax Counsel for the US Senate Committee on Finance and members of the ATS Planned Giving department to “brainstorm” about current estate and gift tax issues subject to legislative reform. Please contact me at mark@ats.org or (212) 407-6313 if you or someone you know may be interested in participating in either of these programs. What’s on your mind? What topics are you interested in? What would you like to see covered in future PG Updates? We’re interested in hearing from you. Please send your suggestions to my attention at mark@ats.org or (212) 407-6313. January 16, 2008 Happy 2008! The American Technion Society Planned Giving Department is pleased to welcome you to another year of PG Updates: a monthly email that provides newsworthy information related to planned charitable giving and relevant tax issues. We invite those of you not on the subscription list to join. Please click here and we'll add your name to the list of savvy ATS friends and supporters who receive planned giving updates. Current subscribers will continue to receive the monthly updates and there is no need to take further action. Please contact me - Mark Hefter, ATS Director of Planned Giving - at (212) 407-6313 or Mark@ats.org with any questions or comments. In this issue… GIFT AND ESTATE EXCLUSIONS FOR 2008 LEGISLATIVE UPDATE CREATIVE REAL ESTATE CHARITABLE GIVING Federal Gift and Estate Tax Exclusions and Exemption for 2008 There are no changes in 2008 for the federal annual exclusion amount for gift tax, applicable exclusion amount for estate tax and generation-skipping transfer tax exemption amount. The amounts are as follows: - Federal annual exclusion for gift tax: $12,000 per donor and per recipient. (A married couple can “gift split” and give up to $24,000 to any number of individual recipients). - Unlimited exclusion for gifts for medical and tuition expenses when payments are made directly to health care providers and educational institutions. - Federal applicable exclusion amount on estate tax: $2 million (scheduled to increase to $3.5 million in 2009). - Federal generation-skipping transfer tax exemption: $2 million (scheduled to increase to $3.5 million in 2009). Individual Retirement Account Contribution Limits for 2008 In 2008, the following contribution limits apply to Roth and Traditional IRAs: - Under 50 years of age: $5,000 - 50 years of age or older: $6,000 Legislative Update Charitable IRA Rollovers: The ATS is happy to report that it received nearly $2 million in IRA rollover gifts in 2007; this represents a 120 percent increase compared to 2006. There has not yet been an extension of the Charitable IRA Rollover provision of the Pension Protection Act of 2006. Therefore, as of January 1, 2008, the option to give up to $100,000 directly from one’s IRA to a charity has expired. Nevertheless, the ATS (along with many other charities) remains hopeful that the law will be reinstated for 2008. Perhaps the scope of the law would even extend to allow rollovers larger than $100,000 and from IRA owners younger than 70.5 years old. Alternative Minimum Tax (AMT) and Sub-Prime Relief: On December 18th, Congress passed an AMT “patch,” and the President signed this bill on New Year’s Eve. The Tax Increase Prevention Act of 2007 extends the AMT patch for the year 2007 and is predicted to save up to 25 million taxpayers an average $2,000 tax increase. Also passed and enacted in December, the Mortgage Forgiveness Debt Relief Act of 2007 is part of the Treasury Department’s sub-prime mortgage relief plan. The law provides foreclosure relief in the form of mortgage debt forgiveness from homeowner’s income, and other provisions of the Mortgage Relief Act provide additional real estate-related benefits. Legislative Questions & Answers With Senate Staff: More than 200 people joined the ATS Chicago Chapter for its annual Planned Giving Breakfast, co-sponsored by La Salle Bank and Bank of America. Our keynote speaker, Russell W. Sullivan, congressional staffer of the Senate Finance Committee, spoke candidly as he shared his opinions and answered questions from the audience about ongoing legislative issues and the forecast for the future of charitable giving and estate planning. We would be happy to work with you to bring professional advisors together for a similar program to help promote the Technion and the ATS. If you would like to sponsor or coordinate a meeting of professional advisors in your area, please contact me at Mark@ats.org or (212) 407-6313. Gifts of Real Estate Despite recent softening in some markets, real estate remains a valuable investment because of long-term average gains in market values. Charitable gifts of real estate also remain attractive for this reason. A gift of real estate enables the donor to help a cause like the ATS while saving on taxes and perhaps receiving income in return. As reported in The New York Times, “Giving To Charity Through Real Estate,” November 11, 2007, there are many creative ways to use real property to make gifts of full or partial interests of property. For example, if an owner leaves the ATS a vacation home in his or her will, he or she can save on capital gains taxes or receive an estate tax deduction. Alternatively, a person can make a gift today and maintain a life estate, which would