Title: Charitable Bequest Planning Now That (Almost) Nobody Will Owe Federal Estate Tax
1Charitable Bequest Planning Now That (Almost)
Nobody Will Owe Federal Estate Tax
Planned Giving Council of Houston
- Presented by
- Marc Carmichael
- President
- RR Newkirk Company
2Only 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)
3Permanent 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
4Will People Get Married to Obtain Portable Estate
Tax Credits?
5Estate 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.)
6Estate 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
770 of Americans make lifetime charitable
giftsOnly 6-8 of general population leaves
anything to charity19 of estate tax returns
show charitable bequests
8The 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
9Why Should Donors Make Estate Plans if They Wont
Owe Federal Estate Tax?
10Everyone 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
11State 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
12Charitable 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
13Charitable 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
14Will You Owe Capital Gains Tax if You Inherit
Uncle Louies Studebaker?
15Death Is a Tax Shelter for Capital Gains Taxes
but not for income in respect of a decedent
(IRD)
16(No Transcript)
17Leave 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.
18Leave 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
19Charitable 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
20Nonqualified 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
21Charitable 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
22Tax-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
23Gifts Can Achieve Personal Goals
- Help family member
- Control behavior
- Protect privacy
- Leave a Legacy__
- _______________
- _______________
24Charitable 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
25Early Gift Annuities Motivated by Personal Goals,
Not Tax Savings
26CRT Pays to Special Needs Trust
CRT Payout
Special Needs Family Member
27Ruling from the Grave With a Contingency CRT
How do you get family to make cemetery visits?
Leona Helmsley knew.
28The Problem with Eddie
29Gift 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
30Independent trustee could sprinkle income among
good/ not-so-good beneficiaries discourage bad
behavior
Wayward Son, plus one charity
31Charities 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
32Marketing 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
33Estate 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
34Estate 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
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36Revocable 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
37Estate 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
38Estate 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
39Estate 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!!
40Arrange for Medical Directives
- Execute a living will or health care power of
attorney (proxy) to guide medical staff and
family if you are incapacitated
41Practical 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
42Create 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
43Ethical 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
44Unified 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
45Estate 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.
46Polish 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
47Polish 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.
48Reinvigorate Bequest Marketing, Especially
Beneficiary Designations
49Its a Matter of ASKING
- Will you include our organization in your will,
living trust, IRA or other beneficiary
arrangement?
50Message 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
51What Does a Bequest Prospect Look Like?
52Getting Bequests fromPeople Who Wont Make Wills
(60 dont have them)
53Use 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
54Charitable 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
5521 Trillion in Retirement Accounts 5.7
Trillion in IRAs
56Leave 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.
57Taxes on Retirement Accounts
- Federal Estate Tax, State Death Tax
- Federal Income Tax (IRD)
- State Income Tax
- Generation-Skipping Transfer Tax
58Tax 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)
59IRA to CRT at Death
60Payable 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
61Transfer-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
62Life Insurance in Gift Planning
- Valuable asset for giving
- Charity can be 100 or partial beneficiary
63Refunds 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
64Other 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
65Check 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.