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What the Election Could Mean for Charitably Minded Investors


BY: Blair Hull
Philanthropic Services Associate, Argent Trust | (662) 550-4496

BY: Michael Romero, JD
VP & Relationship Manager, Heritage Trust | (405) 608-8642

With the election just hours away, it’s hard to think about anything else right now. As America continues to deal with the COVID pandemic and a host of other major issues, the outcome of the presidential race will determine the country’s direction for the next four years.

For high-net-worth individuals who are charitably inclined, the election may have a direct financial impact if it results in changes to the tax law. Although President Donald Trump hasn’t outlined any specific tax changes for a potential second term, Vice President Joe Biden’s proposed tax plan includes a reduction of the estate tax exemption to half its current level of $11.58 million (back to roughly where it was in 2017 before it was raised as part of the Tax Cuts and Jobs Act). In addition, Biden has proposed a 28% cap on the value of itemized deductions, which would affect those earning more than $400,000 per year — and might reduce the tax benefits of charitable contributions.

Even if Biden wins the presidency, though, tax changes are not a sure thing. If the Senate retains its current Republican majority, or the GOP achieves a majority in the House of Representatives, either scenario would likely put a damper on any major legislation. Although there is the possibility of a “blue wave” that puts both houses of Congress and the presidency under Democratic control, it’s still unlikely that Democrats would move to raise taxes in the middle of a pandemic, with the economy on shaky footing.

The bottom line is that it’s impossible to predict the future, but when it comes to charitable giving, donors can continue doing the right thing while taking advantage of the tax advantages that currently exist. Here are a few ways you can do that:

1| If you’re motivated to do so, complete any major gifts before the end of the year, such as a donation to a capital campaign or an endowment fund. If you know the amount you want to donate but haven’t decided on a recipient, consider placing your money into a donor advised fund to take advantage of deductibility for your gifts in this tax year. These funds can be used even for relatively small amounts ($5,000 is a common threshold) and can stay in place for many years.

2| Consider a charitable remainder trust as an investment option if you have wealth between $1 million and $5 million. These trusts function similar to annuities by providing a regular income stream to donors, though they offer additional tax benefits for those motivated to give. The trustee can sell appreciated assets given to the trust without incurring any capital gains tax. Gifts to these trusts also generate charitable income tax deductions. Charitable remainder trusts can be a particularly wise strategy during periods with higher capital gains taxes, as it can allow donors to sell assets that have appreciated in value without incurring a huge tax burden.

3| Take advantage of qualified charitable distributions from IRAs. If you’re age 70 ½ or older, you can give gifts directly from your IRA to qualified charities, up to $100,000 a year. (This amount is the same even if you have multiple IRAs.) Money distributed from your IRA would normally count as income and could have negative ramifications, such as moving you into a higher income bracket and causing your Social Security benefits to be taxed at a higher level. Distributing some of your IRA straight to charity sidesteps this; however, because the donation is being made with pre-tax dollars, the donor can’t claim it as a deduction on their income tax return. This is a good solution for investors who have a lot of assets but not a lot of income.

As a side note, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) waived the required minimum distribution for IRAs this year, saving investors from being forced to take out money that might have significantly declined in value. The CARES Act also allows for new tax incentives for charitable cash contributions by allowing a $300 above-the-line deduction for non-itemizers and a 100% AGI limitation increase (previously 60%) for cash contributions to qualified charities. Those investors who are saving money as a result might be motivated to give a little more generously this year.

Regardless of what’s around the corner politically, we encourage investors to take a deep breath and not to panic. We’ve gone through election cycles in culturally troubling times, and we’ve always emerged stronger on the other side. In addition, historically, the year after an election, markets tend to do well.

As any donor knows, charitable giving isn’t done solely for a tax benefit — it’s done out of a sense of generosity and concern for those less fortunate. So regardless of what happens tomorrow, our most important piece of advice is to just keep giving. Help your community and care for your neighbor. We’ll get through this together.