A Good Time to Make Plans

The COVID crisis, the economy and possible tax law changes have people thinking about the future and their financial wellbeing, making it a good time to make plans for managing those changes and an equally good time to consider their financial goals.

The planning generally involves family participation and making sure that you and your family are provided for first before determining how to meet your philanthropic goals.

Tax Savings

When considering a gift, it is important to consider the income and/or estate/gift tax benefits that may substantially reduce the “cost” of a gift. Recent changes and potential changes in the tax law can or may affect charitable giving.

• Tax law changes in 2017 raised the amount of the standard deduction and impacted some taxpayers’ ability to itemize their deductions. This circumstance has created a concept called “bunching” that is often used in connection with a donoradvised fund.

• The CARES Act increased the income tax deduction limit for itemizers to 100 percent of adjusted gross income for 2020 only.

• The SECURE Act limited some of the planning for “stretching” distributions from IRAs to younger beneficiaries.

• There likely will be tax law changes in 2021 that may impact both income and estate/ gift tax planning and related charitable gift planning.

TYPES OF ASSETS…KEEP IT SIMPLE OR ADD COMPLEXITY

The act of making a charitable gift can be very simple to accomplish or it can be somewhat complex.

Obviously, gifts of cash, or better yet, gifts of appreciated securities (to save capital gains tax) are easy to complete.

For donors who wish to preserve assets during their lifetimes, a bequest from an estate or a beneficiary designation of life insurance proceeds or retirement assets are simple ways to make a deferred gift. Making a qualified charitable distribution (QCD) from an individual retirement account is also a simple process that can produce a tax benefit without itemizing deductions. In 2021, the QCDs will also offset required minimum distributions.

A charitable gift annuity is a simple contract that provides a lifetime annuity to the donor and a remainder to a charity, each representing approximately 50 percent of the asset’s value. The current low interest rates will create a more beneficial annuity.

More complex gifts usually involve trust arrangements. The charity either benefits from the remainder of the trust (charitable remainder trust) or from distributions for a term of years from the trust (charitable lead trust). Vice versa, donors either enjoy income for their lifetime from the trust or their heirs benefit from the remainder of the trust. The current low interest rates also enhance the benefits of these trust arrangements.

An example of a non-trust arrangement is a retained life estate of a home. The donor lives in the home for their lifetime while the charity benefits after death.

Types Of Charitable Gifts

• A current gift is an outright gift of cash or property sometimes paid in installments as part of a pledge.

• A planned gift is often referred to as a current commitment to make a deferred gift. However, a planned gift can, in some circumstances, benefit a charity in the near term.

• Many donors make a blended gift, also generally in the form of a pledge, which is a combination of a current gift and a planned gift. A blended gift can leverage a donor’s legacy and recognition.

If you are contemplating a gift, you should consult with your financial, legal, and tax advisors. We can help with any questions and participate in discussions with your advisors as well. Please contact Terry Lang, Vice President, Planned Giving, at 947-522-0085 or terry.lang@beaumont.org.