The Estate of The Union Season 2|Episode 8 is out now!
Homelessness is not going away. How we manage it can be frustrating and sometimes seems futile. It’s not. In Homeless But Not Hopeless, Brad and Alan Graham, the founder and CEO of Mobile Loaves and Fishes have a lively conversation on what he, Mobile Loaves and Fishes, and their Community First! Village program are doing to improve the lives of the homeless, and improve our city too.
If you’ve ever wondered about what to do when approached by a homeless person at an intersection, Alan has an answer for that too!
If you would like to learn more about how to volunteer or donate to Mobile Loaves and Fishes or Community First! Village, please visit mlf.org
In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand. It is Estate Planning Made Simple! The Estate of The Union Season 2|Episode 8 is out now! The episode can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. If you would prefer to watch the video version, please visit our YouTube page. Please click on the links below to listen to or watch the new installment of The Estate of The Union podcast. We hope you enjoy it.
Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.
If you are a wealthy family looking into estate planning, beware of tax scams involving Charitable Remainder Annuity Trusts. The IRS has issued a warning about promoters aiming specifically at wealthy taxpayers, advises a recent article, “IRS Warns Of Tax Scams That Target Wealthy,” from Financial Advisor. Charitable Remainder Annuity Trusts (CRATs) are irrevocable trusts that allow individuals to donate assets to charity and draw annual income for life or for a fixed period. A CRAT pays a dollar amount each year, and the IRS examines these trusts to ensure they correctly report trust income and distributions to beneficiaries. Of course, tax documents must also be filed properly.
Some sophisticated scammers boast of the benefits of using CRATs to eliminate ordinary income or capital gain on the sale of the property. However, property with a fair market value over its basis is transferred to the CRAT, the IRS explains, and taxpayers may wrongly claim the transfer of the property to the CRAT, resulting in an increase in basis to fair market value, as if the property had been sold to the trust.
The CRAT then sells the property but needs to recognize the gain due to the claimed step-up in basis. The CRAT then purchases a single premium immediate annuity with the proceeds from the property sale. This is a misapplication of tax rules. The taxpayer or beneficiary may not treat the remaining portion as an excluding portion representing a return of investment for which no tax is due.
In another scam, abusive monetized installment sales, thieves find taxpayers seeking to defer the recognition of gain at the sale of appreciated property. They facilitate a purported monetized installment sale for the taxpayer for a fee. These sales occur when an intermediary purchase appreciated property from a seller in exchange for an installment note, which typically provides interest payments only, with the principal paid at the end of the term.
The seller gets the larger share of the proceeds but improperly delays recognition of gain on the appreciated property until the final payment on the installment note, often years later.
Anyone who pressures an investor to invest quickly, guarantees high returns or tax-free income, or says they can eliminate taxes using installment sales, trusts, or other means, should be dismissed immediately. Beware of tax scams involving Charitable Remainder Annuity Trusts. Your estate planning attorney is well-versed in how CRATs, LLCs, S Corps, trusts, or charitable donations are used and will steer you and your assets into legal, proper investment strategies. If you would like to learn more about charitable giving, please visit our previous posts.
Assets held in Individual Retirement Accounts (IRAs) are unquestionably the best assets to gift to charity, since IRAs are loaded with taxes. One way to relieve this tax burden is by using the IRA for charitable giving during your lifetime, says a recent article, “Giving funds in IRAs to charity with QCDs,” from Investment News. Qualified charitable distributions can help reduce your tax burden.
Most people who give to charity don’t receive the taxable benefit because they don’t itemize deductions. They instead use the higher standard deduction, which offers no extra tax deduction for charitable giving.
Older taxpayers are more likely to use the standard deduction, since taxpayers aged 65 and older receive an extra standard deduction. In 2022, the standard deduction for a married couple filing jointly when each of the spouses are 65 and older is $28,700. The exceptions are couples with large medical expenses or those who make large charitable gifts.
Here’s where the IRA for charitable giving comes in. IRAs normally may not be given to charity or anyone in the owner’s life (except in the case of divorce). There is one exception: giving IRAs to charity with a QCD.
The QCD is a direct transfer of traditional IRA funds to a qualified charity. The QCD is an exclusion from income, which reduces Adjusted Gross Income. AGI is the most significant number on the tax return because it determines the availability of many tax deductions, credits and other benefits. Lowering AGI with a QCD could also work to reduce “stealth” taxes–taxes on Social Security benefits or Medicare premium surcharges.
