What might a return of the estate tax mean for fundraising in the US?

Nonprofit fundraising in the US could be impacted most by a tax change coming up in 2011 in terms of giving amongst the wealthiest. A two year trend of reduced donations from those with the highest net worth may see acceleration with a full return of the estate tax. The study analyzed random surveys of some 800 households with incomes greater than $200,000 and/or net worth greater than $1 million (excluding the value of the their primary residence). The average wealth of respondents was more than $10 million and half had a net worth between $3 million and $20 million.

In all average charitable giving by those surveyed has fallen by 35% compared with 2008 and reductions (or a few modest increases) were seen across all sectors with the exception of the arts. Over 98% of these high net worth households gave to charity with annual giving of $54,016 versus $83,034 two years earlier. The study is compiled by Bank of America/Merrill Lynch. Almost 20% of the wealthiest donors stated they would decide to greatly decrease their charitable donations if the tax deduction was to be eliminated. Only a third said they would keep their donations the same if the changes take place. On the other hand almost the same 17% said they would substantially increase their giving if the estate tax was repealed not too mention a further 26% who stated they would increase giving somewhat.

Potential impact of tax changes (courtesy Bank of America philanthropy survey)

By sector; arts organisations saw an increase of nearly 12% over the two year cycle, followed by international 9%, environment/animal care 3.9%. Declines were more likely most notably in health -63%, education -55% and religious giving -43%. Diversity of support remains high with donors on average supporting over six different organisations, the most likely reason given for electing to no longer support a cause was the (too high) frequency of solicitation. The same households contributed approximately 9% of their household income versus 11% two years earlier. As for the estate tax the implications could be present a severe impact to some nonprofits. If it returns in 2011 it will be at a rate of 55 percent with a $1 million exemption per year. The estate tax exemption had increased since 2001, rising to $1 million in 2002, $1.5 million in 2004, $2 million in 2006, and $3.5 million 2009 while simultaneously the top tax rate dropped steadily from 55 percent in 2001 to 45 percent by 2007.

The return of the estate tax some argue presents a false dichotomy that means that either governmental coffers swell or nonprofits essentially benefit, while the two situations are not mutually exclusive there does seem to be a fair warning that charitable habits will be impacted at least marginally especially by those with the most sizable net wealth.

To see the report in full please visit this site offered by Bank of America which allows you to download the entire report via PDF

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