Cheri L. Elson and Allen G. Drescher, Retired
21 S. 2nd St. ● Ashland ● Oregon ● 97520

Planned Giving

We are coming up to the end of 2019, and people are looking for ways to lower their taxes.  In its simplest form, planned giving enables individuals to make larger gifts to non-profits than they might otherwise be able to from their ordinary income and may result in lower taxes. 

There are three basic types of planned giving, each with their own benefits.

1) Outright Gifts.  These are typically made with cash or appreciated assets, such as securities or real property.  When appreciated assets are gifted to charities, the donor receives a charitable deduction for the full market value of the asset at the time of the gift and no capital gains taxes are triggered.  However, once an outright gift is made, it is gone and irretrievable.  Use care when making large outright gifts – we never know what is around the corner and if/when we may need those assets to pay for our own care.

2) Gifts that Return Income to the Donor. Examples of these are charitable gift annuities, or charitable remainder trusts.  Annuities provide fixed payments to the donor, starting at the time of the gift or at a later date.  Charitable remainder trusts are a type of irrevocable trust providing the donor income payments during life, with the remaining assets passing to the charitable organization(s) named by the donor at the donor’s death.  A tax deduction is available for the full, fair market value of the asset, less the present value of the income interest retained.  And, as with all gifts of appreciated assets, no capital gains taxes are triggered by the transfer of the asset to the annuity or trust.

3) Gifts Payable at the Donor’s Death. Also called “Legacy Giving”, these are gifts made through the donor’s Will, Trust, or beneficiary designations.  They may be a set dollar amount, or a percentage of the overall estate’s value.  Gifts of specific dollar amounts are distributed before those set by percentages, and care must be used if making large monetary gifts so as to not unintentionally consume the estate, leaving little-to-nothing for the “residuary beneficiaries,” those we typically think of as receiving the bulk of our estate.  No charitable deductions are available for this type of gift; however, it may affect one’s estate tax liability, especially for Oregon residents.  The nice thing about this type of giving is that it does not affect one’s financial situation at all during life and is fully changeable until death.

It is imperative to seek professional tax advice before any type of planned giving is put into place.  Working with a team involving both estate planning specialists, tax specialists, and financial planners will ensure that your ultimate strategy not only helps a charitable organization but protects your needs as well.

NOTE: For current tax or legal advice, consult with an accountant or attorney; the information contained in this article is not tax or legal advice and is not a substitute for either.

Oregon Estate Taxes

Clients often ask me how their estate plan may be affected by estate taxes. Currently, no Federal Estate Tax is imposed on estates under $11.4 million (per person), affecting approximately 2,000 people (or 0.0006% of the population) in the U.S. Under the Tax Cuts and Jobs Act (TCJA), enacted in December 2017, this exemption amount remains in place, with annual adjustments for inflation, until 2025, at which time it is slated to expire and return to the $5 million exemption amount in place prior passage of the TCJA, assuming no new laws are put in place first. While I have no crystal ball, based on what has happened before, we will see a reduction of the exemption amount, but not all the way back down to $5 million.
Oregon (one of 12 states, plus the District of Columbia, with an estate tax separate from the Federal Estate Tax) imposes an estate tax on estates over $1 million. There is no adjustment to the exemption amount, and nothing to suggest that the laws will change any time soon.

Oregon imposes this tax on all estates, regardless of the decedent’s state of residency. If someone dies owning property in Oregon, they will be subject to Oregon’s estate tax laws, although Oregon calculates the estate tax differently for residents and nonresidents.

To explain this, assume the decedent’s total estate is valued at $1,400,000; $280,000 (20%) of the estate is real property situated in Oregon, with the remaining $1,120,000 in another state. If the decedent was a resident of Oregon at the time of their death, $400,000 would be subject to Oregon estate taxes. The starting tax rate is 10%, resulting in a $40,000 Oregon estate Tax.

If the decedent was not a resident of Oregon, the estate tax due is prorated by the percentage of the estate situated in Oregon. Since $280,000 is 20% of the total estate, Oregon levies 20% of what would otherwise be due. The $40,000 tax is reduced to $8,000 (20% of 40,000 = 8,000).

Residency is based on a person’s “domicile” defined as “the place which an individual intends to be their permanent home and to which such individual intends to return whenever absent.” It is not a particularly clear definition and so we look at where one is registered to vote and what state issued one’s driver’s licenses as good indicators.
For couples, revocable trusts can often offer sufficient estate tax planning to avoid most, if not all, estate tax otherwise due at the second spouse’s death (estate taxes are rarely due at the first spouse’s death). Other planning vehicles are available, but they are complex and should not be entered into without great thought and discussion with attorneys, accountants, and financial advisors.

NOTE: For current tax or legal advice, please consult with an accountant or attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.

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