Monthly Archives: September 2021

The ongoing global pandemic and recent September 11 anniversary provide us with a great opportunity to re-evaluate our goals. At the outset of the pandemic, we were forced to make drastic changes to our everyday lives. Even now, countless health care workers continue to endure long hours in overrun hospitals with insufficient supplies struggling to save lives in the face of growing admissions. Across the country and around the planet, people have looked for ways to help. Many have done that by providing food, school supplies, and making and donating masks. In the months since we were first told to shelter in place, numerous individuals have taken steps to innovate, motivate and alleviate. Many of these acts have come in the form of contributions to charity.

If you wish to make a charitable contribution to an organization involved in combating the pandemic, you have several methods from which to choose. Of course, you can give cash outright to the charity. Donating cash entitles you to a current income tax deduction for the donation, up to 60% of your adjusted gross income if you donate to a qualified public charity. If the donation exceeds 60% of your adjusted gross income, you can carry the deduction forward for up to five years. This simple and straightforward method allows you to make an impact by simply writing a check. However, you may be able to give more or have it cost less if you donate in other ways.

Giving appreciated stock or other appreciated assets will get you a deduction for the full value of the asset, up to 30% of your adjusted gross income. Note that you can deduct the full value of the asset, notwithstanding that you paid much less for it and that had you sold it, you would have incurred up to 20% capital gains, possibly the 3.8% net investment income tax, and any state income taxes. Basically, donating an appreciated asset to charity allows you to take an income tax deduction for the capital gains you eliminated by giving the asset to the charity. If you want to gift stock to a charity, simply ask the charity to provide their transfer information and relay that information to your broker with a direction to transfer the stock to the charity. This method allows you to make a direct impact with a bit of research and a few telephone calls.

If you are contemplating a considerable gift, a charitable trust may appeal to you because it allows you to benefit a charity and yourself or your family. For example, a Charitable Remainder Trust (“CRT”) pays you or your family an income stream either for life or for a term of years and at the end of the trust term, the remainder goes to charity. You receive a current income tax deduction for the value of the charity’s remainder interest, determined actuarially. You receive a current deduction even though the charity receives nothing until many years in the future when the trust term ends. The amount of the deduction varies based upon the term of the income interest, the rate of payment, and the assumed interest rate.

If you have a non-publicly traded asset to contribute to charity, you might consider a Donor Advised Fund (“DAF”). DAFs have become some of the fastest growing charitable giving vehicles. A donor can contribute cash or other appreciated assets to a DAF; however, the DAF’s ability to accept non-publicly traded assets that other qualified charities cannot accept sets the DAF apart from other charitable giving options. If a donor were to give $1,000,000 of cryptocurrency to a DAF, that donor would receive an immediate income tax deduction for the fair market value of the cryptocurrency. The DAF invests the assets which continue to grow while the donor makes recommendations for grants to any qualified public charity usually with a few keystrokes or a telephone call. Once contributed, the assets cannot be returned to the individual donor or any entity other than a charity recommended by the donor. The DAF may allow the donor to name a successor advisor to make recommendations for continued charitable giving upon the donor’s death or incapacity.

The Qualified Charitable Distribution (“QCD”) presents another option to consider if you are taking distributions from your traditional Individual Retirement Account (“IRA”). If an individual makes a charitable contribution from an IRA that does not qualify as a QCD, the Internal Revenue Code treats the contribution as a distribution and includes it in the owner’s gross income. This occurs whether it was a direct transfer from the IRA custodian to the charity or distribution to the owner who subsequently made the transfer to the charity. The owner could take a charitable contribution deduction, but only as part of itemized expenses (unless the deduction falls below $300 for an individual or $600 for a married couple). With a QCD, the owner directs the IRA custodian to transfer funds directly from the IRA to the charity. The QCD excludes the distribution from the owner’s income while satisfying the Required Minimum Distribution (“RMD”). The QCD counts toward any RMD for the year and can begin at age 70 ½ notwithstanding that age 72 now represents the beginning age for RMDs after the Secure Act. The QCD presents a powerful charitable planning tool for anyone required to take RMDs or for those age 70 ½.