allow the owner to continue living in the home for the remainder of his or her life. A retained life estate can reduce capital gains and estate taxes, and generate current income and tax deductions. Charitable remainder trusts and charitable gift annuities provide income streams for a fixed period of time or the remainder of a person’s life, and can be funded with real estate, thereby reducing capital gains taxes. Also, these income-producing vehicles offer the comfort of a return on the gift. Donors have a great deal of flexibility when it comes to estate planning, charitable giving, and real estate. Please contact one of our planned giving experts in the ATS national office; we can help you develop a personalized plan that best suits your personal financial and philanthropic needs. Please send me any comments or questions. I can be reached at (212) 407-6313 Mark@ats.org. I look forward to hearing from you. December 3, 2007 As another calendar year draws near, many people review their investments and financial portfolios in an effort to reduce their tax bills. For many, year-end is also a time to make charitable gifts to the causes they hold dear as a way to further minimize their 2007 taxes. We hope that the American Technion Society (“ATS”) is in your thoughts during this season. Below we have outlined some of the common giving methods that could help you save on taxes, enjoy other financial benefits, and generously support the Technion Israel Institute of Technology (“Technion”) and Israel. 1. Gifts of Cash The easiest way to generate a charitable deduction for 2007 – and support the Technion at the same time -- is simply to write a check! Just make sure your envelope is postmarked by December 31 – so that your gift qualifies for a deduction this year. You may designate how the ATS should use your gift at a later date without affecting the status of the charitable deduction earned for the 2007 tax year. Please note: you can also make a secure donation online and qualify for the tax deduction. Visit us at www.ats.org/donationonline.php 2. Life Income Gifts Life Income Gifts include Charitable Gift Annuities and Charitable Remainder Trusts. If your goals include making a tax-deductible gift to the Technion, receiving income payments from the gift, and reducing capital gains, life income gifts may be your best choice. Moreover, life income gifts may offer a higher income return than other investments. 3. Gifts of Real Estate If you own real estate, it is easy to make a gift of a portion of or your entire real estate. Gifts of real estate may provide you with significant tax benefits because these gifts often allow income tax deductions as well as reduced capital gains. There are three basic ways to make a gift of real estate. You can make an outright gift. A second option allows you to make a gift of your home (primary residence or vacation home) today but continue to live there for the rest of your life by retaining a “life estate,” and, at the same time, take a charitable income tax deduction on your 2007 taxes. Under a third option, you can make a gift of real estate even when the real estate is worth more than the gift amount you would like to make. With this type of gift you would “sell” your property to the ATS at a price significantly below the fair market value. The difference between the sale price and the fair market value is your charitable gift to the ATS. As with other gifts of real estate, you would be entitled to an income tax deduction in 2007 and, possibly, reduce your capital gains tax. 4. Gifts of Securities If you make a gift to the ATS of securities, you would be entitled to an income tax deduction. Moreover, if your securities are highly appreciated, you may save significantly on capital gains taxes. 5. Rollover Gifts From Your Individual Retirement Account (IRA) If you are or will be 70.5 years old in 2007, you can make a gift directly from your IRA to the ATS under a new law enacted in August 2006. Under this law, your rollover gift would not be included in your gross income. Thus, the entire gift amount (including the deferred income and its interest) would be free of income tax. Moreover, the gift would count in satisfying the required minimum distribution. This law is a terrific opportunity, but because the law is only in effect until December 31, 2007, we encourage you to consider taking advantage of the tax benefits immediately. 6. Including ATS in Wills or Estate Plans By including the ATS in your estate plans now, you will be taking advantage of an historic opportunity to help guarantee the Technion's future and the continued prosperity and security of the State of Israel. The ATS Mission To Israel An additional benefit for making a year-end gift is that a cash gift for at least $25,000 or a life income gift or other deferred gift for $100,000 or more (including a bequest) makes you eligible to travel with us as our guest on the upcoming 2008 spring mission! For questions regarding these giving opportunities, please contact the ATS Planned Giving Department, at (212) 407-6300 (or toll free at (1-866) 824-2409, or call your local ATS office. October 31, 2007 With only nine weeks before the IRA charitable rollover, provided under the Pension Protection Act of 2006 (PPA), is scheduled