CategoryCharitable Planning

Estate and Gift Tax Provisions of New Tax Law

Well, as most Americans know by now, the Congress passed new tax legislation on January 2, 2013, to keep us from going over the “fiscal cliff.”  Oh, wait . . . I guess they didn’t keep us from going over the “cliff.”  We actually did, but then they “fixed” it.  Politics aside, the short version is that we have new tax legislation.  And, I think it’s very important for families and individuals to know about how the new tax legislation affects the estate tax, gift tax, and charitable planning areas.  I won’t go over the income tax side of things in this post, because those are the provisions that are most talked about in the media outlets.

So, here are some of the key points of the tax legislation as it relates to estate tax, gift tax, and charitable planning:

  • As I mention in this previous post, they reinstated the ability for certain individuals to make a direct transfer to a charity from their IRA.  And, they even gave a limited time window (until January 31, 2013) to make the direct transfer and have it count for the 2012 tax year.  That pretty nice!  Read my previous post to find out the qualifying details.
  • The Federal gift and estate tax exemption (and generation skipping transfer tax exemption) will remain at $5,000,000, indexed for inflation.  The inflation adjustment puts the exemption amount at roughly $5,250,000 for 2013.  There are two key things to point out on this: (1) this means that most families and individuals will not have to pay any estate tax when they pass away (a good thing!), and (2) the opportunity to transfer a large amount of assets (e.g. small business interests and other rapidly appreciating assets) remains (this is a very good thing).
  • The tax rates on estates over the exemption amount is raised from 35% to 40%.
  • The “portability” provisions remain.  Basically, this allows the unused exemption of the first spouse to die to transfer to the surviving spouse without having to set up trust planning specifically for this purpose.  BUT, and this is a BIG but, most of the articles you will read or news shows you will watch will act like this is an automatic thing.  As in, Bob passed away and only used up $2,000,000 of his exemption amount, so Mary will “automatically” have her $5,000,000 plus Bob’s left over $3,000,000.  NO – that is not how it works.  You have to “affirmatively elect” portability after the death of the first spouse, and you must do so on a timely filed estate tax return (e.g. you must act fast!).  Please spread the word on this! With so much misinformation out there, I foresee a LOT of families losing their portability opportunities.  And, even with portability, there are myriad reasons to have a comprehensive and caring estate plan.
  • Unrelated to the new law, but interesting to note, the amount an individual can gift on an annual basis free of estate tax is increased to $14,000 for 2013.

So, overall, I think the new tax law is a good thing.  And, according to the law itself, it is “permanent.”  Obviously, in Washington DC, “permanent” just means that it will stay this way until they decide to change it, but it’s still better than the constantly changing world we’ve been living in for over a decade.

Honestly, I’m really happy to see that most families and individuals won’t have to worry about estate taxes.  Why?  Because, although many families and individuals will think it doesn’t mean they need to do estate planning, those who do planning will focus on what’s truly important about planning – creating a legacy based on who they are and what’s important to them (e.g., passing on their Whole Family Wealth).

And as a reminder, here just some examples of the “peace of mind” items that can be accomplished with a caring, comprehensive estate plan:

Why wouldn’t you take this opportunity to create your legacy and make sure your family is taken care of?  Call us at 616-827-7596 to schedule your Peace of Mind Planning Session today!

Michael Lichterman is an estate planning and charitable planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for “stuff” – it’s about who your are and what’s important to you.  He focuses on estate, charitable, and asset protection planning for all generations (“young” and “experienced”), the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses, and pet planning.  He enjoys creating life long relationships with his clients centered on their family’s values, insights, stories and experiences.

 

Urgent Opportunity for IRA Distributions to Charity

It seems like we may have finally heard the end of this “fiscal cliff” talk . . . at least for a little while.  As many people know, Legislation was recently enacted to keep the “Bush tax cuts” from completely expiring – with some tweaks to rates and, no surprise, plenty of special interest funding.  I’m working on a blog post that will summarize the estate, gift, and charitable planning aspects of the legislation, but there is one opportunity it provides that is critically time sensitive.

