Michigan Estate Planning Blog

Curated a Collection? You Need an Estate Plan for It

 

If you’re wondering if you need an estate plan, the simple answer is yes. The reasons are many, but among them is the answer to this question posed in an article from Morningstar, “A dilemma of the ultrawealthy: Who inherits the wine and art collections?”

The number of zeroes appearing after your estate value doesn’t matter to the courts who will decide what happens to your assets after you die if you don’t have a will. If you don’t have a last will and testament, your family will have to go through months or even years of sorting through your affairs. The entire estate will go through probate, which is costly and takes time. Without an estate plan, your heirs will see any inheritance shrink after state and federal estate taxes.

A better way is to have an estate plan created. You need a Power of Attorney and Healthcare Proxy to allow a trusted person to make legal and medical decisions on your behalf if you become incapacitated. You need a will to name an executor, a person of your choosing, to manage your estate after your death. If you have young children, you want to name the person who will take care of them and not hope the court doesn’t pick a family member whose lifestyle and values don’t match your own.

What about the collection you’ve spent a lifetime diligently assembling, thinking it will have greater value for heirs than a traditional financial investment plan? Whether you have a coin or stamp collection, own a small fleet of midcentury cars, or enjoyed curating a wine cellar, your collection has limited appeal for your heirs. Younger generations aren’t as interested as you think in these items, either as a means of amassing wealth or something to fight with their siblings over when you’ve passed.

When faced with shrugs over who wants what from the collection, most people put their heads in the sand and expect the children to figure it out after they’re gone. For one sports memorabilia collector, the eye-opening moment came when he sat down with his adult children to discuss their role in continuing his collection. No one was interested.

His response was proactive. He created a spreadsheet of the assets meticulously documenting their provenance, value and where they could best be sold. He also included information tracking the life-cycle of the collectibles, documenting the family’s lack of interest in the collection and insurance protection.

Another example of the importance of documentation came from the experience of a woman whose uncle had a massive coin collection. Twenty boxes of coins were set out in the family’s den, and she spent evenings creating an equally massive spreadsheet. The spreadsheet was submitted to a reputable antiques company, which sent a representative to review and purchase the collection only because the documentation was thorough and the coins had some value. It must be said—the coin collection was valued at far less than expected.

Depending on the collection, your estate planning attorney may also suggest making a charitable donation to a local, regional, or major cultural center. If you have a collection of movie posters, for instance, a local independent cinema might be able to auction them off at a fundraiser.

Addressing collections of any kind and planning for their eventual sale or distribution should be part of your estate plan. An experienced estate planning attorney can help create an estate plan to protect your assets, even those your heirs don’t value the way you do.

Reference: Morningstar (September 3, 2024) “A dilemma of the ultrawealthy: Who inherits the wine and art collections?”

Do Single Childless People Need an Estate Plan?

A single person without children can focus on their personal goals, including philanthropy. However, it takes planning to ensure that their assets are distributed according to their wishes. A recent article, “I’m an Estate Planner: 8 Ways Single and Childfree People Can Manage Their Assets” from AOL, provides tips for singles with no children and notes that they need an estate plan.

One of the challenges facing singles is the need to have an estate plan in place earlier in their lives than marrieds or parents. If the state is unable to identify a next of kin, the state will take the assets as unclaimed. This is probably not what anyone has in mind for their property.

Consider the people and organizations that have meaning for you. Have an estate plan prepared by an experienced estate planning attorney, who will help you clarify who might be a suitable heir. It may be a close friend, charitable organization, niece, or nephew. Remember to update your will as life changes occur.

For some singles, the preferred option is to “die with zero.” The concept is not to leave any generational wealth behind but to live their lives to the fullest, including philanthropy and gifting while they are living. This lets them see the good work done by charities and the benefits to those they choose to give assets to.

A challenge for some singles is identifying a person to serve as their executor, who will administer their estate, including distributing assets, after their death. If no executor is named in a will or there is no will, a court will name an administrator, and assets will be distributed according to the state's laws.

Do single people need to establish trusts? Trusts are extremely useful in the event of incapacity, which no one wants to think about but needs to be addressed. If you become incapacitated, the trustee can use the funds in a trust to keep your bills paid and your household running. There are also trusts used in charitable giving to meet your philanthropic goals or trusts to protect assets if you need long-term care.

Designating people to serve as your Power of Attorney and Healthcare Proxy is especially important for singles with no children. This way, people of your choosing can oversee your day-to-day financial and legal matters and be involved in your medical decisions.

Finally, don’t leave any of this to chance. Have conversations with people you’ve chosen to fulfill various roles, including executor, power of attorney, healthcare proxy and trustee. Make sure that they understand what you are asking them to do, and be sure they are willing to take on the tasks.

A consultation with an estate planning attorney is the first step to implementing a plan.

Reference: AOL (June 7, 2024) “I’m an Estate Planner: 8 Ways Single and Childfree People Can Manage Their Assets”

What’s the Best Way to Manage an Inheritance?

 

Inheriting wealth comes with its own set of challenges and emotions, whether it’s a modest amount or a significant amount. A recent article from Kiplinger, “Three Essential Strategies for Managing Your Inheritance,” explains three key considerations to help manage an inheritance responsibly.

Understanding tax implications. Taxes take a bite out of inherited wealth and require the help of an experienced estate planning attorney to guide you through the maze of taxes. The type of assets inherited, and the laws of your state will affect tax liabilities. For the most part, life insurance proceeds are tax-free. However, inherited retirement accounts, including traditional IRAs or 401(k)s, are not.

When the asset inherited is real property, there may be a benefit from a step-up in basis, which can minimize capital gains taxes if the decision is made to sell the property.

Federal estate tax exemptions are still extremely high. However, there may be state estate taxes or inheritance taxes to consider.

