Trump's tax proposals seen leading to a surge in charitable giving

How to prepare your portfolio in the Trump era
How to prepare your portfolio in the Trump era

Donald Trump's tax plan is a long way from being passed by Congress, but it's already changing the way wealthy Americans plan to give and invest.

In anticipation of some of the president-elect's proposals becoming a reality, wealth advisers say their clients are amending their tax strategies to reap the most benefits.

The country's top earners, for instance, currently deduct their charitable gifts at the top rate of 39.6 percent (or 43.4 percent, when accounting for the Obamacare surtax). But Trump has proposed lowering that rate to 33 percent, and limiting deductions to $200,000 per couple.

As a result, wealthy families are front-loading their charitable giving plans.

"Our clients are definitely discussing the potential advantages of charitable gifts in 2016," said Carlyn McCaffrey, partner and co-head of the private client practice at McDermott Will & Emery, in New York.

Karla Valas, a managing director at Fidelity Charitable, said she has seen a similar uptick in calls from donors and investors.

"This year, more than ever, a year-end meeting with your financial adviser is important to be sure that you are maximizing your giving, and that you take the opportunity to discuss your philanthropic plans looking ahead as much as four or five years," Valas said.

Republican presidential hopeful Donald Trump announces his tax plan during a press conference at Trump Tower in New York on September 28, 2015.
Dominick Reuter | AFP | Getty Images

Other big changes Trump has proposed relate to deferred income. In particular, he's suggested cutting the capital gains tax for high earners; slashing the corporate tax rate and the rate for pass-through income; and eliminating the estate tax.

As a result of those proposals, taxpayers are deferring some of their discretionary income and sales to next year. That means people who were planning to sell real estate, a business or other assets are now holding off until January or later.

The "pay-me-in-2017" approach is the opposite of the "fiscal cliff" phenomenon from 2012, when the wealthy shifted their income forward to avoid higher taxes the following year.

"There is an effort to minimize income this year," McCaffrey said.

Of course, one side effect of the plan is that tax revenues — which are increasingly dependent on capital gains from the wealthy — will fall in 2016 at both the federal and state levels. In 2013, for instance, the income of the top 400 taxpayers fell 21 percent over 2012, due to the pull-forward effect.

But at least for now, the Trump plan will lead to more charity, but lower tax revenues and income from the wealthy.