That is the ability to make a tax-free transfer from your Individual Retirement Account (IRA) directly to a charity and have it count for 2012.  In the right situation, this is an incredibly opportunity – the kicker is that you must make the transfer no later than January 31, 2013.  Here are the highlights of the rules:

  • Taxpayers can make a direct transfer IRA distribution to charity without having to include the distribution in gross income (previously you would have had to include it in gross income and then take the charitable deduction on your tax return – not nearly as good a “deal”)
  • There is a $100,000 transfer limit per individual
  • The IRA owner must be at least 70.5 years old on the day of the transfer
  • Transfer from the IRA to the charity must be a direct transfer in order to qualify for the income exclusion

There are several additional technical requirements, so you really need to talk with your Michigan estate planning attorney or Michigan CPA about the opportunity and whether or not you can take avantage of it.  If you have questions, please call us at 616-827-7596.

Michael Lichterman is an estate planning and charitable planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for “stuff” – it’s about who your are and what’s important to you.  He focuses on estate, charitable, and asset protection planning for all generations (“young” and “experienced”), the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses, and pet planning.  He enjoys creating life long relationships with his clients centered on their family’s values, insights, stories and experiences.

Planned Giving – How You Can Benefit a Charity for Generations

Here in West Michigan we are blessed with a lot of charitable families and individuals.  They give their time, energy, and yes, finances to help benefit area and national charities.  One of the terms that you’ve probably seen if you’ve talked or worked with a charity is “planned giving.”  As common as the term may be, it seems like very few are really aware of what it is or they have the misconception that you must be “rick” to make a planned gift.

Put simply, planned giving is a method of supporting non-profits and charities that enables philanthropic individuals or donors to make larger gifts than they could make from their income.  So, a planned gift really is any major gift, made in lifetime or at death as part of a donor’s overall financial and/or estate planning.  Seems simple, right?  Well, for the most part it is.

As simple as the concept may be, the challenging (and fun) part is the donor working with the charity and the donor’s other advisors (estate planning and charitable planning attorney, CPA, and financial advisor) to determine the best structure for the planned gift.  And by “best structure,” I’m referring to the structure that best accomplishes the donor’s goals while maximizing the benefit to the charity.

You can see some of the many options by reading my earlier blog post on non-cash gifts to charity.  Make sure to give us a call to help walk through planned giving with your favorite charity (or cause).

Michael Lichterman is an estate planning and charitable planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for “stuff” – it’s about who your are and what’s important to you.  He focuses on estate, charitable, and asset protection planning for all generations (“young” and “experienced”), the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses, and pet planning.  He enjoys creating life long relationships with his clients centered on their families values, insights, stories and experiences.

Non Cash Contributions to Charity – A True Win-Win

One of the great things about this country, and the West Michigan area in particular, is that we like to help others.  In many cases this is shown by giving to one or more charities.  It could be giving of our time through volunteering, or giving of our financial resources.  Our government supports this by providing various tax benefits for giving to charity.  In this previous post we gave a general overview of the many different ways each family can contribute some of their financial resources to charity.  You’ll notice that the first item on the list is cash (or cash equivalents).  Yet, that tends to be the most inefficient financial resource you can give.

Surprised?  Many people are . . . including me before I learned more about it.  You see, many of us give to charities for one of two reasons (or for both reasons): (1) we support the charity’s cause(s) or mission, and/or (2) we want the tax deduction for the contribution.  And although it may not be a driving factor, why not try to maximize the tax benefits.  And while we’re at it, why not try to use the tax benefits to give even more to charity with no change in effect on our “pocket book.”  And that’s where “cash” contributions fall short.  With a cash contribution, you may get the charitable deduction (depending on your income level), but that’s it.  You may be asking, “so what if that’s it . . . I gave, got the deduction, and it’s done.”  Well, what if you found out that you could get give more to your favorite charity, get an even bigger tax benefit, and not feel it any more in your “pocket book.”  Impossible?  Nope.

