Donor Advised Fund is a Win-Win for All Concerned

March 3, 2021

Many Americans are feeling charitable these days, and with good reasons. It’s a hard time for many, and if you are financially able, making donations may help you feel you are making a difference for others during uncertain times. There are many options when making donations, and the recent article “Choosing Charity: How Donor-Advised Funds Benefit Your Contributions” from Fort Worth Magazine explains your choices. A Donor Advised Fund is a win-win situation for all concerned.

Donor Advised Funds (DAFs) can be opened for varying amounts, that are set by the sponsoring organizations. Smaller community foundations would welcome a DAF for $5,000, for instance. DAFs can be funded with cash or other assets, but once the donation is made, the asset no longer belongs to you. However, you may be able to decide when donations are distributed, and which charities receive funding. There are no required distribution dates, so the funds could go unused for a long time, while you receive the tax write-off right away.

You may also determine the investments within the fund, level of risk and overall investment strategy.

Another good reason to use DAFs: the sponsoring organization becomes the donor of record. Therefore, DAFs are an excellent way to make anonymous contributions.

There are also DAFs that involve active involvement from an advisor, if that is of value to you.

Why is now a great time to use a Donor-Advised Fund?

Some investors have highly appreciated assets that could lead to a significant tax liability, if they were sold right now. DAF offers an alternative—rather than sell the assets and pay taxes, putting them into a DAF can achieve the following:

You receive a tax deduction,
There are no capital gains taxes, and
Your chosen the charity that fully benefits from the funds.

The pandemic has left many people facing uncertainty. Therefore, now isn’t the right time for everyone to open their wallets and a DAF. However, if you are charitably-minded and in a financial position to benefit, a Donor Advised Fund is a win-win for all concerned. If you would like to learn more about charitable giving, please visit our previous posts.

Reference: Fort Worth Magazine (Feb. 3, 2021) “Choosing Charity: How Donor-Advised Funds Benefit Your Contributions”

There are Pros and Cons to Charitable Trusts

January 21, 2021

A charitable trust can provide an alternative to meeting your wishes for charities and your loved ones, while serving to minimize tax liabilities. There are pros and cons to charitable trusts, according to a recent article titled “Here’s how to create a charitable trust as part of an estate plan” from CNBC. Many families are considering their tax planning for the next few years, aware that the individual income tax provisions of the 2017 Tax Cuts and Jobs Act will expire after 2025.

Creating a charitable trust may work to achieve wishes for charities, as well as loved ones.

A charitable trust is a set of assets, usually liquid, that a donor signs over to or uses to create a charitable foundation. The assets are then managed by the charity for a specific period of time, with some or all of the interest the assets produce benefitting the charity.

When the period of time ends, the assets, now called the remainder, can go to heirs, or can be donated to the charity (although they are usually returned to heirs).

There are pros and cons to charitable trusts such as Charitable Remainder Trusts and Charitable Lead Trusts. Your estate planning attorney will determine which one, if any, is appropriate for you and your family.

A charitable trust allows you to give generously to an organization that has meaning to you, while providing an equally generous tax break for you and your heirs. However, to achieve this, the charitable trust must be irrevocable, so you can’t change your mind once it’s set in place.

Charitable trusts provide a way to ensure current or future distributions to you or to your loved ones, depending on your unique circumstances and goals.

A Charitable Remainder Trust, or CRT, provides an income stream either to you or to individuals you select for a set period of time, which is typically your lifetime, your spouse’s lifetime, or the lifetimes of your beneficiaries. The remaining assets are ultimately distributed to one or more charities.

By contrast, the Charitable Lead Trust (CLT) pays income to one or more charities for a set term, and the remaining assets pass to individuals, such as heirs.

For CRTs and CLTs, the annual distribution during the initial term can happen in two ways; a Unitrust (CRUT or CLUT) or an Annuity Trust (CRAT or CLAT).

In a Unitrust, the income distribution for the coming year is calculated at the end of each calendar year and it changes, as the value of the trust increases or decreases.

