Many rich Americans are choosing to make their largest charitable contributions only after they are sure they won't need the money.
In short, they are giving after they are gone.
The current economic malaise, the rocky investment markets, un-certainty about the presidential election and even the unrest in the Middle East are driving some wealthy individuals and families to bequeath charitable sums instead of handing out gifts during their lives.
Even concern about the future cost of health care is changing giving patterns, advisers said.
“There's a level of fear out there that is pretty prevalent for people who have good size balance sheets,” said Alan Pratt, principal of Pratt Legacy Advisors Inc. “All these things are stymieing people to just not do a whole lot, and as a result, even though people's balance sheets are still very healthy, the desire to gift in a lifetime fashion has slowed.”
POSTPONING PHILANTHROPY
By postponing their philanthropy, these individuals and families are forgoing certain tax benefits.
Those who donate to charity during their lives get the double tax benefit of income tax deductions during the years of the gifts, as well as a reduction in the size of the estate, thus lowering estate taxes, said John O. McManus, an estate tax attorney and founder of McManus & Associates.
In addition, if someone has a highly appreciated asset that he or she wants to sell to diversify assets, it could be transferred to a charitable remainder trust that pays the donor an income.
The donor, on behalf of the trust, then can sell the asset without paying capital gains and buy a different investment, Mr. McManus said.
National data show that charitable bequests were up last year, while money going to foundations that wealthy families typically fund during their lives declined.
The amount of money left to charities through bequests rose 12% to $24.41 billion last year, according to the Giving USA Foundation.
Overall, bequests made up 8% of the total $298 billion that charities took last year.
Meanwhile, giving to foundations declined by 6.1% to $25.83 billion, according to Giving USA. In total, foundation support made up 9% of charitable donations.
Charitable organizations are adapting to the trend by doing more to promote planning that can help heirs with estate taxes, said Jim Yunker, chairman of Giving USA.
“Nonprofit organizations of all types are being more assertive about encouraging the tax and philanthropic advantages of having estate plans,” he said.SHRINKING ASSETS
Many wealthy clients still have charitable intentions, but they have watched their assets shrink, said Alyson Scott, a financial adviser with Morgan Stanley Wealth Management.
“The fear has affected all wealth levels and how they give,” she said. “They are saying they want to give, but they don't want to make it irrevocable.”
Some wealthy families “who are not as wealthy as they once were” are thinking twice about setting up foundations that would afford them the enjoyment of seeing their charitable gift do something positive while they are still alive, said estate-planning attorney Steven J. Oshin, a member of Oshins & Associates LLC.
Fear about the impact of the future cost of health care also is having a dampening effect on how much money the wealthy think they can part with during their lives.
Ms. Scott said that she talks to clients about how they may be expected to cover up to $500,000 in medical expenses during their lives beyond what Medicare will cover.
“After that conversation, they are saying, "I was going to be fine, but now I don't know how much I can afford to give,'” she said.
lskinner@investmentnews.com Twitter: @skinnerliz
