The State of Charitable Planning in the Current Environment

June 29, 2020

During times of natural disasters and global crisis, charitable giving, particularly to support the specific event, increases significantly. We continue to find ourselves in unprecedented times. The global pandemic has not only physically impacted those that have contracted COVID-19, but it has also wreaked havoc with the world economy, impacting everyone financially. In the early stages of the pandemic, Fidelity Charitable surveyed to determine the impact the pandemic and corresponding economic shifts would have on charitable giving.

Surprisingly, Fidelity Charitable found that most donors plan to maintain, or even increase, their charitable giving. The Fidelity Charitable survey was conducted before the social justice movement that mushroomed in the last month. That movement undoubtedly has resulted in increased charitable giving to social justice causes.

For those who are charitably inclined in these challenging times, there are many ways to give. In addition to the traditional volunteer activities and straight monetary donations, many charitable giving techniques are combined with income tax and estate tax planning strategies. Whether designating a charity as a beneficiary of your retirement plan (note, however, that the SECURE Act passed earlier this year may impact the available benefit) to the creation of a donor-advised fund.

As mentioned in a previous Daily 3 regarding estate planning considerations, we explained that the IRS sets interest rates at certain levels called Applicable Federal Rates. Since March 2020, the IRS has dropped the AFRs considerably, with the current rates now at historic lows, starting at .18% for short term loans (under three years), .43% for mid-term loans (between 3 and 9 years), and 1.01% for long-term loans (over nine years) (link)

The historically low AFRs actually can provide an opportunity for the philanthropic to mesh charitable giving with their estate planning through a Charitable Lead Annuity Trust (a “CLAT”). A CLAT pays an annuity to a charity for a set term of years. The remaining assets at the end of the term are distributed to the trust’s beneficiaries. The annuity amount is based upon the AFRs discussed above, so CLATs are particularly attractive in a low rate environment like this one. Although the COVID-19 pandemic and recent social just movement have certainly affected daily life as well as the economy, they have not slowed charitable giving. Now is a good time to look at your estate plan and your charitable giving to see if you can benefit from utilizing advanced strategies that are impacted by low-interest rates.

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