The Tax Reform Act of 1986 enacted fundamental changes that made a powerful impact on charitable giving. Capital gains tax rates were increased to the same rates as income taxes. This was a reform-minded provision that was perceived as closing a loophole, since after TRA86, wealthy taxpayers found no benefit in recharacterizing their income as capital gains. The top income tax rate was reduced from 50% to 28% (plus a 5% surcharge) in exchange for elimination of loopholes, but tax rate reductions proved temporary as Congress soon increased the top income tax rate to 40%.
TRA86 eliminated popular tax preference items (“loopholes”), leaving charitable remainder trusts as one of the few opportunities for successful investors to avoid paying high capital gains taxes on the sale of appreciated stock. Many for-profit investment advisors, life insurance agents, and attorneys added charitable remainder trusts to their practice in the 1980s.
Renaissance Inc., a charitable trust administration and consulting company for professional advisors, was founded in 1986 by Elton Brooks and his son Paul. By the summer of 1991 there were 500 Renaissance Advisors in 46 states. The firm made the Inc. 500 list of the fastest-growing private companies in America in 1994. Now known as RenPSG, the firm continues under the leadership of Ed Thompson. In 2017 RenPSG made grants totaling $2.2 billion to qualified charities from its donor-advised fund.
Financial planners applied the term “social capital” to charitable tax planning: income and estate taxes were characterized as “optional,” with charitable remainder trusts presented as an attractive alternative. A few misguided planners lost sight of charitable intent by promoting CRUTs as “the last great tax shelter,” as they were labeled in a widely-read article in Forbes (November 26, 1990) entitled “Tax Dodges Begin At Home.” The article concludes: “given the abuses already giving charitable remainder trusts a bad name, it’s only a matter of time before Congress gets wise to this loophole.”
Nonprofits that could not afford to hire gift planning specialists felt disadvantaged, and vulnerable to disreputable salesmen who offered a remainder interest in CRUTs in exchange for the payment of “finders fees.” Frustrated by resistance to paying finders fees on ethical grounds, financial planner Mark Pash said in a published article that “The charitable industry has been getting in the way of the gifts … There are charities who do not pay the fees, and they don’t get the gifts.”
It seemed that there was a trend towards grudging acceptance of finders fees. The NCPG newsletter in May 1989 reported on a session at The Planned Giving Roundtable of Santa Barbara, CA: “The general consensus was distaste for exorbitant finders fees, with agreement that this is a business decision for non- profits, guided by economics and degree of the fee.”
It became increasingly clear that gift planners needed to spell out national principles to guide professional conduct in this and other areas.
Gift Planning History 