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Charitable Bequest Planning Now That (Almost) Nobody Will Owe Federal Estate Tax

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Title: Charitable Bequest Planning Now That (Almost) Nobody Will Owe Federal Estate Tax


1
Charitable Bequest Planning Now That (Almost)
Nobody Will Owe Federal Estate Tax
Planned Giving Council of Houston
  • Presented by
  • Marc Carmichael
  • President
  • RR Newkirk Company

2
Only a Few Thousand Estates Now Face Federal
Estate Tax
  • How will estate tax freedom affect charitable
    bequests?
  • How should donors and charities plan?
  • Out of 2.5 million deaths (average)

3
Permanent Estate Tax Relief
  • American Taxpayer Relief Act of 2012 (ATRA)
    raised the exemption to 5.25 million (5.34
    million for 2014)
  • Spouses can inherit unused exemptions,
    sheltering 10.68 M

4
Will People Get Married to Obtain Portable Estate
Tax Credits?
5
Estate Tax Return for First Spouse
  • Executors must make elections on estate tax
    returns (Form 706) for the first spouse to die or
    the survivor wont inherit portable exemption
  • Even small estates should file 706 at first
    death, in case the surviving spouse later has a
    windfall (strikes oil, wins the lottery, etc.)

6
Estate Tax Exemption History
Year Tax-Sheltered Estate
2000 and 2001 675,000
2002 and 2003 1,000,000
2004 and 2005 1,500,000
2006 through 2008 2,000,000
2009 3,500,000
2010 5,000,000 (tax optional)
2011 5,000,000
2012 5,120,000
2013 5,250,000
2014 5,340,000
7
70 of Americans make lifetime charitable
giftsOnly 6-8 of general population leaves
anything to charity19 of estate tax returns
show charitable bequests
8
The Estate Tax Charitable Deduction Formerly Put
Giving on the Table
You have three choices as to who gets your
estate family, charities, or the estate tax
collectorand you must choose TWO OUT OF THREE
Advisers
9
Why Should Donors Make Estate Plans if They Wont
Owe Federal Estate Tax?
10
Everyone Still Needs Estate Planning
  • Thoughtful, Fair Distribution of Estates through
    Wills, Living Trusts and Beneficiary Designations
  • Keep Probate Expenses as Low as Possible
  • Trusts That Protect Family Beneficiaries
  • Income Taxes at Death (IRD) and State Death Taxes
  • Living Wills and Healthcare Powers of Attorney
  • Powers of Attorney/Standby Trustees
  • Charitable Bequests

11
State Death Taxes May Be a Concern
  • 19 states and DC have some form of death tax
  • Inheritance taxes are based on relationship to
    heir
  • Some states have state estate taxes similar to
    federal estate tax

Hawaii reinstated estate tax in 2010
12
Charitable Estate Planning Without the
Estate Tax
  • Potential State Inheritance/Estate Taxes
    (out-of-state property could be taxed even if
    home state has no death tax). Charitable
    bequests reduce these taxes.
  • Income in Respect of a Decedent (IRD) Problems
  • Trusteeship/Money Management for Beneficiaries
  • Donors who dont face estate tax should set up
    life income gifts during life for income tax
    savings

13
Charitable Estate Planning Without the
Estate Tax
  • Potential State Inheritance/Estate Taxes
    (out-of-state property could be taxed even if
    home state has no death tax). Charitable
    bequests reduce these taxes.
  • Income in Respect of a Decedent (IRD) Problems
  • Trusteeship/Money Management for Beneficiaries
  • Donors who dont face estate tax should set up
    life income gifts during life for income tax
    savings

14
Will You Owe Capital Gains Tax if You Inherit
Uncle Louies Studebaker?
15
Death Is a Tax Shelter for Capital Gains Taxes
but not for income in respect of a decedent
(IRD)
16
(No Transcript)
17
Leave Charity Tax-Burdened Assets
  • U.S. Savings Bonds
  • IRAs and qualified retirement plans
  • Accounts receivable
  • Installment payments on land sale contracts
  • Unpaid commissions
  • Commercial annuities

I.R.D.
18
Leave Tax-Burdened Assets to CRTs
I.R.D.
  • U.S. Savings Bonds
  • IRAs and deferred compensation
  • Accounts receivable
  • Installment payments on land sale contracts
  • Unpaid commissions
  • Commercial annuities

19
Charitable Estate Planning Without the
Estate Tax
  • Potential State Inheritance/Estate Taxes
    (out-of-state property could be taxed even if
    home state has no death tax). Charitable
    bequests reduce these taxes.
  • Income in Respect of a Decedent (IRD) Problems
  • Trusteeship/Money Management for Beneficiaries
  • Donors who dont face estate tax should set up
    life income gifts during life for income tax
    savings

20
Nonqualified Remainder Trusts
  • Trusts Need Not Be Qualified CRTs
  • Set up trusts in a will or during life that
    protect spouses or others who need trusteeship.
    Trusts can pay all trust income to family and
    friends for life, then pass part or all of the
    remainder interest to your organization