Confusion about taxes often occurs because the rules differ for diverse asset types. Inherited IRAs, for instance, may be taxed heavily if the withdrawals are not appropriately managed. Understanding the rules makes all the difference.

Investing? Act wisely. Sudden wealth often causes people to act irresponsibly. It’s tempting to take a risk with investments. However, wealth can evaporate very quickly if not managed with care and prudence. Before making any big financial decisions, evaluate your overall financial picture. Wealth may be best used to pay off debt, invest and save for the future.

If you don’t have an emergency fund, this is the time to establish one, enhance retirement savings and rid yourself of any debt. You’ll want to chart a course to balance growth with wealth preservation.

Make a long-term plan for the future. A large inheritance can substantially impact your life goals and retirement plans. It’s an excellent opportunity to reassess your finances and consider making adjustments. Is early retirement your goal? Are there charitable causes you’d like to support? If you have or plan to have children, could your inheritance be used for their college education?

An inheritance is also a time to ensure that your estate plan is in place. This includes trusts, wills and health care directives to manage and protect your wealth. An inheritance of any size requires estate planning to protect yourself and your family.

Estate planning goes beyond having a will. It’s about ensuring assets are distributed according to your wishes. Trusts are excellent tools for managing wealth and allow for control over how assets are used by future generations, in addition to providing tax benefits and creditor protection.

If you’re navigating an inheritance, take time to plan before you act. You’ll want to make wise choices to honor the legacy behind the inheritance while creating your own legacy.

Reference: Kiplinger (Dec. 8, 2023) “Three Essential Strategies for Managing Your Inheritance”

 

Should I have a Charitable Trust in My Estate Plan?

 

Charitable trusts can be created to provide a reliable income stream to you and your beneficiaries for a set period of time, says Bankrate’s recent article entitled “What is a charitable trust?”
Establishing a charitable trust can be a critical component of your estate plan and a rewarding way to make an impact for a cause you care deeply about. There are a few kinds of charitable trusts to consider based on your situation and what you may be looking to accomplish.
Charitable lead trust. This is an irrevocable trust that is created to distribute an income stream to a designated charity or nonprofit organization for a set number of years. It can be established with a gift of cash or securities made to the trust. Depending on the structure, the donor can benefit from a stream of income during the life of the trust, deductions for gift and estate taxes, as well as current year income tax deductions when the assets are donated to the trust.
If the charitable lead trust is funded with a donation of cash, the donor can claim a deduction of up to 60% of their adjusted gross income (AGI), and any unused deductions can generally be carried over into subsequent tax years. The deduction limit for appreciated securities or other assets is limited to no more than 30% of AGI in the year of the donation.
At the expiration of the charitable lead trust, the assets that remain in the trust revert back to the donor, their heirs, or designated beneficiaries—not the charity.
Charitable remainder trust. This trust is different from a charitable lead trust. It’s an irrevocable trust that’s funded with cash or securities. A CRT gives the donor or other beneficiaries an income stream with the remaining assets in the trust reverting to the charity upon death or the expiration of the trust period. There are two types of CRTs:
A charitable remainder annuity trust or CRAT distributes a fixed amount as an annuity each year, and there are no additional contributions can be made to a CRAT.
A charitable remainder unitrust or CRUT distributes a fixed percentage of the value of the trust, which is recalculated every year. Additional contributions can be made to a CRUT.
Here are the steps when using a CRT:
Make a partially tax-deductible donation of cash, stocks, ETFs, mutual funds or non-publicly traded assets, such as real estate, to the trust. The amount of the tax deduction is a function of the type of CRT, the term of the trust, the projected annual payments (usually stated as a percentage) and the IRS interest rates that determine the projected growth in the asset that’s in effect at the time.
Receive an income stream for you or your beneficiaries based on how the trust is created. The minimum percentage is 5% based on current IRS rules. Payments can be made monthly, quarterly or annually.
After a designated time or after the death of the last remaining income beneficiary, the remaining assets in the CRT revert to the designated charity or charities.
There are a number of benefits of a charitable trust that make them attractive for estate planning and other purposes. It’s a tax-efficient way to donate to the charities or nonprofit organizations of your choosing. The charitable trust provides benefits to the charity and the donor. The trust also provides upfront income tax benefits to the donor, when the contribution to the trust is made.
Donating highly appreciated assets, such as stocks, ETFs, and mutual funds, to the charitable trust can help avoid paying capital gains taxes that would be due if these assets were sold outright. Donations to a charitable trust can also help to reduce the value of your estate and reduce estate taxes on larger estates.
However, charitable trusts do have some disadvantages. First, they’re irrevocable, so you can’t undo the trust if your situation changes, and you were to need the money or assets donated to the trust. When you establish and fund the trust, the money’s no longer under your control and the trust can’t be revoked.
A charitable trust may be a good option if you have a desire to create a legacy with some of your assets. Talk with an experienced estate planning attorney about your specific situation.
Reference: Bankrate (Dec. 14, 2021) “What is a charitable trust?”

Do Singles Need Estate Planning?

