Wise Wealth Management

Dennis Covington | Principal

Insights on the keys to enjoying a "healthy wealth".

Simple Gifts and Planned Gifts

August 2017

Key Takeaways
• With people living longer, particularly the affluent, the calculus of planned giving has been turned on its head.
• Make sure you consider trust payout rates, investment returns, tax brackets, economic conditions and institutional “mission drift” when designing planned gifts.
• Creating a gift as a stand-alone, tactical solution can be more dangerous than it appears. You need to see the gift from the context of your complete, financial picture.

The simplest gifts are transactional in nature. A check is written or marketable securities are transferred and the transaction is completed. On the other hand, planned gifts tend to be more complicated. Planned gifts tend to be larger than simple gifts. The asset(s) may be more complex and an intervening legal structure is frequently required. A planned gift, while created for tax purposes, may span one or more lifetimes before it truly completes. Since the lifespan of a planned gift can be quite long, thorough and thoughtful attention must be paid to a number of factors that may impact the eventual result of the gift’s original charitable intent.

Planned Giving 2.0: A new variable in the gift equation

We often consider trust payout rates, investment returns, tax brackets, economic conditions and even possible institutional changes (we call this mission drift) when a family designs and completes a planned gift. If that’s not enough, you should also consider the gift within the context of your health and life expectancy.

The Internal Revenue Service (IRS) publishes actuarial tables and calculation factors in Publications 1457-1459 that provide the general substance and guidance for computing the various charitable factors for any planned gift: charitable income tax deduction; remainder interest; value of life estates, etc. Applying the properly published factor is a simple matter. However, we’ve seen many fail to contemplate two variables that may cause an unanticipated failure of an otherwise properly reasoned gift:

1. The continued use of outdated mortality tables by the IRS. The publications above are still based on the 2000CM tables. It’s important to remember that in the standard 2000CM tables, “mortality” refers to an age at which 50 percent of the people in any age group are assumed to have died --and 50 percent are still alive.

2. Life expectancy for high-net-worth individuals is increasing even faster than it is for the general population (more on that in a minute).

Dramatic changes in life expectancy

Yet, according to the Center for Disease Control’s (CDC’s) National Vital Statistics Report, life expectancy has been climbing steadily upward since 2000. With improving medical interventions especially in the “high cause of death” diseases, there is good reason to believe that life expectancies will continue to improve. This means gift planners are simply not able to change their calculations on a whim.

Factors driving longer life expectancy

As an example, the two leading killers, according to the CDC, are cancer and heart attacks. Both diseases have experienced dramatic declines in mortality. Every year, the medical field makes steady gains in the fight against cancer. Last April, the National Cancer Institute (NCI) published new findings about the incidence of cancer and related death rates. The bottom line is that both incidence and death rates of cancer fell. The mortality rate fell 1.5 percent per year on average from all cancers from 2002 to 2011. Over the same period, new cancer cases dropped 0.5 percent annually. The NCI study showed that improvements were consistent for men, women, and children, across all types of cancer, especially the deadliest types: lung, breast, and colon.

According to the American Heart Association, death rates from heart disease fell 38 percent from 2003 to 2013. And according to the U.S. National Heart, Lung, Blood Institute, the decline was accelerated by new drugs that control cholesterol and blood pressure, reduced smoking rates, and faster care for people in the midst of a heart attack.

You must follow IRS guidance, however, you can change the way you and your family think about (and design) long term gifts.

Compounding the challenge

While overall life expectancy is improving for the general population, it’s increasing even faster among high net worth individuals. There are a number of reasons for this. Primarily it’s because the affluent have better access to health care then the general population does. By “health care,” we’re referring to everything from access to the best physicians and personal trainers to experimental procedures and concierge medical services. High-net-worth individuals are more likely than others to make large planned gifts.


The single best solution for planned giving in today’s era of extended longevity is to take a comprehensive approach. Designing a gift as a stand-alone, tactical solution can be more dangerous than it appears. Knowing the entirety your financial situation, and understanding your cash flow, asset growth potential and estate planning considerations will allow you and your advisor to make more reasonable assumptions and forecasts.


While no one wants to diminish a gift, it may well be the best course of action. Other avenues include, exploring lower payout rates, making certain to look “past” the IRS mortality tables to ensure that the gift works will work for 10 or even 20 more years. We can help you understand how Monte Carlo simulations and other modeling tools can help you create more balanced and diversified investment portfolios for this purpose.
Gifting is one of the most gratifying ways for you and your family to support the good work of causes close to you. Just make sure you’re giving in a strategic and tax advantaged way so you’ll have more resources to share with word down the road.




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