21
Charitable Estate Planning Without the
Estate Tax
  • Potential State Inheritance/Estate Taxes
    (out-of-state property could be taxed even if
    home state has no death tax). Charitable
    bequests reduce these taxes.
  • Income in Respect of a Decedent (IRD) Problems
  • Trusteeship/Money Management for Beneficiaries
  • Donors who dont face estate tax should
    accelerate bequests into life income gifts during
    life for income tax savings

22
Tax-wise, Lifetime Gifts Beat Bequests for All
Donors
  • Income tax savings plus transfer tax savings for
    taxable estates (and lifetime personal
    satisfaction and recognition)
  • Include power to accelerate bequests in durable
    power of attorney (or enable trustee to prepay
    charitable distributions)
  • Accelerating bequests using CRTs and gift
    annuities is great for high-bracket donors
    saddled with low-basis assets, 20 capital gains
    rates and the new 3.8 net investment income
    surtax

23
Gifts Can Achieve Personal Goals
  1. Help family member
  2. Control behavior
  3. Protect privacy
  4. Leave a Legacy__
  5. _______________
  6. _______________

24
Charitable Remainder Trusts Can
  • Provide trusteeship for beneficiaries who need
    money management
  • Achieve other non-tax estate planning goals of
    donors
  • Gift annuities provide similar benefits

25
Early Gift Annuities Motivated by Personal Goals,
Not Tax Savings
26
CRT Pays to Special Needs Trust
CRT Payout
Special Needs Family Member
27
Ruling from the Grave With a Contingency CRT
How do you get family to make cemetery visits?
Leona Helmsley knew.
28
The Problem with Eddie
29
Gift Annuities and Privacy
Gift of cash or securities
  • Payments for one or two lives
  • Large charitable deduction
  • Partial tax-free payments
  • Reduced capital gains taxes for gifts of
    securities
  • Payouts can be deferred

30
Independent trustee could sprinkle income among
good/ not-so-good beneficiaries discourage bad
behavior
Wayward Son, plus one charity
31
Charities Now Need to Emphasize Another Message
with Donors
  • You still need an estate plan, even if federal
    estate taxes are no longer a threat
  • You should include our organization in your
    estate plan

32
Marketing Should Emphasize Need for an Estate
Planning Bucket List
  • Thoughtful, Fair Distribution of Estates through
    Wills, Living Trusts and Beneficiary Designations
  • Keep Probate Expenses as Low as Possible
  • Trusts That Protect Family Beneficiaries
  • Income Taxes at Death (IRD) and State Death Taxes
  • Living Wills and Healthcare Powers of Attorney
  • Powers of Attorney/Standby Trustees
  • Charitable Bequests

33
Estate Planning Bucket List
  • Arrange for a thoughtful, fair distribution of
    your estate through wills, living trusts and
    beneficiary designations in a manner that
    minimizes family conflict and best provides for
    the welfare of your survivors
  • Avoid the Heartbreak of Intestacy

34
Estate Planning Bucket List
  • Plan to minimize the costs and delays of probate
    (especially multi-state probate) through
    revocable living trusts and other non-probate
    transfers such as joint ownership, P.O.D.
    transfers and other beneficiary designations

35
(No Transcript)
36
Revocable Living Trusts Can
  • Avoid probate
  • Enable standby trustee to take over financial
    affairs
  • Provide for charities
  • Facilitate tax planning
  • Afford privacy
  • Avoid challenges by disgruntled heirs

37
Estate Planning Bucket List
  • Trusts Need Not Be Qualified CRTs
  • Set up trusts in a will or during life that
    protect spouses or others who need trusteeship.
    Trusts can pay all trust income to family and
    friends for life, then pass part or all of the
    remainder interest to your organization

38
Estate Planning Bucket List
  • Plan to avoid Income in Respect of a Decedent
    (IRD) problems that may arise from leaving
    certain types of assets to family members or
    others resulting in severe income tax burdens
    after your death
  • Plan for state/federal estate taxes (if necessary)
  • Death erases capital gains taxesbut not IRD

39
Estate Planning Bucket List
  • Donors who dont face estate tax should consider
    accelerating estate gifts into life income gifts
    during for income tax savings. Those who still
    face estate tax receive double tax savings.