In an Annuity Trust, the distribution is a fixed annual distribution determined as a percentage of the initial funding value and does not change in future years.

Interest rates are a key element in determining whether to use a CLT or a CRT. Right now, with interest rates at historically low levels, a CRT yields minimal income.

The key benefits to a CRT include income tax deductions, avoidance of capital gains taxation, annual income and a wish to support nonprofit organizations.

Your estate planning attorney and a member of the development team from the charity can work together to ensure that your charitable strategy achieves your goals of supporting the charity and building your legacy.

If you are interested in learning more about charitable giving, please visit our previous posts.

Reference: CNBC (Dec. 22, 2020) “Here’s how to create a charitable trust as part of an estate plan”

Creating a Successful Business Exit Plan

January 14, 2021

Motley Fool’s recent article titled “What Robert Redford’s Sale of Sundance Can Teach Investors About Exit Planning” says that, in announcing the sale, Redford told the Salt Lake Tribune that he’s been thinking of selling for several years. However, he wanted to find the right partners. Broadreach and Cedar plan to upgrade the resort, add hotel rooms and build a new inn. The companies have also said that they will keep the resort sustainable and practicing measured growth, as well as also continuing to host the Sundance Film Festival. So how did he set about creating a successful business exit plan?

The 2,600-acre resort has 1,845 acres of land saved from future development through a conservation easement and protective covenants. The 84-year-old actor has had a lifelong interest in the environment and in land stewardship. Redford and his family have also arranged with Utah Open Lands to create the Redford Family Elk Meadows Preserve at the base of Mt. Timpanogos. The gift will reduce Redford’s tax liability on his estate.

Both Broadreach and Cedar have extensive hospitality experience, but neither looks to have much ski resort experience. However, they’re working with Bill Jensen, an industry legend, who recently left his role as CEO of Telluride Ski and Golf Resort in Colorado.

Creating a successful business exit plan can be difficult—in part, because people don’t like to address such unwelcome topics. Most investors don’t have the luxury of waiting years to find the right buyer, but the Redford deal does show that planning ahead may be critical to creating a mechanism that supports the vision for the property.

When selling a large investment property, you must first understand why you’re selling, and your desired end result. Of course, a return on investment is nice, but there may be other considerations, like in Redford’s case. Another key is ascertaining the updated worth of what you’re selling. Get a valuation, especially with an irreplaceable asset.

The structure of the sale is important. You will likely be liable for tax on your capital gains, so ask an attorney. If you’re also structuring your estate plans at the same time, you’ll need to know what amount you can give and what your heirs may have to pay. Talk to an experienced estate planning attorney before you begin creating a business exit plan to be certain that you’re covering all the bases.

If you are interested in learning more about succession planning and other business related planning topics, please visit our previous posts.

Reference: Motley Fool (Dec. 12, 2020) “What Robert Redford’s Sale of Sundance Can Teach Investors About Exit Planning”

Keeping Your Medicare Premiums Low

November 18, 2020

Here’s a generous incentive for older Americans who want to help their favorite charities: by giving generously from the right asset source, you could be keeping your Medicare premiums low for 2022. The details come from the article “Feeling altruistic? This tax strategy can keep Medicare premiums in check” from CNBC.

People who are age 70½ and over are allowed to make qualified charitable distributions from their IRAs. The IRA owner directs the custodian holding the account to transfer up to $100,000 directly to a charity. The transaction must be a direct transfer, and donor-advised funds or private foundations are not eligible for this strategy.

This is a staple of year-end tax planning for many, hitting two targets at once: older savers meet their required minimum distributions without a tax hit and their favorite causes get support. This year, there is no RMD, as a result of the CARES Act, the coronavirus relief measure that went into effect in the spring. However, a qualified charitable distribution still makes sense for people who were planning on making large donations.

Keeping your Medicare premiums low for 2022 Medicare Part B (Medical Insurance) and Part D (Prescription Coverage) itself is worth consideration.