 

Pauls Valley Democrat’s recent article entitled “Even 'singles' need estate plans” tells us what might happen if you die intestate (without a last will and testament). In that case, your any assets without a surviving joint owner or designated beneficiary or titled in a revocable living trust may be required to pass through the probate process. As a result, they’ll be distributed by the court, according to the state's intestate succession laws.
Even if you don’t have children, you may have nephews or nieces, or even children of cousins or friends, to whom you’d like to leave some of your assets. However, if everything you own goes through probate, there’s no guarantee that these people will get what you wanted them to have. Therefore, if you want to leave something to family members or close friends, state this in your last will and testament.
However, you may also want to provide support to some charities. You can just name these charities in your will. However, there may be options that could provide you with additional benefits. One such possibility is a charitable remainder trust. With this trust, you’d transfer appreciated assets, such as stocks, mutual funds or other securities, into an irrevocable trust. Your named trustee could then sell the assets at full market value, avoiding the capital gains taxes you’d have to pay if you sold them yourself, outside a trust.
Moreover, if you itemize, you may be able to claim a charitable deduction on your taxes. With the proceeds, the trust can purchase income-producing assets and provide you with an income stream for the rest of your life. At your death, the remaining trust assets will go to the charities that you’ve named.
A single person also should have as part of his or her estate planning, a durable power of attorney and a health care proxy. A durable power of attorney allows you to designate an individual to manage your finances, if you become incapacitated. This is really important, if you don’t have a spouse to step in.
If you become incapacitated, your health care proxy – also known as a health care surrogate or medical power of attorney – allows you to name another person to legally make health care decisions for you, if you are unable to do so yourself.
Estate planning can be complex, so work with an experienced estate planning attorney.
Reference: Pauls Valley Democrat (June 24, 2021) “Even 'singles' need estate plans”

Charity on “Spend-Down” Mode

Sometimes good things are built to last, and sometimes you decide it has run its course. This seems to be the growing attitude amongst philanthropists tending to the family foundation. In fact, today's charitable foundations seem to be shifting from maintenance for longevity to spending down and winding up. This may give you pause to consider your own charitable giving, whether you are a donor to various foundations or, should you run one, to the future of the foundation itself. This trend was identified in a recent article in The Wall Street Journal titled “The Rise of Spend-Down Philanthropy.” The hard numbers in the article come from an analysis by the Bridgespan Group which found a marked jump in spend-downs. As reported there, “About 50 years ago, only 5% of the total assets of America's largest 50 foundations were held by spend-downs. In 2010, that number had risen to 24%, according to Bridgespan Group in Boston.” Why spend down? Well it varies from foundation to foundation, but then it also relates to the purpose and nature of the foundation in the first place. The foundation typically has a philanthropic goal set up at its creation, but that goal may not carry forward past the original creator. This is especially true in a family foundation and, eventually, mission drift becomes a sustainability issue. The family may even not grow around the goal in the way originally hoped – they have lives, after all, and may not have the ability to keep up the foundation – and so the longevity may be in question due to logistics rather than the goal. A spend-down mode should be meaningful to the donor, too. It means funds are going out the door and into the world, potentially having real effects today. Then again, and without a careful hand guiding the course, that doesn’t mean the cause is getting the biggest bang for its buck. These charities may tend to be less inquisitive and less thoughtful out of necessity of quick decision-making, and may not adopt long-term goals. It is, if nothing else, an interesting trend to see the rise of the spend-down foundation, and maybe a meaningful one to think about when you think about your own goals in philanthropy.

Reference: The Wall Street Journal (April 13, 2014) “The Rise of Spend-Down Philanthropy”

For more information, see www.jerryreiflawyer.com

Life Insurance Donations: Two Birds With One Stone

Life insurance can be an incredible boon to your family, and a buffer against a dozen high-cost issues or a source of much-needed liquidity in the face of an estate tax. Then again, you might just end up not needing it all. What do you do with the policy? The good news is that you can kill two birds with one stone. Have you thought about donating your life insurance to a worthy cause? WealthManagement.com explained the motive and the usefulness of the approach a short time ago in a recent article titled “Donating Life Insurance.” What if it turns out that you won’t need that life insurance policy for which you scrimped to pay premiums over the years? Your children are grown and on their own, plus you have built up enough wealth to carry you and your spouse through retirement. Perhaps you have forgotten about that old policy sold to you by a college buddy when he was just getting into the business. In short, the policy is “found money” you really do not need now. Consider this: your favorite charity could make good use of your policy and its eventual proceeds. Charities in the know are far more amenable to such unique gifts than you might realize. Now, instead of the eventual proceed being a potential tax burden to your estate, you can claim a current charitable deduction. Two birds with one stone. Be sure to read the original article for more of the particulars. Then, before taking action, schedule a consultation with your estate planning attorney to make sure you connect all of the dots and get the best benefit while doing the most good.

Reference: WealthManagement.com (March 18, 2014) “Donating Life Insurance”

For more information, see www.jerryreiflawyer.com

 

Donor-Advised Funds – Convenient Giving Tool Saginaw, MI

Sometimes you can have your cake and eat it too. However, sometimes you can even have your cake and eat it whenever you feel like it; a definite improvement on an already ideal scenario. When it comes to charitable giving, and making good things happen while working out the right tax implications, having your cake and eating it whenever you want comes in the form of the donor-advised fund. If you are unfamiliar with the tool, read all about it in a recent Kiplinger article titled “Donor-Advised Funds: Contribute Now, Donate Later.” Essentially, you can give to make a completed charitable contribution to your donor-advised fund this year and secure the tax deduction benefit while you investigate the charity or charities to ultimately receive the contribution even next year or beyond. Like all things in life, a donor-advised fund is not a perfect solution for a few reasons – the fund makes the decision, ultimately, and the cost of running the fund can eat into donations much like a bureaucracy in a large charity. Nevertheless, this charitable giving option is available and can be very powerful.