That’s where non cash charitable contributions come in.  What do I mean by “non cash?”  I’m talking about many of those other items on the list in the previous post.  Items such as public stock, private company stock, real estate, retirement assets, life insurance, valuables and collectibles, and the list goes on.  How do you get this “double benefit” with non cash assets that I mentioned earlier?  Well, it varies based on the type of asset, but in many cases you receive a combination of transferring an appreciated value to the charity (e.g. more than you would have if you contributed cash), getting a tax deduction on your personal tax return (depending on your annual income), and you no longer have to pay the “gain tax” you would have otherwise had to pay on the non cash assets had you sold them and contributed the money to the charity.  Wait a second . . . that’s a triple benefit!  You bet!

In a future post we’ll take a look at one of the most “painless” non cash contributions you can make . . . appreciated stock.  Until then, if you, someone you know, or a charity you work with has any questions, call us at 616-827-7596.

Michael Lichterman is an estate planning and charitable planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for “stuff” – it’s about who your are and what’s important to you.  He focuses on estate, charitable, and asset protection planning for all generations (“young” and “experienced”), the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses, and pet planning.  He enjoys creating life long relationships with his clients centered on their families values, insights, stories and experiences.

What Is A Charitable Remainder Trust?

Many of the great families I work with as a Grand Rapids, Michigan estate planning lawyer, desire to give some or all of their “stuff” (e.g. assets) to charity when they pass away.  In some cases, their children support this goal and in some cases they do not.  Well, it turns out that you can benefit your family AND a charity by using a charitable trust.  Charitable trusts generally come in two flavors: (1) a Charitable Remainder Trust (CRT), or (2) a Charitable Lead Trust (CLT).  In this post, we’ll get a high-level view of a CRT.

Benefits of a CRT can include any or all of the following:

  • Defer capital gains taxes on the sale of appreciated assets;
  • Provide you with a new source of income;
  • Provide you a substantial current income tax charitable deduction; and
  • Provide you future estate tax deductions.

What is a CRT?  Well, much like a CLT, a CRT is what’s called a “split interest trust.”  That is, there are two main interests, many times referred to as a “lead interest” and a “remainder interest.  The difference in these interests is what enables you to benefit you (and your family) AND the charities you support.  In a CRT, the “lead interest” typically benefits you and/or your family.  A CRT generally delivers the best results when you have a highly appreciated asset (e.g., real estate or stocks) that provide little or no income.

The first step is design and drafting the CRT.  General terms involve direction on the “lead interest” and the “remainder interest.”  Generally, during the lead time, the CRT pays you (and whoever else you may designate in the trust) an income stream based on either a term of years or a percentage of the value of the assets in the trust over one or more lifetimes.  When the lead interest has run it’s course, the remaining trust assets (the “remainder interest”), if any, will go to a charity or charities of your choosing.

The second step is transferring the highly appreciated asset to the CRT in return for the trust’s obligation to provide you with an income stream over the term or lifetimes you choose.  The annual income stream cannot be less than 5% of the asset’s value and may range up to as much as 50% depending on the term over which you have chosen to be paid and the interest rate involved.

The third step is for the CRT to sell the appreciated asset (paying no tax because of its favorable tax status).

Step four involves the CRT paying you an income steam for the term or lifetimes you designated, from the liquid resources provided by the sale.

Finally, after the CRT’s lead term has run (in years or lifetimes), it distributes any remaining assets to the charities you have designated and the CRT terminates.

This explanation is a big simplification of the process involved, but it should give you a great example of how a CRT may play an important role in your family’s estate plan.  Call me at 616-827-7596 if you have questions about how a CRT can benefit your family or how to administer a CRT you’ve already put in place.

Michael Lichterman is an estate planning and business planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for finances – it’s about who your are and what’s important to you.  He focuses on estate and asset protection planning for  the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses and pet planning.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.

Basics of Charitable Giving in Michigan

As a Grand Rapids, Mi estate and charitable planning attorney I am proud of the many wonderful families and businesses in West Michigan that support the great work of charities.  We are blessed with charities in our area that serve just about any cause you may support – from education, arts, health, animals, music, various disabilities, and beyond.  Personally, I am privileged to serve on the Board of the Southeast Ottawa Community Foundation and the Family Hope Foundation.  

Given the short timeframe left (only a few weeks) on some incredible giving opportunities, please check out this blog post before reading on about other contribution opportunities.