Giving via a Qualified Charitable Distribution will not inflate the Modified Adjusted Gross Income (MAGI) for that year, and you also won’t pay taxes on the distribution. Remember, Medicare premiums are based on the MAGI from two (2) previous years.

It’s great to support nonprofit agencies that have meaning to you. However, doing it without taking advantage of tax planning is a lost opportunity.

In 2020, single taxpayers with a 2018 MAGI up to $87,000 (or $174,000 for married and filing jointly) pay $144.60 a month for Medicare Part B. Premiums increase depending on your MAGI, all the way up to $491.60 per month for individual taxpayers with a 2018 MAGI of $500,000 or more.

This is something to work on with your estate planning attorney, as going just one dollar over your income bracket could raise your premiums by thousands. Your estate planning attorney will be able to guide you through the various brackets, which must consider any other sources of taxable income.

Charitable giving is a great tool to shave tax liability and keep your Medicare premiums low, while still doing good. Donations of appreciated stock are another strategy. Just remember that for this type of giving, you’ll need to be itemizing deductions on the return, if you want to write them off. With the standard deduction so high, it may be hard to meet that hurdle.

If you would like to learn more about Medicare costs and planning, please visit our previous posts.

Reference: CNBC (Oct. 23, 2020) “Feeling altruistic? This tax strategy can keep Medicare premiums in check”

How Do I Protect an Inheritance from Taxes?

July 29, 2020

How do I protect an inheritance from taxes? Inheritances aren’t income for federal tax purposes, whether you inherit cash, investments or property. However, any subsequent earnings on the inherited assets are taxable, unless it comes from a tax-free source. Therefore, you must include the interest income in your reported income.

The Street’s recent article entitled “4 Ways to Protect Your Inheritance from Taxes” explains that any gains when you sell inherited investments or property are usually taxable. However, you can also claim losses on these sales. State taxes on inheritances vary, so ask a qualified estate planning attorney about how it works in your state.

The basis of property in a decedent’s estate is usually the fair market value (FMV) of the property on the date of death. In some cases, however, the executor might choose the alternate valuation date, which is six months after the date of death—this is only available if it will decrease both the gross amount of the estate and the estate tax liability. It may mean a larger inheritance to the beneficiaries.

Any property disposed of or sold within that six-month period is valued on the date of the sale. If the estate isn’t subject to estate tax, the valuation date is the date of death.

If you are concerned about protecting your inheritance from taxes, you might create a trust to deal with your assets. A trust lets you pass assets to beneficiaries after death without probate. With a revocable trust, the grantor can remove the assets from the trust, if necessary. However, in an irrevocable trust, the assets are commonly tied up until the grantor dies.

Let’s look at some other ideas on the subject of inheritance:

You should also try to minimize retirement account distributions. Inherited retirement assets aren’t taxable, until they’re distributed. Some rules may apply to when the distributions must occur, if the beneficiary isn’t the surviving spouse. Therefore, if one spouse dies, the surviving spouse usually can take over the IRA as their own. RMDs would start at age 72, just as they would for the surviving spouse’s own IRA. However, if you inherit a retirement account from a person other than your spouse, you can transfer the funds to an inherited IRA in your name. You then have to start taking RMDs the year of or the year after the inheritance, even if you’re not age 72.

You can also give away some of the money. Another way to protect an inheritance from taxes is give some of it away. Sometimes it’s wise to give some of your inheritance to others. It can assist those in need, and you may offset the taxable gains on your inheritance with the tax deduction you get for donating to a charitable organization. You can also give annual gifts to your beneficiaries, while you’re still living. The limit is $15,000 without being subject to gift taxes. This will provide an immediate benefit to your recipients and also reduce the size of your estate. Speak with an estate planning attorney to be sure that you’re up to date with the frequent changes to estate tax laws.

