October 2021

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Letter from the President

Dear Friends,

Autumn is a great reminder of what the change of seasons brings this time of year. Cooler days are here, pumpkin patches dot the landscape, and fall festivals are everywhere in our region. One thing is consistent - the Chesapeake Planned Giving Council (CPGC) works year-round to provide you with dynamic speakers, educational programming, and gift planning related resources. CPGC is laser focused on serving our supporters and sponsors - as we have done for decades.

This time of year brings to mind bountiful harvests and gratitude for what we have. CPGC has a lot to be thankful for:

First, our membership is growing despite the challenges that many organizations have seen over the past 18 months or more. We have a dedicated Membership Committee that works tirelessly to attract new members and retain current members.

Second, CPGC has maintained a robust calendar of events this year and is focused on 2022 with a great line up of speakers and topics coming. Our Programs Committee has devoted hours of work confirming speakers, gathering event details and looking toward the future. Navigating, the in-person, virtual or hybrid event conversation has been a challenge. As we look ahead into the next year, it is our hope that we are able to see you in-person at a CPGC event.

Third, the National Association of Charitable Gift Planners (CGP) recently announced the 2021 Council Grant recipients, and CPGC made the list. Fourteen grants were awarded in one of four support areas to help strengthen and advance council programs and services. Award distributions included six for Diversity, Equity and Inclusion Initiatives, five for Membership Recruitment and Retention, two for General Support and one for Council Programming Initiatives. This grant cycle was made possible by the generous support of the Hibel Family Foundation’s Planned Giving Initiative.

Los Angeles Council of Charitable Gift Planners, CA
National Capital Gift Planning Council, DC
Planned Giving Council of Palm Beach County, FL
Eastern Iowa Planned Giving Council, IA
Chesapeake Planned Giving Council, MD (General Support)
Minnesota Gift Planning Association, MN
St. Louis Charitable Gift Planners, MO
Planned Giving Roundtable of Northern Nevada, NV
Greater Cincinnati Planned Giving Council, OH
Susquehanna Valley Council of Charitable Gift Planners, PA
Planned Giving Council of the Mid-South, TN
The Planned Giving Council of Middle Tennessee, TN
Dallas Council of Charitable Gift Planners, TX
Lone Star Council CGP, TX
Finally, on behalf of CPGC board and members, we thank our sponsors for their support. Your sponsorships allow us to provide the educational programming and events that our mission is founded on.

Visit our website to check out our upcoming events https://www.chesapeakeplannedgiving.org/events. Don’t forget - National Estate Planning Awareness Week is October 18-24, 2021. What’s your organization doing to celebrate the week?  Happy fall!

All the best,

Aquanetta Betts
CPGC, President
LinkedIn @AquanettaBetts

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Salvaging a Trust Charitable Deduction

By: Russ Willis

A fascinating scenario crossed my desk the other day. With several layers of complexity, missed opportunities, blind alleys, and potential workarounds. The kind of thing I like to sink my teeth into. Such as they are. At two fifty an hour.

the scenario
Decedent dies after her required beginning date, i.e., in what we call "pay status," with a substantial IRA. Either no beneficiary designation or literally designated to her estate. Or in another configuration, directly to her testamentary trust.

If to the estate, we would have no "designated" beneficiary, and the minimum required distributions would be calculated with reference to the decedent's "ghost" life expectancy. If directly to the trust, and if the trust qualified as look-through, and if the beneficiary were an "eligible" designated beneficiary, we could use her life expectancy. Which might not be longer anyway.

In either event, there is a residuary trust to which as a practical matter the entire IRA will be or has been distributed. That trust is to pay a fixed annuity to a nonspouse, let's say a sibling, for life, with the remainder to designated charities. But the amount of the annuity is nowhere near five pct., and the trust permits encroachments on principal for the income beneficiary, albeit under limited circumstances that are extremely unlikely to occur.

On its face this does not qualify as a charitable remainder annuity trust. And the deadline for initiating a proceeding to reform a nonqualified trust, which would be ninety days after the due date, with extensions, of the initial 1041 for the estate, has passed.

But even if it had not, it is not obvious how the trust could be reformed to qualify, while keeping the difference between values of the "reformable" and the "reformed" interests within five pct., which the statute does require.

But if we could.

alternate realities
In the particular case, the nonspouse beneficiary has a life expectancy well under twenty years, and we could set the annuity payout as high as eight or nine pct. before running up against the probability of exhaustion, which in any event we could address with a qualified contingency. Or we could set her up with a unitrust payout.

There might actually be some workable math here, involving renunciations or partial disclaimers -- for which latter, again, the deadline has passed --, maybe yielding a higher payout against a smaller principal balance, etc.

Something to keep in mind anyway, in case a similar situation arises in the future and you catch it early enough.

And one more thought.