to expire, House Ways and Means Committee Chairman Rep. Charles Rangel introduced a proposal to extend the rollover provision on Oct. 25. If passed, this legislation would extend for one year the option for those over age 70.5 to make a tax-free charitable rollover of up to $100,000 from an IRA to a public charity like the American Technion Society. Other provisions of the bill would further benefit charitable organizations. The extension provision is part of a sweeping tax-overhaul bill that would permanently repeal the individual alternative minimum tax and reduce the top corporate tax rate by 15 percent. Rep. Rangel‘s bill also appears to permit a phase-out of income and estate tax cuts signed into law by President Bush in 2001 and 2003; these cuts are set to expire in 2010. We have previously reported about efforts to pass an expanded form of charitable IRA rollover, the Public Good IRA Rollover Act. The Act would make the rollover provision permanent, allow taxpayers over age 59.5 to make rollovers, eliminate the $100,000 ceiling on rollovers, and permit rollovers to fund split-interest gifts such as charitable remainder trusts. The ATS, along with other charitable organizations, remains hopeful that the expanded rollover provision will ultimately be approved. The ATS, along with the National Council on Planned Giving, also supports an extension of the current PPA provision as a stopgap until the expanded rollover bill becomes law. The PPA has proven to be an incentive to taxpayers to make charitable gifts. Indeed, many people have taken advantage of the IRA charitable rollover to support the ATS since the law was passed in August 2006. We will continue to watch the congressional response to the legislation over the next few weeks and will keep you posted. For a full story, please see “Major Tax Bill Includes Key Charity Measures,” in the Oct. 25 Chronicle of Philanthropy. We also encourage you to visit the NCPG Web site. For further information, please contact Mark L. Hefter, Esq., ATS Director of Planned Giving, at (212) 407-6313 or mark@ats.org. August 17, 2007 At the American Technion Society (ATS), we keep a close eye on legislation related to charitable giving. Of course, we are also interested in the point of view of the Senate. We thought you might be interested in the article below, published on August 13, in the Chronicle of Philanthropy. It is the Chronicle's "Senate Forecast" focusing on the position of Sen. Max Baucus. We are pleased to read of Sen. Max Baucus' positions related to tax-exempt organizations and legislation encouraging charitable giving. We thought you might be pleased as well. Please send any comments to me at mark@ats.org. We enjoy hearing your point of view. "Key Senator Has No Plans for Legislation to Curb Charitable Abuses" By Suzanne Perry Missoula, Mont. Sen. Max Baucus, the Montana Democrat who took over the reins of the Senate Finance Committee in January, said that he does not give high priority to cracking down on charitable abuses or imposing new regulations on nonprofit groups such as hospitals. “That’s not at the top of my list,” he said during a brief interview on the sidelines of a conference on rural philanthropy held here this week. “I haven’t got time.” Mr. Baucus also said he favored extending a law that allows people to give money from their individual retirement accounts to charity without paying any taxes, which expires at the end of this year. But he is not sure that expanding the provision to allow more types of groups to accept such gifts and increasing the amount donors can give — ideas advocated by nonprofit and foundation leaders — is politically feasible given Congress’s vow to rein in the budget deficit. “I’d like to extend it as far into the future as we can, but recognizing the limitations that we have,” he said. The nonprofit world has been wondering whether Senator Baucus, as chairman of the Senate committee that regulates tax-exempt organizations, would give as much priority to highlighting alleged charitable abuses as his predecessor, Sen. Charles Grassley, Republican of Iowa. While the two senators are known for having a cordial relationship, Mr. Baucus suggested that his priorities will be different. “Senator Grassley and I work very closely together,” he said. “It’s a relationship that we both treasure and we agree far more than we don’t on policy,” he said. “But I also have to look at the calendar.” Mr. Baucus said his top priority now is getting legislation enacted to extend and expand the State Children’s Health Insurance Program, which provides health care to children from low-income families. While both houses of Congress have passed such legislation, President Bush has threatened to veto it. He said he will also give priority to other issues related to health care — including the high cost to business of providing insurance, which he said is hurting U.S. competitiveness — as well as to various trade and taxation issues. Mr. Baucus expressed doubts about a specific proposal, issued in July by aides to Republican lawmakers on the Senate Finance Committee, to require nonprofit hospitals to spend at least 5 percent of their annual budgets on charity care or lose their tax-exempt status. The proposal aims to ensure that the hospitals do