QCDs are limited to $100,000 per person, per year (not per IRA). They can also satisfy RMDs up to the $100,000, but only if the timing is right.
There are some limitations to discuss with your estate planning attorney. For instance, QCDs are only available to IRA owners who are 70 ½ or older. They can only be made once you turn age 70 ½, not anytime in the year you turn 70 ½. The difference matters.
QCDs are not available from 401(k) or other employer plans. They also aren’t allowed for gifts to Donor Advised Funds (DAFs) and private foundations, and they can’t be made from active SEP or SIMPLE IRAs, where contributions are still being made.
Appreciated stocks can also be gifted to qualified charities and itemized deductions taken for the fair market value of the stock, if it was held for more than one year. There’s no tax on appreciation, as there would be if the stock were sold instead of gifted.
There are some tax traps to consider, including the SECURE Act, which allows traditional IRAs to be made after age 70 ½. However, it pairs the provision with a poison pill. If the IRA deduction is taken in the same year as a QCD, or any year before the QCD, the QCD tax exclusion could be reduced or lost. This can be avoided by making Roth IRA contributions instead of tax-deductible IRA contributions after age 70 ½.
Speak with your estate planning attorney about whether using qualified charitable distributions to help reduce your tax burden makes sense for your estate planning and tax situation. If you would like to learn more about charitable giving, please visit our previous posts.
A charitable donation tax deduction feels good in a few ways. Not only do you feel good about giving to a good cause, but charitable giving can also benefit the giver. However, before you start writing checks or making online donations, you should know what rules to follow to ensure your good-hearted gifting is giving you tax deductions, explains the article “Charitable Donation Tax Deductions: An Additional Reward for the Gift of Giving” from Kiplinger.
First, you’ll need to itemize to claim a charitable tax deduction. If you took the standard deduction on your 2020 or 2021 tax return, you could also claim up to $300 for cash donations to charity. This deduction wasn’t available to taxpayers who claimed itemized deductions on Schedule A. This deduction wasn’t extended past 2021, so you can’t claim a charitable donation tax deduction on your 2022 tax return. For 2022 and beyond, you’ll have to itemize if you want to write off gifts to charity.
If your standard deduction is a little higher than your itemized deduction, consolidate charitable deductions from the next few years into the current tax years, known as “bunching.” This lets you boost your itemized deductions for the current year, so they exceed your standard deduction amount. Consider using a Donor Advised Fund, where you can make one large contribution to a fund and deduct the entire amount as an itemized deduction in the year you make it. Just be sure your donations align with your estate plan.
How do you know what donations are deductible? Contributions of cash or property are generally deductible. If you donate property, the deduction is equal to the property’s fair market value. If you give appreciated property, you may have to reduce the fair market value by the amount of appreciation when calculating the deduction. If the property has decreased, your deduction is limited to the current fair market value.
There are certain requirements and limitations for charitable tax deductions. For gifts of $250 or more, you must have a written acknowledgment from the charity stating the amount of a cash donation and a description of any donated property, but not value, and whether or not you received any goods or services in return for your contribution. At certain valuation points, you’ll need to file certain forms and if you donate a car, boat, or airplane worth more than $5,000, you may need to have the property appraised also.
Just because your donation was used for a good cause doesn’t mean you can deduct it. Only contributions to certain charitable organizations are deductible. For instance, if a neighbor starts a Go Fund Me page, those donations, while greatly appreciated, are not tax deductible.
The IRS makes it easy to determine if any donations are tax deductible with the Tax Exempt Organization Search tool on its website to find out if an organization is tax-exempt.
For seniors who are at least 70 ½ years old, you can transfer up to $100,000 directly from a traditional IRA to charity through a Qualified Charitable Distribution (QCD). The charitable donations made by eligible seniors via a QCD aren’t deducible. However, you can still save on taxes, since QCDs aren’t included in taxable income. Charitable giving can benefit the giver, but only if you have taken the time to plan accordingly. If you would like to learn more about charitable giving, please visit our previous posts.
QCDs also count towards senior’s Required Minimum Distribution, without adding to your adjusted gross income.
Many financial planning articles are geared towards people starting out or those nearing retirement. But what about people in their 50s? The Street’s recent article entitled “5 Things to Do in Your 50s,” says that they need help, too. Here are five simple planning items to consider in your 50s.
Maximize your retirement plan. When you turn 50, the IRS lets you contribute more to your retirement accounts each year. Known as “catch-up contributions,” if you have the cash flow, take advantage of this.