Reference: Kiplinger (November 2013) “Donor-Advised Funds: Contribute Now, Donate Later”

For more information, see www.jerryreiflawyer.com

 

Donor-Advised Funds – Convenient Giving Tool Mid-Michigan

Sometimes you can have your cake and eat it too. However, sometimes you can even have your cake and eat it whenever you feel like it; a definite improvement on an already ideal scenario. When it comes to charitable giving, and making good things happen while working out the right tax implications, having your cake and eating it whenever you want comes in the form of the donor-advised fund. If you are unfamiliar with the tool, read all about it in a recent Kiplinger article titled “Donor-Advised Funds: Contribute Now, Donate Later.” Essentially, you can give to make a completed charitable contribution to your donor-advised fund this year and secure the tax deduction benefit while you investigate the charity or charities to ultimately receive the contribution even next year or beyond. Like all things in life, a donor-advised fund is not a perfect solution for a few reasons – the fund makes the decision, ultimately, and the cost of running the fund can eat into donations much like a bureaucracy in a large charity. Nevertheless, this charitable giving option is available and can be very powerful.

Reference: Kiplinger (November 2013) “Donor-Advised Funds: Contribute Now, Donate Later”

For more information, see www.jerryreiflawyer.com

 

Avoiding The 2013 Capital Gains Gotcha Mid-Michigan

Did you know there's a new tax bite effective January 1, 2013? For example, unless you have been paying close attention to capital gains and your expected tax hit for 2013, then you might not realize the pain until tax season. For those in the know, however, there is still time to beat the capital gains tax in 2013 and beyond. For some ideas to consider before it is too late, take a look at a recent Forbes article titled “How To Beat The Big 2013 Capital Gains Tax Hike.” The Great Capital Gains Tax Hike of 2013 was essentially the double-pronged effect of the eclipse of certain tax cuts mixed with a brand new surtax. More specifically, the gains tax was allowed to bounce from 15% to 20%, and Obamacare added to the pain with a new 3.8% surtax to high earners. If you are doing the math, then that equates to a new rate of 23.8% for many (a near 60% increase from the year then ended). So how do you beat it? Here are 11 strategies to consider, according to Forbes: 1. Invest in your primary residence. 2. Manage your tax bracket. 3. Harvest losses. 4. Gifts to family members. 5. Gifts to charity. 6. Feed retirement accounts. 7. Open a 529 college savings account. 8. Buy and hold. 9. Move to a tax-friendlier state. 10. 1030 exchanges. 11. Charitable trusts. Each of these strategies has merit. Nevertheless, the key is to evaluate them (and others) with your professional advisors in the context of your medium and short-term financial and estate planning goals. The tax “tail” should never automatically control the planning “dog.”

Reference: Forbes (September 13, 2013) “How To Beat The Big 2013 Capital Gains Tax Hike”

For more information, see www.jerryreiflawyer.com

 

Charitable Giving According To The Oracle Of Omaha Saginaw, MI

Doing good can be hard work, especially since there is so much need. In addition, your time and resources are not unlimited either. Fortunately, the “Oracle of Omaha” has some words of wisdom when it comes to focusing and leveraging your charitable impact. Actually, Buffett’s counsel is really a framework of thought - the “RISE Framework for Social Change.” Forbes recently explored the RISE framework in an article titled “4 Charitable Giving Tips From Warren Buffett.” Originally developed by one of the lecturers with Buffett’s free online giving course “Giving With Purpose,” RISE is an acronym to help center your thoughts and guide you toward good decisions when seeing to do good, specifically: • Relevance – Clarify what motivates you. • Impact – What is your “portfolio” (the collection of all your donations) and “toolkit” (the various ways you can contribute including with your money)? • Sustainability – Is the charity likely to stay around with its “business model”? • Excellence (in management and operations) – Is the organization well-run from top to bottom? If you would like to learn more about the RISE framework, then read the original article and consider enrolling in Buffett’s online course in the future. After all, the course is free and he seems to have a pretty good track record when it comes to his financial abilities.

Reference: Forbes (September 6, 2013) “4 Charitable Giving Tips From Warren Buffett”

For more information, see www.jerryreiflawyer.com

 

Charitable Intent Key To Easement Success Saginaw, MI

Sometimes you can have your cake and eat it too. When it comes to conservation and façade easements, however, this is no easy task. It is only the lucky few who can make such an easement work - cake, frosting, and healthy charitable deduction all in one. Easements are often touted as the “two-birds with one stone approach,” and not without good reason. Unfortunately, that is not always the case as a few planners have discovered when trying to “force” an easement when it really is not appropriate. In fact, this has landed more than a few planners in a tight spot. Consider the case of Lawrence and Lorna Graev and their agreement with the National Architectural Trust, as covered in a recent Forbes article titled “Side Agreement Voids Easement Charitable Deduction” (guess what they did wrong). You see, easements are a gift to a charity in the form of forsaken economic potential. Basically, you give a property to charity for some charitable purpose – love of earth, love of architecture, love of history. Since you may have thereby sacrificed potential (and potentially considerable) economic gain were you to have sold it on the market, you may be entitled to considerable charitable benefits in return. For example, what if you had sold prime real estate to McDonalds instead of giving it to charity? To simplify a complex equation, the value of the potential of the property to make money less the already existing value of the property equates to the gift to charity. Accordingly, this means there are always at least two very large but ambiguous values over which a taxpayer and the IRS have to quibble. The quibbling does not always go well for taxpayers, especially those who thought they had their cake and were about to eat it, too. Such was the case of the Graevs and the National Architectural Trust. The original article is instructive for anyone contemplating a charitable easement. Suffice it to say this is a complex area of tax law. In summary, there truly are those easements that offer the best of both worlds (your cake and the ability to eat it too) because a wonderful gift to charity begets a wonderful charitable tax deduction. That said, it is not always the case and being “tricky” does not always go unnoticed.