more to serve the uninsured and justify the estimated $40-billion the federal government loses each year in taxes. But Mr. Baucus said he questions a solution that would apply an “across-the-board rule that applies to all nonprofit hospitals in all part of the country.” “What does 5 percent really mean?” he said. “Some hospitals do far more than 5 percent, some do far less than 5 percent,” he said. “In some areas, it’s very hard to do 5 percent. It depends on the community that you’re in.” He said that the discussion about nonprofit hospitals, which Mr. Grassley has been raising for several years, has been useful, however, because it has encouraged many hospitals to develop guidelines for offering free health care and other services. He specifically praised the Catholic Health Association, which has developed guidelines that require hospitals to publicize financial aid they offer to uninsured patients, follow uniform methods for reporting the benefits they provide to the public, and make hospital leaders accountable to their boards for providing adequate benefits. Nonprofit and foundation leaders have been lobbying to get Congress to expand the IRA provision — which allows people at least 70-1/2 to donate up to $100,000 a year to a charitable organization tax-free. Lawmakers in the House and Senate have both introduced legislation to allow people to donate as much as they want each year and to give to groups that are now not allowed such as private foundations and donor-advised funds. But Mr. Baucus noted that Congress has adopted a “pay as you go” rule requiring any tax cuts or increased spending on programs such as Social Security and Medicare to be offset by spending cuts or tax increases elsewhere. That will make it difficult for anyone who wants to extend a tax break, he said. “I want to look at the extension [of the IRA benefit] first because I just know it’s going to be difficult to extend very far,” he said. And expanding the provision could cut into the length of time it would be extended, he said. Mr. Baucus also said the Internal Revenue Service needs more money to do its job, but not only to monitor charitable organizations. An IRS official testified last month at a House Ways and Means subcommittee hearing — which highlighted the failure of some nonprofit groups to pay payroll and other taxes — that his office did not have enough resources to properly monitor all charities. “I think IRS personnel is stretched,” Mr. Baucus said. “They need some help, generally, in all areas. I don’t know that one area should be singled out [over] others.” When he spoke to the conference on rural philanthropy held here this week, the senator again urged foundations to double their grants to rural areas like his home state within five years. Mr. Baucus first issued that challenge at the Council on Foundations’ annual meeting in Pittsburgh last year, saying rural areas were being shortchanged when it came to philanthropic dollars. The council then worked with him to set up the Missoula conference to get foundation leaders together to plan ways to get more money to those regions. “I understand that each foundation has particular funding guidelines, regions of focus, and priorities,” Mr. Baucus told the conference participants. “But I encourage foundations to work hard to make rural places a priority.” The senator asked foundations to do four specific things: * Work on rural projects with other foundations, nonprofit groups and associations, and government bodies. He said foundations could, for example, help nonprofit groups identify children without health insurance who would be eligible for the Children’s Health Insurance Program. * Give money to community foundations in rural areas to help them hire staff and build strong organizations. “Localized grant-making means grant-making by decision-makers who are familiar with the local need, local conditions, and local resources,” he said. * Offer grants to help rural nonprofit groups build up their infrastructure — for example, for programs in nonprofit management, programs to help nonprofit groups design internship opportunities for “top-notch” students, and state nonprofit associations. * Remove the barriers that hinder national foundations from making grants to rural nonprofit groups. “Funding guidelines are too often written in a way that requires programs or organizations to have already achieved a high level of development, including sophisticated partnerships and alliances,” he said. “But rural programs often need funding to navigate these crucial developmental stages.” Steve Gunderson, president of the Council on Foundations, told Mr. Baucus that the group’s members would follow through in all four areas. August 1, 2007 "Donor Advised Funds and Prohibited Benefits" Recently, we have been receiving letters from donor advised funds (DAFs) describing a new law that affects donors (who contribute to DAFs), charities and DAFs. This law prohibits anyone from receiving a benefit in connection with a grant from a DAF. An excerpt from one such letter reads: “As a result of the new law, effective July 1, 2007, [this DAF] may not pay the charitable (deductible) portion of a grant when there is an associated nondeductible portion, such as tickets to an event or membership. Of