Reference: The Street (May 11, 2020) “4 Ways to Protect Your Inheritance from Taxes”

Adding Charitable Giving Into An Estate Plan

July 9, 2020

One way many people decide to give to charity, is to donate when they pass away. Adding charitable giving into an estate plan is great way to support a favorite cause.

When researching this approach, you can easily become overwhelmed by all of the tax laws and pitfalls that can make including charitable gifts in your estate plan seem more complex than it needs to be. Talk to an experienced estate planning attorney to help you do it correctly and in the best way for your specific situation.

One way to give is to dictate giving in your will. When reading about charitable giving and estate planning, many people might begin to feel intimidated by estate taxes, feeling their heirs won’t get as much of their money as they hoped. Including a charitable contribution in your estate plan will decrease your estate taxes. This helps to maximize the final value of your estate for your heirs. Speak with your estate planning attorney and make certain that your donation is properly detailed in your will.

Another way to leverage your estate plan to donate to charity, is to name the charity of your choice as the beneficiary on your retirement account. Charities are exempt from both income and estate taxes, so going with this option guarantees the charity will receive all of the account’s value, once it’s been liquidated after your death.

You can also ask your estate planning attorney about a charitable trust. This type of trust is another vehicle by which you can give back through estate planning. For instance, a split-interest trust allows you to donate your assets to a charity but keep some of the benefits of holding those assets. A split-interest trust funds a trust in the charity’s name. You receive a tax deduction any time money is transferred into the trust.

However, note that the donors will continue to control the assets in the trust, which is passed onto the charity at the time of your death. You have several options for charitable trusts, so speak to an experienced estate planning attorney to select the best one for you.

Charitable giving is an important component of many people’s estate plans. Talk to your probate attorney about your options and go with the one that’s most beneficial to you, your heirs and the charities you want to remember.

Reference: West Virginia’s News (Feb. 27, 2020) “Estate planning and donating”

Giving lets you practice your core values

June 5, 2020

It may be important to you that your family and the charities in which you believe, benefit from your success. Giving lets you practice your core values. However, for your giving to be meaningful, you need a plan to maximize your generosity.

Kiplinger’s recent article entitled “Gifting: 3 Areas You Shouldn’t Overlook” advises that there are many things to think about before gifting, and although there are benefits to estate planning, there are other issues to consider.

Think about your gifting goals. Any amount given to a family member, friend, or organization will no doubt be treasured, but ask yourself if the recipient really wants or values the gift, or it only satisfies your personal goals.

As far as giving to a charity, you should be certain that your donation is going to the right organization and will be used for your intended purpose. Your giving goals, objectives and motivations should match the recipient’s best interests.

If gifting straight to a family member is not a goal for you now, but you want to engage your family in your giving strategy and decision making, there are several gifting vehicles you can employ, like annual gifts, estate plans and trusts. Whichever one you elect to use, it will let you place an official process in the works for your strategy. Family engagement and a formalized structure can help your gift make the greatest impact.

There is more to gifting than just determining who and how much. It’s critical to be educated on the numbers, in order to maximize your gift value and decrease your tax exposure.

You can now gift up to $11.58 million to others ($23.16 million for a married couple) while alive, without any federal gift taxes. The amount of gift tax exemption used during your life also decreases your federal estate tax exemption. You should also be aware that this amount will fall back to $5 million (and $10 million for a married couple) indexed for inflation after 2025, unless renewed.

If you transfer your wealth to heirs and beneficiaries early and letting it compound over time, you can avoid significant estate taxes. In addition, note the annual gift exemption because with it, you can gift up to $15,000 ($30,000 as a married couple) to anyone or any kind of trust every year without taxes.

Giving lets you practice your core values. An experienced estate planning attorney can help you create a giving strategy to achieve success for you and those you are benefiting.

If you would like to read more about charitable giving, please visit our previous posts.

Reference: Kiplinger (March 19, 2020) “Gifting: 3 Areas You Shouldn’t Overlook”

Improve your Estate Plan with Charitable Giving

March 31, 2020

Americans are a country of generous people. We give to organizations that we feel connected to, and we give to charities that we feel are important. We also give to honor our loved ones, to make life better in our communities and to help when disaster strikes. You can improve your estate plan with charitable giving.