If we were still within the deadline for a reformation but past the deadline for a qualified disclaimer, the beneficiary would be making a reportable gift to the remainder charities. Which you might think IRS would want to characterize as a nonqualifying partial interest, but maybe not, for reasons we will get into in a moment. In any event, it would be difficult to assign a value to that interest, so the tax benefit would lie entirely with qualifying the trust as a section 664(d) trust.

what you have instead
But all of that is water under the bridge. We have to play the hand we are dealt. And other relevant cliches.

The residuary trust would likely have qualified as a lookthrough, had the beneficiary designation not been to the estate. You will see the occasional letter ruling allowing some post mortem maneuvering even here, if other probate assets are sufficient to cover creditor claims, etc., and if the executor has authority to make non- pro rata allocations. But typically these involve a spousal rollover.

And let's assume either pre-2020 rules or an "eligible" designated beneficiary, i.e., a payout over the nonspouse benefiary's life expectancy. Nontax fiduciary income accounting principles would allocate distributions from the IRA ten pct. to income and ninety to principal. And because the trustee's discretion to encroach on principal is limited, it is likely taxable amounts would have accumulated at the trust level, where they would have been taxed at higher marginal rates than if they could be distributed.

But the executor took a lump sum distribution, so we have a recognition event as to the entire amount.

The estate was not large enough to require filing a state or federal estate tax return. There either was or was not a fiscal year election for the 1041s for the estate, but the residuary trust, once it is up and running, will be on a calendar year.

the kicker
Seven hundred fifty words in, and we finally get to the heart of the matter. On a 1041 for the probate estate, the executor claimed a set-aside deduction for the present value of the remainder to charities. Yes, you read that correctly.

There are other reasons to amend that return, but the question on the table is whether a set aside deduction would be defensible.

Short answer probably not, but let's try to build the argument. Apparently the idea is that because there is almost zero likelihood the trustee will encroach on principal in the particular case, any amount of trust corpus beyond what would be required to generate the fixed annuity has been "set aside."

And let's just say, "beyond what would be required" to generate the annuity indefinitely, without taking into account the beneficiary's life expectancy. Leaving a smaller amount for the set aside, maybe a more defensible position.

This argument would have been strengthened had the beneficiary disclaimed or timely renounced her right to discretionary encroachments. A qualified disclaimer would have been effective retroactively to the decedent's death. But IRS would not be bound by the purported retroactive effect of a renunciation now, after the distribution to the residuary trust has already been made, and after the close of the tax year for which the executor has claimed a deduction.

If we had acted timely, the question would be whether the right to discretionary distributions is a "severable" interest, as to which the income beneficiary could have made a qualified disclaimer. Examples 9 and 11 at reg. section 25.2518-3(d) suggest the answer may be yes. Also two letter rulings, PLRs 200010019 and 200230022. The same logic ought to apply to a renunciation, outside the nine month limit for a disclaimer but timely to support the executor's reporting position.

If the estate were on a noncalendar fiscal year, and if the calendar reporting year for the residuary trust into which the distribution was received were still open, it might still be possible to paper this over.

And what might that look like? A renunciation of the right to discretionary encroachments, followed by a decanting of the set aside amount into a section 4947(a)(1) nonexempt trust. That distribution, albeit not to an exempt entity, would arguably be "for a purpose specified in section 170(c)," and thus deductible under section 642(c)(1). IRS has ruled favorably on this latter point at least twice, in PLRs 200009058 and 200235035.

And since we are now talking about a distribution rather than a set aside, we should be able to make an election under reg. section 1.642(c)-1(b) to treat a distribution made in year two as having been made in year one. If the year two return is still open and maybe on extension.

Ariadne's thread
Or let's suppose it is too late to rescue the deduction at the estate level. The return claiming a charitable set aside is amended to show instead a distributions deduction to the residuary trust, but the trust has closed its initial calendar year without having dealt with the problem.

But if we are still in year two, might it not yet be possible for the beneficiary to renounce, and for the trustee to then decant into a section 4947(a)(1) nonexempt trust, and still make the election to claim the deduction for the prior year?

By sifting through multiple strategies that for one reason or another cannot salvage the situation, we seem to have hit upon one that might.

Of course, the trust beneficiary would have to get comfortable with renouncing her right to discretionary encroachments on principal, and the advisors who are subject to Circular 230 would have to get comfortable with the idea that this is a reasonable reporting position.


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About the Author


Russ Willis

Russ is a tax lawyer, a freelance writer, and a consultant to other lawyers -- an advisor to the advisor -- on issues arising in connection with wealth transfers. Among his other engagements, Russ is a manager of noncash research for Charitable Solutions, LLC, a planned gift risk management consulting firm headed by Bryan Clontz.