course, [a donor] may recommend grants from a fund if [the donor is] not attending an event and [has] refused the tickets . . . or other benefits related to the event . . . . The [DAF’s] transmittal letter will include language advising the grantee that all benefits are declined. As you may know, severe penalties – 125% of the benefit amount – are now imposed as part of the recent legislation if a donor, advisor, or related party receives more than incidental benefits from a donor advised fund grant. The penalty can be imposed on any person who recommended the grant or the donor, advisor or related party who received the benefit, as well as on the [DAF] lay leadership and/or the [DAF] staff who approve such a grant.” We want you to be aware of this in case it affects you or your clients. Please send us any comments, as we are interested in feedback and your reactions. Very truly yours, Mark L. Hefter, Esq. June 27, 2007 The following article recently appeared in the LA Times. It reports on the increase in philanthropic contributions of real estate: Donating real estate offers gift-giver a double tax advantage By Lew Sichelman, United Feature Syndicate June 10, 2007 WASHINGTON — "If I could just burn the place down," many a frustrated seller might think, "my troubles would be over." Luckily, few people act on such a felonious impulse. And why should they when the fire department would torch the house for them lawfully? Local fire officials gladly accept houses or other structures as donations. Of course, there's a drawback to giving your house away to Sparky and his friends: You won't get any cash for it. Consequently, if the warm-and-fuzzy feeling you'd get from doing a good deed isn't good enough, you'll have to find another way to unload your white elephant of a house. If, on the other hand, cash isn't your primary objective, donating your property to a tax-exempt charity may be an avenue worth considering. Actually, people give away real estate all the time. The Giving Institute in Glenview, Ill., estimates that $260 billion was contributed to schools, museums, the Scouts and other groups in 2005, the last year for which such information is available. Roughly 25% of that was in real estate. Some came from corporations donating real estate they no longer used or needed. But almost $9 of every $10 contributed to charity or other public entities came from individuals. "Right now, vacation properties and rental properties are the most common real-estate gifts offered to us," said John McKee, director of gift planning at the University of Maryland in College Park. "With diligence, these properties can be a great way to fulfill charitable goals," he said. Donors can give property either outright or by retaining life-tenancy rights. Why give your real estate away? Because you can deduct the full value of the property, including appreciation, on your income-tax return. Yet you don't have to report the appreciation as capital gains. In other words, you get two benefits in one. "It's hard to imagine a better tax-savings device," said Mackenzie Canter III, a Washington, D.C., attorney who specializes in philanthropy law. Consider this possibility: You're in the top-tier, 35% tax bracket. You own free and clear a house worth $150,000, but you paid only $75,000 for it 20 years ago. Because you've owned it for more than a year, it's considered a long-term capital asset. If you sold the place outright, you'd have a capital-gains tax liability of $75,000 (assuming it was not your primary residence), and your tax liability would be 15% of $75,000, or $11,250. So the real liquid value of your property is $138,750, or $150,000 less $11,250. Now suppose you donate the house to a college. You'd be entitled to a charitable-tax deduction of $150,000, and there would be no tax on the $75,000 gain. In your 35% bracket, the tax savings would be $52,500. So the net cost of making a charitable gift of your $150,000 property would be only $86,250 ($150,000 less your $11,250 tax liability less your $52,500 tax savings). Your gift is deductible only up to 30% of your adjusted gross income in the year it is made. But any contribution above that amount may be carried over for up to five more years. Furthermore, donating real estate also avoids the hassles involved with selling: no sales commission, no fix-up costs, no prospects traipsing through your place at all hours and, perhaps best of all, no haggling. If you need at least some cash out of the deal, consider what's known as a "bargain sale." With this type of gift, instead of donating the property outright, you sell it to the charitable organization for something less than its full market value. That way, both parties win. You not only get a deduction, you also get some cash, and the charity can sell the place and pocket the difference between what it gave you and what it eventually gets for the house on the open market. Before signing over your property talk first with an expert in philanthropy law. Not all organizations qualify as tax-exempt charities eligible to receive deductible contributions. For a complete list of qualified so-called Section 501(c)(3) groups, request Publication 78 from your local IRS office. Also, ask the group you are considering for a copy of its IRS exemption