Estate Planning 2020

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November 2, 2020 S1

ESTATE PLANNING

The best time for estate tax planning? Now.

By JON W. GROZA, The MetroHealth Foundation

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s unpredictable as the future is, an election year can bring much more uncertainty.

This is especially true regarding existing tax policy, and proposals that might affect it. The estate tax exemption, often considered a political hot potato, is the highest ever this year at $11.58 million for an individual (or $23.16 million for a married couple). The Tax Cuts and Jobs Act (TCJA) enacted in 2017 raised the exemption on a yearly

basis. If nothing is done to extend it and the law sunsets as planned, the TCJA will expire in 2025, and the estate tax exemption will return to a pre-2018 level of approximately $5.5 million for an individual (or $11 million for a married couple).

The estate tax could see a reduction as well, should new laws be enacted.

Regardless of when and how the change happens, it is very likely that the estate tax exemption has reached its highest point until 2021. From

You may want to consider revisiting your estate plan and, if necessary, transferring assets out of your estate by Dec. 31. an estate tax planning perspective, acting now may be as good as it gets.

You may want to consider revisiting your estate plan and, if necessary, transferring assets out of your estate

by Dec. 31. Transferring assets now with lower valuations – the result of the COVID-19 pandemic — allows you to shift more value out of your estate to maximize your exemption.

The combination of low asset values and low interest rates also allows you to transfer assets to your beneficiaries at a much lower cost.

In such an uncertain environment, some of the most common and effective planning techniques include:

1. Family loans to take advantage of historically low interest rates.

2. Gifts to family members or to irrevocable trusts to use some or all of your $11.58 million (individual) exclusion.

7. Charitable Lead Annuity Trusts (CLATs) that provide charitable gifts for years with the remainder passing to beneficiaries.

3. Gifts to an Intentionally Defective Grantor Trust that allows gifts to grow tax-free for your beneficiaries – typically children or grandchildren – while the grantor pays income tax on any income generated.

4. Gifts to family members in excess of $11.58 million at a gift tax rate of 40%.

5. Spousal Limited Access Trusts (SLATs) that provide income to your spouse from assets gifted to the SLAT. 6. Grantor Retained Annuity Trusts (GRATs) that provide an income stream from assets likely to appreciate over time.

GROZA

Jon W. Groza is a partner at Kohrman, Jackson, and Krantz LLP. Jon is a member of The MetroHealth Foundation board of directors. Contact him at the foundation at 216-778-5665.

Erika Flynn Apelis, also a partner at Kohrman, Jackson, and Krantz LLP, contributed to the article.

Appreciated Securities Securities Appreciated

Donor Advised Funds (DAF)

IRA Charitable Rollover

Charitable Gift Annuity

Ending the Year Well:

Ideas for Year-End Giving Your gift to the Jewish Federation of Cleveland provides meaningful support to those in need.

YEAR-END CHARITABLE GIVING • Support Jews in Cleveland and around the world • May provide tax savings • Simplify your giving This material is presented for informative purposes only and should not be construed as legal, tax, or financial advice. When considering gift planning strategies and year-end gift opportunities, you should always consult with your own legal, tax, or financial advisors.

For more information, please contact Carol F. Wolf at cwolf@jcfcleve.org or 216-593-2805.

This advertising-supported section/feature is produced by Crain’s Content Studio-Cleveland, the marketing storytelling arm of Crain’s Cleveland Business. The Crain’s Cleveland Business newsroom is not involved in creating Crain’s Content Studio content.

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S2 November 2, 2020

ESTATE PLANNING

Family Limited Partnerships afford broad utility

By VANESSA MAVEC KING, Ancora

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amily Limited Partnerships, or FLPs, are a powerful estate planning tool, the structure of which allows for the transfer of ownership of an asset to the next generation without losing any control of the asset. They can

be utilized to hold family business, real estate or other assets with a business purpose. FLPs enable tax planning, succession planning and creditor protection while reducing income and estate tax and providing liability protection to the owners.