Most people don’t give to charity purely for the tax benefits, but charitable giving has long been a benefit of lowering income taxes during our lifetimes, as well as helping minimize estate taxes when we die, says the article “5 Ways to Incorporate Charitable Giving into Your Estate Plan” from Kiplinger. Therefore, if you are charitably minded, why not achieve the most tax-savings you can? Here are five ways to do this.

Appreciated Stock. Gifts of publicly traded stock that has grown or appreciated in value is a good way to support a charity while you are living. If you sell appreciated stock, you will need to pay capital gains tax on the appreciation. However, if you donate appreciated stock to a charity, you’ll receive a charitable income tax deduction equal to the full market value of the stock at the time of the gift. That avoids capital gains taxes. You get the benefit on the appreciated amount, without having to sell it. The charity can, if it wants, sell the stock without paying any capital gains taxes, because registered nonprofits are tax exempt.

Charitable Rollovers. If you are older than 70 ½, you may donate up to $100,000 per year to charities directly from your IRA. This is known as a Qualified Charitable Rollover, or a QCD. The QCD counts towards any Required Minimum Distributions (RMDs) that you need to take from your IRA annually. Under the recently passed SECURE Act, in the future RMDs must be taken by December 31, 2020, after the account owner celebrates their 72^nd birthday. Because RMDs are taxable income, they are taxed at ordinary income rates.

By donating through a QCD, you can support a charity, fulfill your RMD requirement and exclude the amount that you donate from your taxable income. For those who don’t need their RMDs, that’s a win-win situation.

Bequest by Will or Revocable Trust. A more traditional way to support a charity, is to leave an amount in your will or revocable trust. The bequest is language in your will or trust that states the amount you want to leave to the charity, clearly identifying the charity you want to receive the funds, and if you want, stating the purpose that you’d want the charity to use the funds. An important point: make sure that you use the legally accurate name of the charity to avoid any confusion. This is a common error that causes no many problems for charities.

Consider also giving a donation that can be used for a charity’s “general purpose.” This lets the charity decide where to best allocate your donation, rather than tying the money to a specific program. If you chose to list a specific purpose, meet with the development office or the executive director at the charity to ensure that they are able to fulfill that desire. Otherwise, the charity may need to refuse the bequest.

Name a Charity as the Beneficiary of Retirement Accounts. This can be done by naming the charity as a beneficiary on the account documents. Be sure to use the legally correct name of the charity. The charity will be able to withdraw funds from the retirement account without paying taxes. People who receive funds from retirement accounts pay income tax rates on distributions, but charities do not. You may want to donate retirement account funds to charities, and non-taxable assets to heirs.

Charitable Remainder Trusts. This is a way to help the charity and provide for heirs. Your estate planning attorney would create a Charitable Remainder Trust (CRT) and names the CRT as the beneficiary of an IRA. A CRT is a “split interest trust,” where a person receives annual payments for the CRT for a set period of time. When the person or charitable organization’s interest in the CRT ends, the remaining funds are distributed to the charity of your choosing. There are very strict rules about how CRTs are structured, including the percentages that the charity must receive. An estate planning attorney will be able to create this for you.

There are opportunities to use charitable giving to improve your estate plan. Speak with an estate planning attorney today.

If you would like to learn more about charitable giving, please visit our previous posts.

Reference: Kiplinger (March 2, 2020) “5 Ways to Incorporate Charitable Giving into Your Estate Plan”

Category: Charitable Giving

Donor Advised Fund is a Win-Win for All Concerned

There are Pros and Cons to Charitable Trusts

Creating a Successful Business Exit Plan

Keeping Your Medicare Premiums Low

How Do I Protect an Inheritance from Taxes?

Adding Charitable Giving Into An Estate Plan

Giving lets you practice your core values

Improve your Estate Plan with Charitable Giving

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