Everyone who lived through September 11, 2001, shares a common experience. Although colored by our individual circumstances, we remember looking at the horrific images of destruction and misery and wondering why this tragedy occurred. Since that fateful day, Americans have flocked to churches, synagogues, mosques, and other places of worship seeking answers to questions regarding the meaning of life and the existence of suffering.

This national tragedy continues to affect all of us to varying degrees. We face similar issues in environmental calamities such as hurricanes, tornadoes, wildfires, and in personal struggles such as the COVID-19 pandemic and unexpected illnesses. In each instance, we prepare the best we can. We can prepare ourselves for these unforeseen circumstances by planning what should happen in the event a crisis strikes. Basic estate planning relieves stress at the time of crisis both for us and for those whom we love. The basic estate plan includes five documents: Property Power of Attorney, Health Care Power of Attorney, HIPAA Authorization, Will, and Revocable Trust.

Through a Property Power of Attorney, you designate an “Agent” who will make financial decisions for you when you are unable to do so. This Agent has the legal authority to act on your behalf and may be your spouse, a parent, or a trusted friend. Without this document, if you are missing or incapacitated, no one can act for you. Without it, if you were missing or incapacitated and your family needed to refinance your house to pay for bills, it could only be done by someone going to court and having you declared incompetent. Incapacity proceedings usually require the services of an attorney. That arduous process often leaves those involved emotionally drained.

A Health Care Power of Attorney designates an “Agent” to make health care decisions for you if you are unable to make them yourself. With this document in place, you can rest assured the person you trust will have the legal authority to make medical decisions for you. You also may wish to prepare a Living Will or similar document which expresses what you would want to be done regarding end-of-life decisions.

A HIPAA Authorization allows people whom you designate, such as your Agents or others, to access your protected health information. It’s through this access to your health information that the decision-makers you’ve chosen can make informed decisions.

A Will has several functions. First, and most importantly, under the laws of most states, it is the only way you can designate whom you wish to serve as guardian for your minor children. Without a Will the court will decide who will be guardian, regardless of your wishes. Unfortunately, no matter how caring the judge may be, that judge does not know and love your children as you do. Second, the Will distributes any assets that are held in your individual name at your death to your intended beneficiaries. Without a Will, the state determines how and to whom to distribute your assets under the laws of “intestate succession.” Unfortunately, this set list ignores your specific circumstances and assets often do not go to the desired person or in the desired manner. Third, the Will names someone as your Personal Representative or Executor to carry out the instructions set forth in your Will. Certain types of Wills, called pour-over Wills may “pour” your assets “over” into a Revocable Living Trust (“RLT”), to be distributed by its terms.

Even with a Will, any assets you own at death must go through “probate” to be distributed to those designated by you. Probate is the process of transferring title from the person who died to the person who has the right to receive the property. Depending upon the state and the situation, this process can be expensive, time-consuming, and emotionally draining for those left behind.

Setting up an RLT to hold legal title to your assets during your lifetime avoids probate. The RLT acts as a Will substitute upon your death and vests the successor Trustee with the legal authority to collect assets, pay your debts, expenses, and taxes, and dispose of the assets as set forth in the RLT. As a result, the assets avoid probate because the RLT owns the assets and the trust did not die. Even though the RLT holds legal title to the assets, you retain complete control of the assets during your lifetime and can make changes to the RLT. If you become incapacitated, the person you have chosen as your successor Trustee will manage the assets for you, much like the Agent under your Property Power of Attorney. The RLT provides great flexibility in allowing you to direct how and when the assets will be used after your death. For example, you can include provisions that ensure your children do not squander money but, rather, keep the money for higher education.

Finally, as part of your estate planning, you need to consider how other assets will pass upon your death. Periodically review the beneficiary designations on your 401k, IRA, or other qualified plan assets. Often, circumstances change, and you need to update your beneficiary designations to change with the times. This becomes increasingly important as retirement assets comprise a larger and larger portion of the typical person’s assets. Periodically, you should review the beneficiary designations for life insurance and any other assets which transfer automatically at death. Many financial accounts have such designations.

Unfortunately, we cannot eliminate the possibility of tragedy in our lives. However, we can reduce our anxiety at such times with a comprehensive estate plan that provides instructions to our loved ones regarding what should happen if tragedy occurs. This article reviewed the basic documents. Other considerations such as beneficiaries with special needs, creditor protection, income taxes, divorce protection, and estate taxes impact your plan.