Reference: Forbes (July 15, 2013) “Side Agreement Voids Easement Charitable Deduction”

For more information, see www.jerryreiflawyer.com

 

Charitable Intent Key To Easement Success Mid-Michigan

Sometimes you can have your cake and eat it too. When it comes to conservation and façade easements, however, this is no easy task. It is only the lucky few who can make such an easement work - cake, frosting, and healthy charitable deduction all in one. Easements are often touted as the “two-birds with one stone approach,” and not without good reason. Unfortunately, that is not always the case as a few planners have discovered when trying to “force” an easement when it really is not appropriate. In fact, this has landed more than a few planners in a tight spot. Consider the case of Lawrence and Lorna Graev and their agreement with the National Architectural Trust, as covered in a recent Forbes article titled “Side Agreement Voids Easement Charitable Deduction” (guess what they did wrong). You see, easements are a gift to a charity in the form of forsaken economic potential. Basically, you give a property to charity for some charitable purpose – love of earth, love of architecture, love of history. Since you may have thereby sacrificed potential (and potentially considerable) economic gain were you to have sold it on the market, you may be entitled to considerable charitable benefits in return. For example, what if you had sold prime real estate to McDonalds instead of giving it to charity? To simplify a complex equation, the value of the potential of the property to make money less the already existing value of the property equates to the gift to charity. Accordingly, this means there are always at least two very large but ambiguous values over which a taxpayer and the IRS have to quibble. The quibbling does not always go well for taxpayers, especially those who thought they had their cake and were about to eat it, too. Such was the case of the Graevs and the National Architectural Trust. The original article is instructive for anyone contemplating a charitable easement. Suffice it to say this is a complex area of tax law. In summary, there truly are those easements that offer the best of both worlds (your cake and the ability to eat it too) because a wonderful gift to charity begets a wonderful charitable tax deduction. That said, it is not always the case and being “tricky” does not always go unnoticed.

Reference: Forbes (July 15, 2013) “Side Agreement Voids Easement Charitable Deduction”

for more information, see www.jerryreiflawyer.com

 

Why Are Charitable Donors Charitable? Saginaw, MI

You might say the “head” versus the “heart” is an age-old dynamic and dilemma. This is true whether in literature, art, or – yes – charity. The head vs. the heart, as it occurs in charitable planning, was the topic of a recent article in The New York Times titled “Two Paths for Charitable Giving: From the Head or From the Heart.” The key question posed by the author: “Is it better to give in response to an emotional need or feeling, or are dollars better spent when tied to a metric that measures how effective they are?” So, do you give charitably simply because it feels good and perhaps has a positive impact to which you can personally relate based on your own life and experience? Alternatively, do you give with a focus on doing the most measurable good with the assets gifted? For many donors, giving is a matter of “and” – it is a matter of the head and the heart. The original article is worth reading, especially if you want to have a better understanding of the motivations behind generosity.

Reference: The New York Times (June 28, 2013) “Two Paths for Charitable Giving: From the Head or From the Heart”

For more information, see www.jerryreiflawyer.com

 

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Family Foundations – Doing Well by Doing Good Saginaw, Michigan

There are a lot of things that can keep a family together, just as there are many ways to keep a business together. But, then again, there are just as many ways to drive the family or the business apart. Regardless, ensuring continuity of both your family harmony and your family business is as much an art as it is a science. For a family with means, and perhaps also as a model for a family with fewer resources, a family foundation may offer just a unifying bond. A family foundation represents a way of doing good as a family and even making those foundation goals the goals of the family itself. This kind of unifying goal was explored by CNBC in an article titled “Family Foundations Prepare for the Next Generation.” If you are the family member who established the family foundation, the goal should expressly be to include and to establish a succession for your family foundation. In point of fact, a family foundation is like a family business and shares many of the same concerns, anxieties, and goals. Now, even a family of modest means can see the value in the family foundation model. If for no other reason, your family foundation can be a means of doing good as a family and letting everyone in the family work together to accomplish that good end. Is there some goal around which your family can come together?

Reference: CNBC (February 9, 2013) “Family Foundations Prepare for the Next Generation”

For more information, see www.jerryreiflawyer.com

 

Charitable Giving Slows for Überwealthy Saginaw, Michigan

Well in the wake of confetti and political rancor brought on by New Year’s Eve and New Year’s Day, respectively, the numbers are starting to come in on the state of charitable giving for 2012. Unfortunately, and according to a summary post by the Chronicle of Philanthropy entitled “America’s Wealthiest Donors Slow Their Giving,” 2012 was not a good year for charities or a big year for donors. In fairness, 2012 will first and foremost go down as a year of great indecisiveness, whether it was the presidential election or the deal that brought us over the fiscal cliff. But political indecisiveness gives rise to a tricky environment for charitable intentions. That said, the largest gifts by American philanthropists totaled a whopping $5.1 billion, except when you account for the fact that Warren Buffet gave away $3 billion of that total. By comparison, the largest gifts by American philanthropists totaled $2.6 billion in 2011. Without Buffet’s gifts, the 2012 total would have been $2 billion, falling under 2011’s totals. Now, this kind of assessment isn’t an entirely fair estimate of the direction of the charitable energies of all donors. In fact, the list only accounts for the top ten public donors, thereby ignoring the many small donors who you may recognize as those not being featured on the cover of Forbes. Nevertheless, it seems to be indicative of an overall mood. So, if 2012 was all indecision and waiting, what can we expect in terms of philanthropy for 2013 now that we’ve got some answers and direction on the tax front? What are your plans and what is important for you as a donor?