When establishing a FLP, an individual (or entity owned by the individual) acts as the General Partner (GP) who controls the management of the partnership and its assets. The GP then gifts limited partnership units (LP

units) to family members or to trusts for their benefit. The gift of LP units will use the GP’s lifetime gift tax exemption.

The family members who own the LP units have economic interest in

Because of this lack of control that the LP units possess, the business units may be transferred at a discount to their fair market value. The amount of discount available depends on the assets held and must be appraised and disclosed to the IRS on the gift tax return. It is important to utilize a qualified appraiser for the LP units so that the appropriate discount is applied.

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Typically, the FLP is set up so that the GP owns a very small percentage and the LP units own the vast majority. Because of that structure, both the future income

FLPs enable tax planning, succession planning and creditor protection while reducing income and estate tax and providing liability protection to the owners. and the future appreciation of the assets in the partnership are removed from the GP’s taxable estate. Both GP and LP units will be taxed on pass-through income, but oftentimes the FLPs transfer out enough income to cover the tax liability for the owners.

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When the GP wants to implement a successor, they can determine who receives their GP interests in the partnership. This can be a family member or an outside party. This flexibility is key since oftentimes partnerships are created prior to succession plans being finalized.

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the partnership but lack the ability to control, direct or influence operation of the partnership, which is part of what makes FLPs incredibly attractive in certain situations. Essentially, the GP is the operator while the LP units create passive ownership for the other family members.

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Vanessa Mavec King is vice president, financial planner at Ancora.

Contact her at 216-825-4000 or vking@ancora.net.

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ESTATE PLANNING

Retirement plan assets: an obvious choice, often overlooked

By CAROL F. WOLF, Jewish Federation of Cleveland

Charitable gifts using retirement assets are becoming more popular because of their ease and flexibility.

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s a planned giving officer, I have observed that many people do not remember who they have designated as beneficiaries of retirement plan assets. It is important to check these designations annually and at the time of significant life cycle changes. Often, a survivor who assumes he or she is the beneficiary discovers that the official form names someone else.

Again, the key is to make sure that the designation form is updated frequently.

There are many benefits for individuals who make IRA distributions to charities while living, but when one names a charity as a beneficiary to receive an IRA or other retirement assets upon a person’s death, the benefits may be even greater.

Donors may be able to support causes they care about with much

larger gifts than they may have been able to give while alive.

Because charities do not pay income tax, the full amount of the retirement account directly benefits the charity. Once the designated beneficiary forms are in place, the retirement assets will generally pass directly to beneficiaries (including charities) without going through probate.

Another incentive for donating IRA assets to a charity is that non-spouse beneficiaries must now withdraw all funds in the

It is common for people to be unaware that retirement assets are an easy, effective vehicle for bequests. It is as easy as completing a beneficiary form and can be changed at any time.

“We make a living by what we get, but we make a life by what we give.”

inherited IRA within 10 years from the death of the original account owner (applies to IRAs inherited after Dec. 31, 2019).

If the donor is married, the spouse may be required to consent to the charitable beneficiary. If required but not done, this could result in a disqualification of the charity as your beneficiary. As always, it is important for donors to consult with and express their wishes to spouses, lawyers and financial advisors to make sure all the documentation is correct.

If the donors are amenable, it is helpful for them to inform charities of planned bequests.

Most charities want to show their gratitude, thank them while they are alive, and ensure that the donor’s wishes for the bequest are noted. These conversations should include a discussion about recognition vs. anonymity.

—Winston Churchill

When you give to The Cleveland Orchestra, you make music a way of life in Northeast Ohio – for you and your loved ones today, and for generations to come.

Contact us to learn how you can use your assets to plan a thoughtful gift that benefits you and those you love – and leave an enduring, meaningful legacy with America’s finest orchestra.

Katie Shames 216-231-8006 legacygiving@clevelandorchestra.com

Charitable gifts using retirement assets are becoming more popular because of their ease and flexibility. Every donor’s situation is unique, and these decisions should be made with professional consultation.