Fund a Health Savings Account (HSA). If you’re eligible for an HSA, contribute to it! Even a small amount each year will make a difference.
Long-term care. Think about buying insurance to mitigate the risk of paying out of pocket for medical expenses. Age 55-60 is a good time for purchasing a policy, as they tend to be less expensive than purchasing one in your late 60s.
Review your estate planning documents. Your circumstances, financial condition and federal and state laws can change. Make certain that you review your estate plan every few years and keep it up-to-date.
Toss junk and focus on experiences. While not really financial planning-related, it’s important to speak with your children and friends and see if they want to rummage through boxes of old pictures, silverware and sweaters years from now. Probably not. They most likely would want you to keep what’s most valuable and toss the rest. Rather than spending money on keepsake items, perhaps spend it on trips with the family or meaningful experiences that your loved ones will cherish for a lifetime. You might also donate to a charity that enriches you and makes you feel fulfilled.
An experienced estate planning attorney will walk you through the various planning items to consider, now that you’re in your 50s. If you would like to read more about estate planning for older adults, please visit our previous posts.
This is the traditional time for giving. Giving to a cause and giving of ourselves.
The newest episode of The Estate of The Union focuses on the topic of charitable giving. Brad chats with Stacey Wedding, an expert on charitable giving, about how it can play a role in your planning strategy and help the people and organizations that have meaning in your life. They discuss both the How and the Why of giving – and Stacy will share tips on becoming a smarter giver too!
Laws concerning charitable giving can change, so be sure your gifting strategies are still appropriate for your estate. Charitable remainder trusts (CRTs) and Donor Advised Funds (DAFs) are options for people who are already charitably inclined to reduce estate taxes. Charitable Remainder Trust can reduce taxes for people who would be making gifts to support meaningful causes. DAFs can be created and funded by individuals or a family and receive a deduction that very same year.
In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand.
It is Estate Planning Made Simple!
To learn more about Stacey Wedding and the Stacey Wedding Group, please visit her website:
The Estate of The Union episode 12-Giving Yourself Away can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. Please click on the link below to listen to the new installment of The Estate of The Union podcast. You can also view this podcast on our YouTube page. The Estate of The Union Episode 12 out now. We hope you enjoy it.
Texas Trust Law/Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.
We know why estate planning for your assets, family and legacy falls through the cracks. It’s not the thing a new parent wants to think about while cuddling a newborn, or a grandparent wants to think about as they prepare for a family get-together. However, this is an important thing to take care of, advises a recent article from Kiplinger titled “2021 Estate Planning Checkup: Is Your Estate Plan Up to Date? Consider maintaining an estate planning checklist to keep your planning current.
Every four years, or every time a trigger event occurs—birth, death, marriage, divorce, relocation—the estate plan needs to be reviewed. Reviewing an estate plan is a relatively straightforward matter and neglecting it could lead to undoing strategic tax plans and unnecessary costs.
Moving to a new state? Estate laws are different from state to state, so what works in one state may not be considered valid in another. You’ll also want to update your address, and make sure that family and advisors know where your last will can be found in your new home.
Changes in the law. The last five years have seen an inordinate number of changes to laws that impact retirement accounts and taxes. One big example is the SECURE Act, which eliminated the Stretch IRA, requiring heirs to empty inherited IRA accounts in ten years, instead of over their lifetimes. A strategy that worked great a few years ago no longer works. However, there are other means of protecting your heirs and retirement accounts.
Do you have a Power of Attorney? A POA gives a person you authorize the ability to manage your financial, business, personal and legal affairs, if you become incapacitated. If the POA is old, a bank or investment company may balk at allowing your representative to act on your behalf. If you have one, make sure it’s up to date and the person you named is still the person you want. If you need to make a change, it’s very important that you put it in writing and notify the proper parties.
Health Care Power of Attorney needs to be updated as well. Marriage does not automatically authorize your spouse to speak with doctors, obtain medical records or make medical decisions on your behalf. If you have strong opinions about what procedures you do and do not want, the Health Care POA can document your wishes.
Last Will and Testament is Essential. Your last will needs regular review throughout your lifetime. Has the person you named as an executor four years ago remained in your life, or moved to another state? A last will also names an executor for your property and a guardian for minor children. It also needs to have trust provisions to pay for your children’s upbringing and to protect their inheritance.
Speaking of Trusts. If your estate plan includes trusts, review trustee and successor appointments to be sure they are still appropriate. You should also check on estate and inheritance taxes to ensure that the estate will be able to cover these costs. If you have an irrevocable trust, confirm that the trustee is still ready and able to carry out the duties, including administration, management and tax returns.