Reference: The Chronicle of Philanthropy (January 1, 2013) “America’s Wealthiest Donors Slow Their Giving”

For more information, go to www.jerryreiflawyer.com

 

IRA Charitable Rollover – A Powerful Win-Win Saginaw Michigan

Tax law and sausage. Two things you should never watch while being made. However, the recent tax law contains at least one healthy ingredient: the IRA Charitable Rollover. This may not be a new revelation, but it bears repeating. It is just that good. The reinstitution of the IRA Charitable Rollover will benefit many qualifying taxpayers and their favorite charities alike. An article in The Wall Street Journal titled “IRA Charitable Rollover Is Back” provided an excellent, brief summary of the practical points you should know. Until the end of 2011, you could “rollover” the required minimum distribution (RMD) from your IRA directly into the charity of your choice. Consequently, you avoided income taxation on that amount. But what about tax year 2012? Until the American Taxpayer Relief Act (ATRA) was passed on January 1, 2013, and subsequently signed into law the next day, this opportunity for 2012 did not exist. It had expired. Now that ATRA is law, however, if you are age 70 ½ or older you can once more kill two birds with one stone and rollover funds from your IRA directly to a charity for 2012. That’s right, there is a limited window open to go back to 2012 (figuratively speaking) and make a qualifying charitable rollover from your IRA. As noted in the article cited above, taxpayers who took their RMDs late in December while awaiting resolution of the “fiscal cliff” debacle may still re-characterize that withdrawal into a rollover if they act now! However, this opportunity expires at the end of this month.

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Will Charitable IRA Donations Be Back This Year?

While taxes are uncertain for 2013, you may be thinking Congress and the White House may retroactively extend some “expired” taxpayer favorites. For example, one that expired in 2011 is the ability to give the “required minimum distribution” (RMD) from your IRA to charity. But do not count on retroactive resuscitation for this favorite in time for your 2012 taxes. Until the end of 2011, as you likely recall, it was possible for individuals over the age of 70 ½ to simply rollover their RMDs from their IRAs straight into the waiting hands of their favorite charity. As a result, this saved these taxpayers from any pesky taxable income. The Wall Street Journal took up this matter in a recent article titled “Should You Wait on IRA Donations?” According to the article, aside from benefiting charity, the benefit to seniors making this savvy move include: “By reducing your adjusted gross income, the tax provision may help you keep it below the thresholds at which you could lose some of your deductions and other tax benefits, or become subject to higher Medicare premiums and taxes on your Social Security benefits.” The verdict: it might not be worth risking the wait on Congress and the White House to find out the official ruling on charitable IRA distributions for 2012. The article notes, however, that even if you have to take the RMD and accept the taxable income, you can still give it away and claim a charitable deduction. Although that’s not as beneficial as the Charitable IRA rollover, it’s better than nothing and certainly far better than inaction. Why? There’s an excise tax on the failure to timely accept the full amount of your RMD.

Reference: The Wall Street Journal (September 22, 2012) “Should You Wait on IRA Donations?”

Buffett “Gives” Instead of “Gets” on His Own Birthday

When we think of birthdays, we are used to the tradition of receiving gifts. So it almost seems backwards to give something instead, an idea that often doesn’t come to mind when celebrating another milestone of life. We all can learn from Warren Buffet’s example, however, and the so-called “reverse birthday.” In an article titled “Buffett gives $3 billion to his kids' foundations,” CNN Money reports how the Oracle of Omaha celebrated his most recent birthday “in reverse.” While Mr. Buffett already pledged some 17.5 million Class B shares of his firm, Berkshire Hathaway, to each of his three children and their respective charitable organizations back in 2006, now, in an open letter to his children, he has doubled down to about 29.7 million Class B shares. Mr. Buffett himself even estimates that the annual distribution will average more than $100 million each. Whether there’s an approaching birthday or other occasion to celebrate, there may be something to take away from the Oracle’s example. Mr. Buffett is giving to his children and working to charitable ends in the same moment. So if you find yourself wanting to give instead of receive, ask yourself what you and your loved ones are passionate about.

Reference: CNN Money (August 30, 2012) “Buffett gives $3 billion to his kids' foundations”

Appraisals and Gift Taxes

If you are gifting to family this year and want to survive IRS challenges, then contact a professional appraiser promptly for the real worth of those assets! With the $5.12 million lifetime gift exclusion set to expire on December 31, 2012, many families will be looking to make significant wealth transfers this year, especially of family business interests. Accordingly, if your plans involve giving things rather than money, then the IRS will want to know the “value” of the gift itself. That’s why a professional appraisal is essential. A recent article by Reuters, titled Appraisers are your gatekeepers to gift tax deadline, shed more light on why this step is so important for gifting. Don’t let the increasing demand for appraisal services leave you short of getting your gifts assessed! If you want to take advantage of the generous gift tax laws, then there’s no time to waste.

Reference: Reuters (August 8, 2012) “Appraisers are your gatekeepers to gift tax deadline”

Charitable Giving Delayed… Is Not Charitable Giving Denied

It’s pretty impressive to top the Chronicle of Philanthropy’s list of America’s 50 most generous donors, but it just defies the imagination to make the list 5 years after passing away. Still, that’s the story of 2011 and the late Ms. Margaret Cargill. This fact was swiftly picked up here, in a recent Forbes article, and as it turns out the reason for such successful giving can be traced back to some complicated estate planning and finance work. Cargill is a name that, depending upon your exposure to agribusiness, is either an utter unknown in the discussion of wealth (the media is infatuated with Mark Zuckerberg these days) or an utter no-brainer. And Cargill is synonymous with massive agribusiness, having topped the list of America’s Largest Private Companies for all but two of the last 24 years. The late Margaret Cargill was heir to the fortune. At her death, Ms. Cargill left all of her shares of Cargill stock to be split between two charity foundations, the Anne Ray Charitable Trust and her own Margaret A. Cargill Foundation. But don’t forget, Cargill is a private company, albeit a large one, and that makes the stock rather difficult to value and liquidate. The trust and the foundation sat idly by until a fortuitous moment when Cargill sold its shares in another company, a public company called the Mosaic Company, which gave them the opportunity to exchange private Cargill stock for public stock that could be liquidated to the tidy sum of $6 billion (that process hasn’t quite finished up, but they’re counting it for 2011 anyhow). It’s important to remember these kinds of limitations when it comes to assets in either estate planning or charitable giving. Ms. Cargill’s wealth was essentially locked up in private stock and so, despite the inefficiencies of doing so, that is what she gave when it came time to bequeath and give that wealth away to charity. Luckily, however, Ms. Cargill did her charity work through the powerful intermediaries of charitable trusts and foundations, which were in a position to make such gifts work. At least there’s next year for Paul Allen, George Soros, and Michael Bloomberg, the next three (living) names on the list of millionaire donors, but 2011 belongs to Ms. Cargill.