For ten years, he wrote for a subscription website that provided daily coverage and in-depth analysis of developments in tax law affecting charitable gift planning. About three years ago, he launched his own newsletter, the Jack Straw Fortnightly, analyzing current developments in the law -- both tax and nontax -- concerning the transfer of private wealth in this country.

As a practicing lawyer in St. Louis, Missouri, for more than 20 years, Russ chaired the Steering Committee of the Probate and Trust Law Section of the local bar association and served for years on a legislative drafting subcommittee of the Probate and Trust Law Committee of the State Bar. As an adjunct member of the faculty at the St. Louis University School of Law, he taught courses in future interests and tax-driven estate planning.

Russ has written numerous articles for law journals and publications serving the charitable planned giving profession, and he has been a frequent speaker at seminars for lawyers and for charitable gift planners.

Russ has a law degree from St. Louis University and a master's degree in Taxation Law from Washington University in St. Louis. His undergraduate degree in English Literature is from Indiana University, Bloomington, and he has a master's degree in English from the University of Chicago.


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Reentry Anxiety May Affect Return to the Office

Contributed by Associations Now

It’s been a long time since professionals have worked together in a shared space, and returning to that environment could be stressful. Here’s how to help employees through this transition.

A return to the office is becoming more and more realistic for organizations—even if the Delta variant has slowed things down. But coming back will probably lead to some form of reentry anxiety among employees.

Whether it’s health and safety concerns, social anxiety after a year of working alone, or worries about reacclimating to a shared workspace, organizations and their leaders need to be ready to address these stressors so that employees can transition smoothly. And the process starts with understanding your staff.

“Everyone experiences stress in different ways,” says Lisa Frydenlund, HR knowledge advisor at the Society for Human Resource Management. “Managers are going to have to be more aware of performance changes, be available for conversation, and acknowledge that we’re all going through this.”

Use these tips from Frydenlund to find the root of your employees’ reentry anxiety and help them overcome it.

Reach Out to Employees

As you make plans to return to the office, connect with employees to get a sense of how they feel about heading back. You can conduct a survey asking how comfortable they are with returning to the office, how many days of the week they want to be there, how they feel about safety measures you plan to implement, and whether they have barriers to returning, such as child care responsibilities.

Managers should also make it clear that they’re available to talk further about concerns employees might have. An open line of communication will help your organization determine an ideal reopening strategy. Then you can use these learnings to help inform your return strategy, showing employees that they’re being heard.

“Allowing for avenues of conversation and engagement is going to be really helpful,” Frydenlund says. “To ask is really important, instead of assuming or not even thinking twice and saying, ‘OK, you need to get back [to the office] right now.’”

That said, Frydenlund says managers should not diagnose or label employees who are experiencing anxiety or pry too far into their personal lives. Instead, direct them to relevant resources and employee assistance programs, where mental health professionals can work with them.

Bolster Your Employee Assistance Program

Traditionally, employee assistance programs have been used to help employees deal with personal and social problems such as substance abuse and marital issues. The purpose of EAPs has expanded over time to include counseling and other mental health services.

Now is the time to ensure your program has these resources available. An EAP gives employees at all levels a place to go when they’re struggling.

“Managers and leaders are dealing with the same stuff, so it’s really going to take a village,” Frydenlund says. “What if it’s a manager who’s stressing out?”

EAPs are commonly underused, with one of the biggest reasons being poor company communication. In your communications to employees about returning to the office, promote your EAP as a place to go if they’re feeling stressed about the transition.

Frydenlund also says to take advantage of any mental health services that are included in your primary care offerings. For example, some Blue Cross Blue Shield companies have recently broadened access to mental healthcare benefits.

Continue to Follow Health and Safety Guidelines

Show employees you’re still keeping their safety a top priority by following industry-specific recommendations and the latest guidelines from your state and the Centers for Disease Control and Prevention. While the pandemic’s grip on daily life is loosening, officials still recommend certain measures for people who aren’t fully vaccinated and for situations such as traveling using public transportation.

Emphasize Transparency and Frequent Communication

Given the potential stress around coming back to the office, organizations should keep employees informed of their plans as much as possible. Be clear about what safety guidelines you’re following, lead them to resources where they can learn more, and explain why you’re reopening the office.

“Transparency is key in helping people feel safe and well taken care of,” Frydenlund says. “They may not agree with the information that’s being shared, but they have an understanding of why.”

You could also offer training or information sessions on safety measures, proper hygiene practices, and what office life will be like when they return.

Show Flexibility

Help employees ease back into things by allowing hybrid work, where they can still work remotely for a few days a week. Also, think about what kind of work necessitates face-to-face interaction and what can be done at home. Denying employees the option to work remotely in some capacity could cause resistance.

“Just saying no anymore is going to be really difficult,” Frydenlund says. “I’m seeing stories where people are saying, ‘If I don’t have the option, I’m out.’”

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