Ok, now that we have the urgent opportunities covered . . . moving on.  So, you’ve decided that you would like to support a cause through giving to a charity.  Whether it is the cause, the potential tax deduction, something else or a combination of one or more factors, the question comes down to “what should I give?”  Some will say, “well, that’s an odd question Mike . . . I’ll just write a check.”  And that is certainly one of the ways to contribute to a charity, and probably the most common.  There are many other ways you can contribute in a way that may increase the benefit to the charity and to you.

Here are some examples of the numerous ways you can give to a charity that supports a cause dear to you:

  • Cash (or cash equivalents)
  • Gift of appreciated stock
  • Gift of closely held stock
  • IRA charitable rollover
  • Life insurance
  • Real estate
  • Other items of value such as jewelry, artwork, collections, antiques, automobiles, etc.
  • Donor advised funds
  • Charitable gift annuities
  • Pooled-income funds
  • Charitable lead trust
  • Charitable remainder trust
  • Private foundation
  • Conservation easements
Whew – that’s a lot of options!  So how do you decide which one (or more) is best for your particular situation and cause?  Well, I’ll talk about them in more detail in future blog posts to give you a better idea of the pro’s and con’s of each.  However, I strongly recommend talking with a estate and charitable planning attorney who (a) understands and is familiar with the various giving options, and (b) has a passion for charitable giving himself/herself.  Ready to get started?  Call us today at 616-827-8596 to get started creating your charitable legacy today!

 

Michael Lichterman is an estate planning and business planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for finances – it’s about who your are and what’s important to you.  He focuses on estate and asset protection planning for  the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses and pet planning.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.

Act Now! Two Expiring Charitable Giving Opportunities

As of this writing, there are only 26 days left until two incredible charitable giving carriages turn into pumpkins.  That’s right, December 31, 2011 will bring the expiration of the IRA charitable rollover option and the Michigan Community Foundation tax credit.  Both of these charitable planning options have been responsible for a great amount of charitable giving.  It is my hope that their expiration will not cause a drop off in donations, as charities play an incredibly valuable role in our society and economy.  Here is some more information on both opportunities:

Michigan Community Foundation Tax Credit
This tax credit offers donors making a contribution to a Michigan Community Foundation a maximum credit of $200 on a gift of $400 for couples filing jointly and a maximum credit of $100 on a gift of $200 for single filers.  It also includes the up-to-$5,000 tax credit that businesses can earn for a gift of $10,000.  This is the last year for the tax credit.  It was eliminated to help balance the Michigan budget.

We have so many great opportunities to take advantage of this credit and increase our giving to Michigan Community Foundations.  Where I live in West Michigan we have the Grand Rapids Community Foundation and several of it’s community funds, such as the Southeast Ottawa Community Foundation (of which I’m proud to be a Board member).  These Community Foundations are doing incredible things in communities throughout Michigan for things such as education, arts, the environment, and health.

IRA Charitable Rollover Option
Although this giving opportunity has some restrictions on it, it also provides an opportunity to give a far greater amount and getting a far greater tax benefit for it.  Why?  Because this is a federal income tax benefit and federal taxes tend to be much higher than state taxes – so, each dollar contributed to the charity represents a greater savings to the donor.

The Charitable IRA Rollover was originally scheduled to cease in 2009, but was extended until the end of 2011 by the Tax Act of 2010.  What this means is that any taxpayer age 70.5 or older can make tax-free transfers  of up to $100,000 per year directly from his or her IRA to one or more charities.  These gifts can be made without increasing your taxable income or withholding.

This presents an opportunity for huge savings over the previous method of using IRAs for charitable contributions.  Before this direct rollover option, you would need to first take the distribution from your IRA, which would incur income tax, and then make the charitable contribution, which may have qualified for a charitable deduction on your tax return.  With the direct rollover option you can greatly increase the impact of your giving because it will be the whole amount, not the tax-reduced amount folks previously gave.

There are some additional restrictions and guidelines, so I encourage to read this article on the topic to find out more.

I do hope you will take advantage of the tax benefits before the clock strikes midnight on December 31, 2011!

Michael Lichterman is an estate planning and business planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for finances – it’s about who your are and what’s important to you.  He focuses on estate and asset protection planning for  the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses and pet planning.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.