The IRS Giveth and the IRS Taketh

Written by William Schmidt , chair emeritus of The Denver Foundation Professional Advisors Council, and a former trustee of The Denver Foundation.

The tax landscape is constantly shifting, requiring us to stay nimble and informed. Much of estate and charitable tax planning depends on the rates and exemptions that the IRS changes depending on economic circumstances. These changes can affect our planning objectives and timing.

Recently, there have been changes to 7520 rates. The 7520 Rate which the IRS uses in calculating the tax consequences of charitable trusts will be 4.8% in November. This is almost triple the rate of 1.6% in January and February. Charitable Remainder Annuity Trusts (CRATs) are better (give a larger charitable deduction) when the 7520 Rate is higher.?

With the Fed possibly continuing to raise interest rates to combat inflation, the 7520 Rate will also increase. Charitable Lead Annuity Trusts (CLATs) perform better (higher charitable deduction) when the 7520 Rate is lower. Therefore, now, and in the foreseeable future, a CRAT will provide a larger charitable income tax deduction than a CLAT.

There have also been changes to the Estate Tax Exemption and Annual Exclusion. The IRS has just announced that the federal estate tax exemption beginning next will increase from $12.06MM to $12.92MM. The annual gift tax exclusion will increase from $16,000 to $17,000.

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Knowing that these changes can impact charitable deductions, it’s important for you to connect with your financial advisor to discuss the best strategy for your situation.