Accelerate Bequests!!
40
Arrange for Medical Directives
  • Execute a living will or health care power of
    attorney (proxy) to guide medical staff and
    family if you are incapacitated

41
Practical Concerns
  • Who will manage your financial affairs if you
    become disabled?
  • Durable General Power of Attorney
  • Standby Trustee
  • Avoid need for a court-appointed guardian

42
Create a Personal Affairs Record
  • Listing of assets and their current values
  • Location of wills, trust documents, living will
  • Passwords, PIN numbers for your digital estate
  • Names of advisers
  • Family information
  • Funeral preferences

43
Ethical Wills Impart Final Messages
  • Statements of faith and philosophy
  • Messages of gratitude
  • Words of forgiveness or reconciliation
  • Recognition of people who were important in a
    persons life
  • Format can be written, video or audio

44
Unified Plan for Assets that Pass under Your
Will and Those That Dont
Real estate Personal assets Cash Business
interest Stocks/bonds
Life insurance IRAs Joint property P.O.D.
accounts Living trust
Probate Assets
Nonprobate Assets
Estate Beneficiaries
45
Estate Planning Bucket List
  • Donors should consider leaving a legacy to
    organizations that they supported during life,
    through will bequests, trust distributions or
    other beneficiary designations, such as IRAs,
    life insurance, POD accounts, etc.

46
Polish Your Estate Planning Elevator
Conversation
  • Were encouraging all of our friends to review
    their estate plans after the recent tax changes
  • Have you made plans to reduce the impact of
    probate on your family?
  • Could I send you more information on

47
Polish Your Estate Planning Elevator Conversation
  • Its EASY to join our Legacy Society simply by
    including us as one of the beneficiaries of your
    life insurance, IRA or P.O.D. account. Just ask
    the company or account manager for a new
    beneficiary form.

48
Reinvigorate Bequest Marketing, Especially
Beneficiary Designations
49
Its a Matter of ASKING
  • Will you include our organization in your will,
    living trust, IRA or other beneficiary
    arrangement?

50
Message to Donors
  • You need a will
  • Heres how to get a will
  • Review your will regularly
  • Heres how to name us in your will (include your
    correct legal name and sample bequest language)
  • Please tell us about your bequest

51
What Does a Bequest Prospect Look Like?
52
Getting Bequests fromPeople Who Wont Make Wills
(60 dont have them)
53
Use of Wills and Trusts Declining
  • Good News Among adults 55 and older, who have
    completed a will or trust, there is an increasing
    trend to include bequests to charity.
  • Bad News Use of wills and trusts is declining,
    and TOD/POD designations can enable transfer of
    estates without a will or living trust
  • Russell N. James, Texas Tech

54
Charitable Beneficiary Designations
  • IRAs and Qualified Retirement Plans (QRPs)
  • Payable-on-Death (POD) bank deposits
  • Transfer-on-Death (TOD) brokerage accounts
  • Life insurance
  • Commercial annuities
  • Donor advised fund balances
  • Real estate and motor vehicles (in some states)
  • All are revocable
  • None require making or changing a will or trust

55
21 Trillion in Retirement Accounts 5.7
Trillion in IRAs
56
Leave Charity Tax-Burdened Assets
  • U.S. Savings Bonds
  • IRAs and Qualified Retirement Plans
  • Accounts receivable of professionals
  • Installment payments on land sale contracts
  • Unpaid commissions

I.R.D.
57
Taxes on Retirement Accounts
  • Federal Estate Tax, State Death Tax
  • Federal Income Tax (IRD)
  • State Income Tax
  • Generation-Skipping Transfer Tax

58
Tax Erosion of Retirement Plans
  • Income Estate Left
  • Tax Tax for Heirs
  • Harolds Estate
  • 100,000 IRA 37,690 None 62
  • Sarahs Estate
  • 1 million IRA 247,5400 412,000 34
  • (7 million taxable estate)

59
IRA to CRT at Death
60
Payable on Death (POD) Accounts
  • Certificates of deposit
  • Checking
  • Savings
  • Share accounts
  • Alternative arrangements such as Totten trusts,
    self-declaration trusts or in trust for
    accounts are found in some areas

61
Transfer-on-Death Registrations for Brokerage
Accounts
  • Stocks and bonds
  • Mutual fund shares
  • Most states have adopted the TOD Security
    Registration Act but firms are not required to
    offer TOD registrations

62
Life Insurance in Gift Planning
  • Valuable asset for giving
  • Charity can be 100 or partial beneficiary

63
Refunds on Commercial Annuities
  • Refunds or survivor benefits from commercial
    annuities are taxable unless the beneficiary is
    a tax-exempt organization
  • Estate tax charitable deduction also would be
    available

64
Other POD/TOD Possibilities
  • Undistributed balances in donor advised funds
  • Real estate deeds AZ, AR, CO, DC, HI, IL, IN,
    KS, MN, MO, MN, NE, NV, NM, ND, OH, OK, OR and
    WI.
  • Motor vehicles AR, AZ, CA, CN, DE, IL, IN, KS,
    MO, NE, NV, OH and VT

65
Check State and Federal Laws
  • Surviving spouses must sign waivers in order for
    charities to benefit from qualified retirement
    plans (but not IRAs).
  • State laws often provide that surviving spouses
    are entitled to an elective share of a
    decedents probate and nonprobate assets
    (one-third to one-half). In community property
    states surviving spouses are entitled to one-half
    of any community property.
  • With multiple POD/TOD beneficiaries, some states
    (e.g., Florida) require that they all get equal
    shares.
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