 Reference: Forbes (February 6, 2012) “This Year's Most Generous Billionaire Philanthropist Has Been Dead Since 2006”

Tips from the IRS about Charitable Contributions

If you’re considering making last-minute charitable contributions before the end of the year, consider these tips from the IRS: Charitable Contributions for Certain IRA Owners. If you are over age 70-1/2 and own an IRA, remember you can make a direct transfer tax-free of up to $100,000 per year to an eligible charity. Created in 2006, this provision expires at the end of this year. Clothing and Household Items. Remember to get a qualified appraisal of clothing and household items if you plan to claim a deduction of more than $500. Household items include furniture, furnishings, electronics, appliances and linens. Monetary Donations. Be sure you have a bank record or a written communication from the nonprofit that shows the name of the charity, the date and the amount of your contribution. If you want to deduct your donation of $250 or more, you must receive acknowledgment from the charity.

Go online to AdvisorOne for more tips and reminders.

Reference: AdvisorOne (December 19, 2011): Year-End Giving Tips, Compliments of the IRS.

Voluntary Philanthropy – Look to Your IRA

If you would rather be a “voluntary philanthropist” versus an “involuntary philanthropist,” then you need to take action regarding the Qualified Charitable Deduction (QCD). In short, it’s a very powerful tool for both charity and reducing the tax liabilities associated with IRAs. However, on December 31, 2011, will we see it disappear? Jim Blankenship at Forbes has recently pointed out that the very popular QCDs are not legally extended beyond 2011. As a result, we ought to take stock regarding whether the option will be around in 2012. As you may know, a QCD allows you to forgo taking your Required Minimum Distribution (RMD) by letting you redirect those funds straight to the IRS certified charity (or charities) of your choice. You can contribute as much as $100,000 per year. It’s a pretty powerful tool for a “voluntary philanthropist,” if you don’t need the money from your IRA in the first place. Otherwise, taking the distribution just means more “T-A-X-E-S.” Note: Making this charitable beneficiary designation gives you an efficient way of contributing to charity and saving on your income taxes. If you’ve taken advantage of the QCD this year, then you still have to ensure proper tax filing compliance. Unfortunately, the only thing that can reinstate the Qualified Charitable Deduction is an act of Congress.

Reference: Forbes (November 7, 2011) “Last Chance for Making Charitable Contributions From Your IRA?

Charities Hoping for an Uptick in Giving

Have we bounced back from the Great Recession or are we still languishing (and due for another fall backwards)? This is a hot topic in political and economic circles, let alone around kitchen tables. It’s also a question of importance in the world of philanthropy. As the Chronicle of Philanthropy reports, America’s biggest charities are expecting modest growth in 2011, but face challenges in rebounding from the 2008 tumble. One way the Chronicle charts the world of charitable giving is through the Philanthropy 400, tracking the largest 400 charities. Think of it as the Forbes 400 of charities. Out of these 400, the expectation is that charities will see a modest median rise of 4.7% by the end of 2011. That is good news because this will be a net rise over 2010 growth, when charities were able to gather up an additional median gain of 3.5%. Nevertheless, those charities are still below 2007 levels and much of the gains have been in the form of donated medicine, food, and services rather than monetary funds. The Chronicle counts the 400 as a barometer of the charitable world. As such, it is a reminder of the many needs out there. The article also charts some patterns in charities of interest to the savvy philanthropist. There is a bit of promising news for the charitably inclined, too, as headway has been made on the worldwide malaria problem, with charitable organizations at the forefront of vaccine development. However, these charities need more funding to eradicate the disease.

Reference: The Chronicle of Philanthropy (October 16, 2011) “America’s Top Fund-Raising Groups Face Big Struggles”

CRTs – More Benefits Of Giving And Receiving

Sometimes, giving an asset to charity doesn’t mean you can no longer enjoy benefits from it. Yes, it’s true. And, the magical legal tool that affords this wonder is the “Charitable Remainder Trust (CRT).” Recently, Reuters cast another spotlight on this powerful tool with an eye to the future. A CRT, as many of you may be aware, is a specific type of irrevocable trust set up to give an asset away to charity at the time of death, but to allow you to receive income from the asset for your lifetime, another’s lifetime or even a period of years. The CRT allows you to do good, receive an income, and avoid some hefty taxes. As Reuter’s puts it: “In essence, the trust takes advantage of the tax-exempt status of the nonprofit it benefits.” The important thing about the CRT these days, at least as far as taxes are concerned, is the future. The returns on a CRT are similar to any investment in accordance with the market. And, with the market as it is, that’s not great. It follows then that the tax reduction might not be that great either. But many taxpayers are concerned about increased taxation in the future. President Obama already has called for further taxation with the new idea of the so-called Buffet Rule, not to mention the closing of Bush-era tax cuts and stricter estate taxes. For as many in Congress as are calling for tax reduction there are those calling for tax increases… and the super-committee might be turning the latter direction. If the Bush-era tax cuts expire, and in particular if the capital gains tax rises back up to 24% instead of 15%, the CRT will be quite the advantageous machine. In the end, a CRT is an irrevocable trust. It can’t be undone once it is created. More background and insights can be gleaned in the original article. Whether a CRT is right for you and your circumstances will require competent legal counsel. As always, look before you leap.