letter. March 13, 2007 Public Good IRA Rollover Act of 2007 With support from many non-profit organizations and philanthropic individuals, Senator Byron Dorgan (D-ND) along with Senator Olympia Snow (R-ME) and five other senators, introduced a bipartisan bill on March 8th called the "Public Good IRA Rollover Act of 2007." If passed, this Bill would make permanent the opportunity for an individual to support a charity with a tax-free rollover from an Individual Retirement Account (IRA). Currently, the option for a charitable IRA rollover, as stated in the Pension Protection Act of 2006, is scheduled to expire on December 31, 2007. In addition to making the charitable IRA rollover a permanent option, this new Bill would accomplish the following: remove the $100,000 annual limit on IRA rollovers; permit individuals to take advantage of the rollover option beginning at age 59 (rather than waiting until age 70); and allow the IRA rollover to fund split-interest gift vehicles (such as charitable trusts or charitable gift annuities). Moreover, a companion bill from the House of Representatives will be introduced soon. On February 27th Congressmen Earl Pomeroy (D-ND) and Wally Herger (R-CA) distributed a letter to fellow Congressman seeking collegial support for the upcoming Public Good IRA Rollover Act that Pomeroy and Herger will introduce. As Congressmen Pomeroy and Herger state: the Act "is a simple piece of legislation that gives older Americans a straightforward way to give something back to society while providing much needed funding for [charities]." The American Technion Society (ATS) is hopeful that this Bill will pass. Like many other non-profits, the ATS has benefited greatly from the charitable IRA rollover in 2006. For a copy of Senator Byron Dorgan's press release or a copy of the Senate Bill, please contact Susan Hecht at Susan@ats.org or (212) 407-6322. February 6, 2007 Efforts to Extend the Charitable IRA Rollover Efforts by President Bush and several charity groups are underway to make IRA rollovers to charities a permanent option for charitable giving. The law, which permits people over 70.5 to give up to $100,000 tax-free from an IRA, went into effect in August 2006 and is scheduled to expire in December 2007. 2006 showed great positive results -- a large number of taxpayers have taken advantage of the tax benefits offered by making a charitable IRA rollover. Now there is an effort to extend the law. By including a provision in the new budget proposal to be submitted to Congress, President Bush has expressed his intention to make the law a permanent tax break. Moreover, several charitable groups have banded together to propose legislation that would make the law permanent and would extend the scope of the law to allow charitable IRA rollovers to fund charitable trusts and pooled income funds. The effort is underway to extend the law, but only time will tell whether 2007 is the last year for taxpayers to take advantage of the benefits. More information is reported in The Wall Street Journal on January 27, 2007, (Charities Love IRA Rollovers: Groups Push for Permanent Expansion of New Law), and The Chronicle of Philanthropy on February 4, 2007 (President Bush Promotes Charity Tax Breaks). For copies of these articles please contact Susan Hecht susan@ats.org or 212-407-6322. January 12, 2007 Greetings and Happy 2007! As we begin this New Year we can recall the old saying, �some things change and some things stay the same.� Below is a summary of some of the recent relevant changes and non-changes as well as new guidance on the IRA charitable rollover: CHANGES Tax Relief and Health Care Act of 2006. On December 20, 2006, just days before the end of the year, President Bush signed into law H.R. 6408, the Tax Relief and Health Care Act of 2006. The law extends several tax breaks, including both deductions and credits. These tax breaks include: deduction for college and higher education tuition, credit for research and development, deduction for business investment expenses in research and development, and credit for renewable (alternative) energy sources. In addition, the Act brings the Health Savings Accounts within the reach of more people by making it easier to contribute to the plan. Inflation Adjustments. The dollar amounts for numerous tax provisions are revised each year to keep up with the pace of inflation. In 2007, because of these inflation adjustments, personal exemptions and standard deductions will rise, tax brackets will widen, and income limits for IRA contributions will increase. For example, the personal exemption increased $100 and the standard deduction increased $400 for married couples filing jointly and $200 for singles and married individuals filing separately. A complete analysis of inflation adjustments can be found in Revenue Procedure 2006-53. Maximum Estate Tax Rate. As part of the phase down of the maximum estate tax rate, the maximum rate of tax imposed on an estate for decedents dying in 2007 is 45%, a change from 46% for decedents dying in 2006. NON-CHANGES Applicable Exclusion Amounts. For 2007, the lifetime exclusion amount for gift tax purposes and the applicabl   Copyright © 2001 - 2007, American Society for Technion-Israel Institute of Technology. All Rights Reserved.