Donors Whipsawed with Changing Rules

To the Editor:

In December, Congress allowed an estate-tax law to expire and now the nation has no such tax at all on the books. That has led to great uncertainty for donors and others about when and how any taxes will be applied on estates.

This situation is unlikely to be resolved soon, because lawmakers have realized they can continue to extort their political supporters and lobbyists for a never-ending supply of cash as the matter goes unresolved.

While the Washington crowd can’t seem to get its act together, charity advisers like me still have to provide some sort of reasonable counsel to donors about their estate planning and financial decisions. We can offer advice that’s good for one year, but because of Congressional inaction, we must offer an opposite set of directions the next year,

That is a completely bogus system and does nothing to inspire confidence from the disoriented client.

Choices made by donors about their estates are often irrevocable, and occasionally wrenching, as people make life-altering decisions about their accumulated wealth and the long-term stability of their families, each with their own set of problems and circumstances. As a result, estate-planning discussions often stretch over months and years.

By definition, estate planning should be a thoughtful process concerned with long-term planning about business succession, wealth, value systems, care for heirs, and the family’s role in the community.

Tax benefits don’t drive all charitable giving, but donors don’t want to make their financial situation worse.

As it turns out, taxes are part of this complex equation for many clients already reluctant to deal with unpleasant choices, and it doesn’t take much to derail or delay the process.

While donors are being whipsawed by changing rules, promises of repeal, expectations of relief, the threat of retroactive taxes, and a changing economy, no one is making sensible choices.

To be sure, only a small number of people face any tax liability on their estates, but any disturbance in the atmospherics of planning freezes clients. Arguably, estate planning should be a logical process in which people set priorities for who gets what, when, and where.

However, we all know that estate planning, especially if there is a philanthropic component, is an emotional process, and for those donors straddling the fence, indecision and inaction are hurdles that are often hard to overcome.

Reasonable people, with a long history of giving, are reassessing their finances and wondering if they have a enough to live on, or take care of themselves through a long and potentially expensive retirement.

Advisers, already concerned about liability exposure, are also becoming more cautious about recommending distributions.

Uncertainty about higher taxes, future earnings, and unknown expenses is likely to pop up in discussions, and many clients feel like the turmoil of the last two years requires them to accept a reduced standard of living. As a result, charity fund raisers will face major hurdles in closing big gifts.

Charity officials concerned about the problems caused by the uncertainty over the estate tax should contact their elected representatives and ask that a solution be proposed and enacted.

They should tell Congress to set the estate-tax rates, decide what gets excluded from the tax, index the tax to change with inflation, and then leave it alone so affluent people can make reasonable choices.

Otherwise, our nervous donors will be unwilling to make major commitments to support philanthropic causes in the United States.

Vaughn Henry
Planned-giving adviser
Springfield, Ill.