Reference: Reuters (Sepetember 30, 2011) “Charitable remainder trusts: how the wealthy give it away and get it back”

Charitable Giving – Ways And Means

Giving to charity over your lifetime can be powerful. Not only can you make an impact on the charities you care about, but you enjoy personal satisfaction and even charitable deductions. Still, since the tax laws are in a state of flux (and we can only expect them to become more uncertain as the politics in Washington continues to boil over), making substantial lifetime gifts may become more dicey, especially given the fragile economy. As a result, giving at your death may be more attractive and practical. As the Wall Street Journal points out, there is always the option of leaving a bequest. One way to make a postmortem bequest is through your Last Will and Testament. While you lose the lifetime charitable deduction, the bequeathed amount is deducted from your estate value. Depending on the size of your estate, that deduction can be significant. It’s true that the estate tax exemption amount is (for most Americans) a safe $5 million, but there’s no guarantee it will stay there (as with the gift tax laws). Nevertheless, a bequest also is a more malleable means to benefit charity, since you can think about your decision over a longer period and can give more types of assets. A classic example is the ability to name a charity as beneficiary to your IRA without the income tax burden of required minimum distributions. Remember: Charities do not have to pay income taxes on your IRA like your heirs would. Indeed, there are many powerful tools to use when making a bequest, depending on the type of asset. Be sure to read the original Wall Street Journal article for more ideas.

Reference: The Wall Street Journal (October 1, 2011) “The Quest for the Right Bequest”

GIVING AND RECEIVING: THE CHARITABLE GIFT ANNUITY

Remember the good old days, you know, when you could invest in a certificate of deposit (CD) and the bank would actually pay you something called “interest” on your deposit? No, really, I kid you not. Obviously, I am being a bit factitious, but you get the point. It is hard enough to make money these days, let alone accumulate wealth. Let’s say you are retired and are looking for a place to put your money to work. And, you need more of a return on that money than the banks are paying on their CDs. Also, you are intending to leave a bequest from your estate to support your favorite charity. Here is a win-win idea to consider, especially if you are charitably-inclined – invest in a charitable gift annuity. Recently, none other than The Wall Street Journal ran an article on this very subject, entitled “Earning income by Making a Gift.” Here is how it works: Give the money to your favorite charity… instead of to your favorite bank. However, you may “give and receive” when you make the gift to charity in exchange for a charitable gift annuity. Ultimately, you’ll be giving what remains of that charitable gift to the charity at the time of your death. However, in the interim, you’ll receive a fixed and predictable stream of income over your lifetime. The most important detail is that the “annuity rate” is determined by your age, rather than national interest rates. That means a couple at age 65 would receive around a 4.7% yield and a couple at age 75 would get 5.7% (individuals at age 65 and 75, respectively, would receive even higher yields at 5.3% and 6.5%). Further, the money is tax friendly. The yield is largely tax-free and the initial chartable donation offers a sizable upfront tax deduction. Some savvy life insurance planning can even replace the value of the asset contributed to the annuity for your loved ones. How? With the increased return on your money via the charitable gift annuity, you may find enough left over to pay the life insurance premiums. A charitable gift annuity can help you support yourself, provide for your heirs (via the life insurance “wealth replacement”), and your favorite charity, all in one fell swoop. Nevertheless, it can be a little tricky. Ensure that your charity can support a charitable gift annuity. Not all can. Look before you leap is good advice here. Check out The American Council on Gift Annuities website (acga-web.org.), but remember two important caveats. First: a charitable gift annuity locks you into that rate for your lifetime. So, what is competitive now may not be should national interest rates rise and the yield will no longer be as competitive. Some regard this as unlikely, especially in the short term (i.e., Ben Bernanke, Chairman of the Federal Reserve Bank has said interest rates will be suppressed for another two years). Second: if the charity itself could suffer economic hardship and thereby be unable to meet their annuity obligations and cease payments. This is a real possibility. Charitable gift annuities are not backed by the government like CDs. Clearly, then, if a charitable gift annuity is right for you, then it will take some research and proper planning to pull off well.

Reference: The Wall Street Journal (September 17, 2011) “Earning income by Making a Gift”

CHARITABLE GIVING – THE BATTLE BETWEEN PRIVATE CHARITY AND GOVERNMENT CHARITY

There’s a lot of commotion surrounding President Obama’s jobs bill, and for good reason, but not all of it is positive. Small businesses, for one, are lukewarm since their concern is less for tax-breaks and more for actual revenues. But the biggest detractors so far may just be charities and those that give to them: the bill proposes eliminating some of the deductions for charitable giving amongst high earners. The jobs bill comes out to a $447 billion price tag, and much of it would be paid for by limiting the tax deductions for charitable giving amongst top earners making $200,000 a year or more. Currently, these earners can deduct 35 cents on the dollar, but if the bill passes as written that rate would drop to 28 cents. In fairness, this simply equalizes things so that top earners have the same deductions as lesser earners, but in the end it also effectively limits total donations to charity and makes a favored practice of many top earners that much more difficult. Indeed, the amount of money in question, 7 cents for every dollar, adds up to the staggering amount of $467 billion over 10 years, according to White House estimates. If you give to charities of your own selection, then this will be an important development to follow for the sake of your charities of choice and to anticipate your upcoming tax liabilities. Learn more about giving to charitable causes on the Charitable Planning Practice Center on our website. While you’re there, be sure to sign up for our free monthly estate planning e-newsletter, too.

Reference: The Wall Street Journal (Spetember 13, 2011) “Why Obama’s Jobs Bill Could Be Bad For Charity”