WOLF Carol F. Wolf, CFRE, is assistant vice president of Planned Giving and Endowments at Jewish Federation of Cleveland. Contact her at 216-593-2805 or cwolf@jcfcleve.org.

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S4 November 2, 2020

ESTATE PLANNING

Reduce your taxable estate through charitable giving

Get more with Ancora.

With proprietary investment strategies, wealth planning and retirement plan solutions - we help you get more out of life.

216-825-4000 / www.ancora.net

By LIA JONES The University of Akron

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ith the federal estate tax threshold at an all-time high of $11.58 million for individual filers, now is the time for philanthropists to consider reducing their taxable estates through charitable giving. Making outright gifts or establishing an irrevocable trust with a charitable beneficiary are great options to consider. Both yield charitable tax deductions while removing the gifted assets from the donor’s estate, ensuring they are not subject to federal estate taxes.

Under current law, individuals will owe a 40% flat rate in taxes on the value of their assets over the federal estate tax threshold. Donors who

Charitable giving is a wonderful way to reduce your taxable estate, while making an important impact on organizations you care about. make a gift or establish a charitable trust before Dec. 31, 2020, will ensure the current law applies, even if the estate tax threshold decreases in the future.

Outright gifts help charitable organizations serve our community and care for immediate needs. Your favorite charity can talk with you about various gift opportunities, including those that will ensure your legacy continues in perpetuity, like a named endowment supporting student scholarships or other impactful initiatives.

The CARES Act, established in response to the COVID-19 pandemic, has created unique charitable giving opportunities. Among them is the option for individuals to withdraw all or part of their retirement assets without penalty, and gift the withdrawn amount to charity. A great deal of wealth is held in retirement assets, so this is an attractive opportunity to permanently remove them from taxable estates. The amount withdrawn will count toward

the individual’s annual gross income and may be deducted as a charitable contribution, offsetting income tax liability.

Charitable trusts are also attractive options because they enable donors to support both loved ones and a favorite charity through a single gift. Charitable remainder trusts irrevocably remove assets from the estate, while providing an income stream for one or more beneficiaries during life with the remainder of the trust principal going to charity.

Similarly, charitable lead trusts direct an established percentage to charity for a term of years, with the remainder going to named individual beneficiaries.

Estate taxes may also be offset by naming a charitable beneficiary of a bequest or beneficiary designation of retirement assets.

Charitable giving is a wonderful way to reduce your taxable estate, while making an important impact on organizations you care about.

Consult with your advisors to determine strategies that make the most sense for you.

JONES Lia Jones is director of the Center for Gift and Estate Planning at The University of Akron. Contact her at 330-972-2819 or LiaJones@uakron.edu

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ESTATE PLANNING

Trusts: who’s really in control?

By KAYLEIGH COWSER Clearstead

Whether you have determined a fixed trust, discretionary trust, or a hybrid trust is best for your estate planning goals, it is necessary to remember that a focus needs to be on the assets funding the trust.

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hen deciding to create a trust as part of your estate plan, there are many decisions you will have to make. Will you create a revocable or irrevocable trust? Who will be the trustee? Who will be the beneficiary or beneficiaries? For how long will the trust be in existence?

The answers to these questions are crucial as they are used to create the dispositive provisions of the trust,

which govern the distribution of the trust assets to the beneficiaries.

Regardless of whether the trust is revocable or irrevocable, the dispositive provisions create what is known as a “fixed trust” or “discretionary trust”; additionally, there is the potential for a hybrid trust of the two.

The person responsible for the administration of the trust and distribution of the trust assets is the trustee. The dispositive provisions control how much flexibility the trustee has over the trust assets. A fixed trust means the beneficiaries of the trust, the amount of trust assets to be distributed, and when the trust assets should be distributed are defined. A discretionary trust means the beneficiaries of the trust are defined, but the trustee uses their discretion in determining amount of trust assets to distribute and when to distribute such assets.