Gifting in the Estate Plan. Laws concerning charitable giving also change, so be sure your gifting strategies are still appropriate for your estate. An estate plan review is also a good time to review the organizations you wish to support.
It is a wise and prudent choice to consider maintaining an estate planning checklist to ensure that your planning is up to date with your life. If you would like to learn more about crafting an estate plan, please visit our previous posts.
Rising prices for investments and real estate is making owners of these assets concerned about paying exorbitant taxes amid discussions of possible changes in the near future. According to a recent article from The Street titled “Retirement Saving and Charitable Remainder Trusts,” having a strategy on hand to prepare for or even avoid these taxes is a wise move. People who are charitably inclined may want to take a closer look at how Charitable Remainder Trusts, or CRTs, can reduce taxes and provide a generous gift to worthy charities.
There are two basic types of CRTs: the Charitable Remainder UniTrust, or CRUT, and the Charitable Remainder Annuity Trust, or CRAT. In both types of trusts, the charity receives the “remainder” of the principal once the income interest ends. Income from the trust is given to a non-charity beneficiary for a certain period of time, or as in many cases, for the entire life of the beneficiary until it’s time for the remainder principal to be donated.
The key difference between the CRAT and the CRUT are how the income payment is calculated. In a CRUT with a 5% payout, the 5% is based on the value of the CRUT each and every year. Obviously that payment amount fluctuates according to the performance of the assets held by the CRUT. In a CRAT, payments are fixed based on in the initial contribution made to set up the account. Your estate planning attorney will be able to recommend the right vehicle for you and your family.
A CRT may be funded with highly appreciated assets because selling within the CRT results in no capital gains to the donor. Any proceeds may be reinvested to generate the needed income, while at the same time potentially growing the remainder asset for charity.
An administrator is hired to evaluate the trust to ensure its compliance, and the administrator’s role is to advise the trustee on the amount of the distribution annually to the beneficiary.
Since the charity is the remainder beneficiary, the grantor is not able to deduct the entire amount of the contribution to the CRT. The deduction is determined by the income payments selected and the terms of the CRT. There are software programs used to calculate the approximate deduction based on the input. The higher the income payment, the lower the deduction.
Note that if you are giving highly appreciated long-term capital gains assets, only 30% of the adjusted gross income can be given. The rest may be carried forward for five years. This should be considered when determining how much to contribute to the CRT.
The choice of CRTs lets you design a desired income stream from the trust. The taxability of the CRT is based on the types of assets used. There are four tiers, as defined by the IRS: ordinary income (which includes current year and accumulated income) and qualified dividends; capital gains; other tax-exempt income; and return of principal.
To solve the problem of choosing a charity, many prefer to use a Donor Advised Fund as a beneficiary. The DAF can be treated like a charity for tax purposes. The DAF lets you control how the account is funded and the timing of distribution of assets. The charities do not need to be named when the CRT is first created.
The Charitable Remainder Trust can reduce taxes for people who would be making gifts to support meaningful causes. Your estate planning attorney will be able to help you set up a CRT to work in tandem with the rest of your estate plan.
If you would like to learn more about Charitable Remainder Trusts and how they can benefit your planning, please visit our previous posts.
Increasing tax changes for the wealthy are coming, and motivation to find ways to protect the wealth is getting increased attention, according to a recent article from CNBC entitled “Here’s how to reduce exposure to tax increases with charitable contributions.” Charitable remainder trusts (CRTs) and Donor Advised Funds (DAFs) are options for people who are already charitably inclined to reduce estate taxes. The CRT is complicated, requiring estate planning attorneys to create them and accountants to maintain them. The DAF is simpler, less expensive and is growing in popularity.
Both enable income tax deductions, in the current year or carried forward for five years, on cash contributions of up to 60% of the donors’ AGI and up to 30% of AGI on contributed assets. These contributions also reduce the size of taxable estates.
CRTs funnel asset income into a tax-advantaged cash stream that goes to the donor or another designated non-charitable beneficiary. The income stream flows for a set term or, if desired, for the lifetime of the non-charitable beneficiary. The trusts must be designed, so that at the end of the term, at least 10% of the funds remain to be donated to a charity, which must be designated at the outset.
No tax is due on proceeds from the sale of trust assets, until the cash makes its way to the non-charitable beneficiary. When assets are held by individuals, their sale creates capital gains tax in the year they are sold.
