In Uncertain Times, Donors Hold Back

Feb. 26, 2009, The New York Times — Charitably inclined people are anxious. Charities, like businesses and families, have suffered in the economic maelstrom, while their services are needed more than ever. But donors fear they can no longer afford to give as much as they once did.

There is a “psychology of conserving assets at present,” said Richard Kohan, a partner in the private client services group of PricewaterhouseCoopers in Boston. That, he said, is creating internal conflict for many wealthy people with “a heartfelt, sincere desire to give back to the community.”

The need is certainly there. William G. Droms, professor of finance at the McDonough School of Business at Georgetown University, said, as an example, that requests for food and rent assistance at Catholic Charities of Northern Virginia were running at two to three times the normal level as more people lose their jobs and homes.

Mr. Kohan, Professor Droms and other experts on charitable giving discussed ways donors might give in tough times without putting themselves in financial peril, should the economy and financial markets continue their fall.

For example, Mr. Kohan said, an organization asked a supporter for a multiyear pledge for a capital project. The man felt it might not be possible for him to keep the pledge. But there can be a middle ground, Mr. Kohan said. “We’re coming off a period of yes, yes, yes. It doesn’t have to be no, no, no.”

Mr. Kohan suggested that the man tell the charity he would give a certain amount of money but could not promise it. He would make a “down payment” on the total this year and reassess the matter next year. There are other ways to give, Mr. Kohan said. People can donate professional services. Supporters can also help by finding more people among friends and associates who are willing to become donors.

Lisa Philp, head of philanthropic services at J. P. Morgan Private Bank, said many affluent families had previously been willing to give “a little of this, a little of that” to satisfy requests of various family members. Now they are becoming more focused, drawing up mission statements for family foundations.

By law the foundations must make a required minimum distribution each year, she said, based on assets in the previous year, even though for most people, those assets have shrunk. Some families are responding by adding more money, she said, but others see no choice but to reduce outlays.

“One of our clients cares deeply about three organizations — his alma mater, the medical center that cared for his mother, and his church,” she said, so “he is staying the course with his most valued groups and cutting back on others.” Some donors are focusing on children’s services and human services, Ms. Philp said, because those are areas where they fear government support is likely to decline as state and local governments face budget deficits.

Professor Droms outlined a strategy to help a charity while preserving an income stream. The donor, working with the charity’s planned giving office, can buy a charitable gift annuity, which will pay a lifetime income flow that can be tax-free to the donor. The charity inherits the principal after the donor’s death.

Donors can use part of the income to replace the asset in their estates by buying life insurance to benefit heirs, he said, and still realize 4 to 4.5 percent a year for themselves, which is more than today’s yield on many bonds and C.D.’s.

For a smaller gift, “just go ahead and give the money,” Professor Droms said. One donor in his 80s gave Georgetown a block of appreciated stock, thereby avoiding capital gains tax. He kept a much larger holding but left it to the university in his will.

Conrad Teitell, a lawyer with Cummings & Lockwood in Stamford, Conn., who represents a number of large charities, outlined trusts that can benefit both donors and charities, generally with significant tax advantages.

A charitable remainder trust allows people to contribute a large asset that is not producing income — a home, jewelry or art — that is then sold by the charity, which is not liable for capital gains tax, and reinvested in assets that provide income for the donor. After the donor’s death, the principal, or remainder, goes to the charity.

Donors who want to give to charity and be able to pass assets to their heirs might consider a charitable lead annuity trust. It can provide an income stream for charity for a set number of years with the principal going to a child, down the road. “Government tables tell what the charity’s interest is worth, and what the child’s interest is worth,” Mr. Teitell said. The tables change monthly, and the value of the current tax deduction depends on the value of what is put into the trust and the payout rate.

Sidney Kess, a New York tax lawyer, said that a special tax provision had been extended for this year. It allows people 70 1/2 or older by the end of the year to give up to $100,000 to eligible charities from an I.R.A.

A gift from a tax-deferred account is not deductible, he said, but a direct transfer — as opposed to taking a distribution and donating it — will not raise adjusted gross income. That number ripples through returns, often resulting in higher taxes by limiting the amount of deductions that may be taken, or causing a greater amount of Social Security to be taxable because adjusted gross income is now higher.

Even people who are looking at their withered stock portfolios in dismay may be able to give. Say an investor paid $70,000 for 1,000 shares of stock. The shares are now trading at just above $2. She could sell the shares, donate the proceeds to charity and have a capital loss of $68,000 to use this year or she could use part this year, plus use $3,000 against ordinary income and carry the balance forward, shielding future capital gains from taxation.

Whatever the strategy, “People who need charity need help now,” said Professor Droms, who recommended that donors “dig deeper to give if possible.”