A Tale of Two Gifts and Taxes

Gifts and taxes.

Around this time last year, two of our clients were working with donors planning to make $1 million+ gifts, as the news media were ballyhooing the ‘fiscal cliff’ fast approaching and many proposals were flying around to adjust the charitable deduction.

One donor chose to make his first pledge payment in December, as well as accelerate his 2013 pledge payment into 2012.  The other staunchly refused to do anything in 2012 given the uncertainty, and waited until this year to do his gift.

At the time there were plenty of folks offering advice about the benefits and risks of giving in 2012 or waiting. The experts might argue that the latter donor made the better choice, since the rate on the top tax bracket was increased from 35 to 39.6 percent, thus giving him the larger deduction.

I think there are some lessons to be learned here as we face similar concerns this year.

First, for the vast majority of people, tax considerations don’t motivate giving.  Our causes do that.

However, tax policy may well influence the size and timing of a gift, as it did in 1986, when a change in the capital gains tax triggered a bubble of gifts which otherwise would have been made in 1987.

Second, tax savings were not the only factors in the decisions the two donors cited above made. Other issues were involved that impacted the timing of their gifts far more.

So, what can we take from this?

Listen to your donor to understand her or his concerns and situation first, before offering any general advice on gifts and taxes.  There were many donors in 1986 who chose not to accelerate their gifts for reasons important to them. Don’t assume tax issues drive the bus in most cases.