CRT donors can fund the trusts with highly appreciated assets, then manage them for optimal returns while minimizing tax exposure by adjusting the income stream to spread the tax burden over an extended period of time. If capital gains tax rates are raised by Congress, this would be even better for high earners.
DAFs do not allow dispersals to non-charitable beneficiaries. All gains must ultimately be donated to charity. However, the DAF provides advantages. They are easy to create and can be set up with most large financial service companies. Their cost is lower than CRTs, which have recurring fees for handling required IRS filings and trust management. Charges from financial institutions typically range from 0.1% to 1% annually, depending upon the size, and a custodial fee for holding the account.
DAFs can be created and funded by individuals or a family and receive a deduction that very same year. There is no hurry to name the charitable beneficiaries or direct donations. With a CRT, donors must name a charitable beneficiary when the trust is created. These elections are difficult to change in the future, since the CRT is an irrevocable trust. The DAF allows ongoing review of giving goals.
Funding a DAF can be done with as little as $5,000. The DAF contribution can include shares of privately owned businesses, collectibles, even cryptocurrency, as long as the valuation methods used for the assets meet IRS rules. Donors can get tax deductions without having to use cash, since a wide range of assets may be used.
The DAF is a good way for less wealthy individuals and families to qualify for itemizing tax deductions, rather than taking the standard deduction. DAF donations are deductible the year they are made, so filers may consolidate what may be normally two years’ worth of donations into a single year for tax purposes. This is a way of meeting the IRS threshold to qualify for itemizing deductions.
Both charitable options are effective ways to reduce estate taxes. Which of these two works best depends upon your individual situation. With your estate planning attorney, you’ll want to determine how much of your wealth would benefit from this type of protection and how it would work with your overall estate plan.
You have spent a lifetime saving money for retirement, but which of those retirement assets do you include in your planning? Depending on your intentions for retirement accounts, they may need to be managed and used in distinctly different ways to reach the dual goals of enjoying retirement and leaving a legacy. It’s all explained in a helpful article from Kiplinger, “Planning for Retirement Assets in Your Estate Plan”.
Start by identifying goals and dig into the details. Do you want to leave most assets to your children or grandchildren? Has philanthropy always been important for you, and do you plan to leave large contributions to organizations or causes?
This is not a one-and-done matter. If your intentions, beneficiaries, or tax rules change, you’ll need to review everything to make sure your asset planning still works.
How accounts are titled and how assets will be passed can create efficient tax results or create tax liabilities. This needs to be aligned with your estate plan. Check on beneficiary designations, asset titles and other documents to make sure they all work together.
Review investments and income. If you’ve retired, pensions, annuities, Social Security and other steady sources of income may be supplemented from your taxable investments. Required minimum distributions (RMDs) from tax deferred accounts are also part of the mix. Make sure you have enough income to cover regular and unanticipated medical, long term care or other expenses.
Once your core income has been determined, it may be wise to segregate any excess capital you intend to use for wealth transfer or charitable giving. Without being set apart from other accounts, these assets may not be managed as effectively for tax planning and long-term goals.
Establish a plan for taxable assets. Children or individuals can be better off inheriting highly appreciable taxable investment accounts, rather than traditional IRAs. These types of accounts currently qualify for a step-up in cost basis. This step-up allows the beneficiary to sell the appreciated assets they receive as inheritance, without incurring capital gains.
Here’s an example: an heir receives 1,000 shares of a stock with a $20 per share cost basis valued at $120 per share at the time of the owner’s death. They will pay no capital gains taxes on the gain of $100 per share. However, if the same stock was sold while the retiree owner was living, the $100,000 gain in total would have been taxed. The post-death appreciation, if any, on such inherited retirement assets, would be subject to capital gains taxes.
Retirees often try to preserve traditional IRAs and qualified accounts, while spending taxable accounts to take advantage of lower capital gains taxes as they take distributions. However, this sets heirs up for a big tax bill. Another strategy is to convert a portion of those assets to a Roth IRA and pay taxes now, allowing the assets to grow tax free for you and your heirs.
Segregate assets earmarked for charitable donations. If a charity is named as a beneficiary for a traditional IRA, the charity receives the assets tax free and the estate may be eligible for an estate deduction for federal and state estate taxes.
Your estate planning attorney can help you understand how to structure your assets to meet goals for retirement, and to include in your planning. Saving your heirs from estate tax bills that could have been avoided with prior planning will add to their memories of you as someone who took care of the family.
Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact Texas Trust Law to schedule a complimentary consultation.