The terms of a fixed trust define a percentage or specific amount of income and/or principal that must be distributed to a beneficiary.

The terms also may define specific reasons that additional principal must be distributed when requested by a beneficiary. The terms of a discretionary trust give the trustee the power to use their sole discretion to determine what amount of income and principal to distribute to a beneficiary and when.

the trust. If a trust is incorrectly funded or you do not understand the potential growth of the trust assets, your goals of creating the trust may simply be unsuccessful.

in understanding the assets of their estate to determine which trust structure and type of trust is the best option to achieve their estate planning goals.

Additionally, it is important to understand which assets from your estate are best to fund the type of trust you have chosen.

Clearstead assists clients regularly

Whether you have determined a fixed trust, discretionary trust, or a hybrid trust is best for your estate planning goals, it is necessary to remember that a focus needs to be on the assets funding

COWSER

Kayleigh Cowser, Esq., is trust & estate planning counsel at Clearstead.

Contact her at 216-621-1090 or kcowser@clearstead.com.

encouraging faithful philanthropy WE ENRICH DONORS’ LIVES BY CONNECTING THEIR SUPPORT WITH THE MINISTRIES AND SERVICES OF THE DIOCESE OF CLEVELAND TO CONTINUE JESUS’ MISSION ON EARTH. Since its inception in 2000, the Catholic Community Foundation has raised more than $503 million to provide for the spiritual, educational and charitable needs of people throughout Northeast Ohio.

To create your Catholic legacy, contact Mary Lou Ozimek, Senior Relationship Manager, 216-696-6525 x4070, mozimek@catholiccommunity.org.

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S6 November 2, 2020

ESTATE PLANNING

Supporting institutions you love through the pandemic and beyond Dispelling common myths about creating your legacy

By KATIE SHAMES The Cleveland Orchestra

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inston Churchill is famously quoted as saying, “We make a living by what we get, but we make a life by what we give.”

These words succinctly express the opportunity for all of us – regardless of economic situation or circumstances – to preserve the institutions and causes that mean the most to us.

Perhaps you didn’t expect the word “opportunity” to appear in an article about the pandemic, but there has

never been a more opportune time to express your commitment to the places and people you deeply value. This is the time to preserve the causes that mean the most to you, and the institutions that make Cleveland a world leader in so many areas.

While the effects of this pandemic continue to unfold on our economy and our personal finances, the challenges to the institutions and causes we value most have never been greater. I know many of us are asking ask ourselves, “How do I

support the institutions I love during this unprecedented time?”

I hope to answer that for you today by dispelling some common misconceptions about charitable giving.

Myth #1: You need to be wealthy to make a bequest.

Everyone can create a legacy, even today. Estate planning is a form of best practice for all households regardless of income, and is an act of consideration for your heirs.

Planning your estate early preserves time, assets and family harmony.

Bequests both large and small are welcomed and valued by the institutions they support. Moreover, your heirs can honor you, even after death, by their continued support of these same institutions. And that’s an immediate legacy.

Myth #2: Bequests are the only way to leave your legacy.

When people hear “legacy giving” or “planned giving,” they often assume this refers only to bequests.

In actuality, there are many ways to leave a thoughtful legacy that can benefit both your family and your community. For instance, you can designate an institution as a beneficiary for your life insurance policy, or endow and name a fund for a program that is meaningful to you.

Myth #3: It’s too complicated.

What is Your Legacy to Impact Vision for Generations to Come?

FUTUR E PL AN N I N G Bequest Charitable Gift Annuity Life Insurance Policy Charitable Remainder Trust Charitable Lead Trust Your gift today can impact the sight and lives of others for generations to come.

PLEASE CONSIDER LEAVING A LEGACY. Contact debbie@cleyebankfoundation.org

CLEYEBANKFOUNDATION.ORG

Leaving a meaningful legacy doesn’t have to be intimidating. For some people, it’s as simple as adding one line into your will. Others may pursue vehicles that require a deeper knowledge of tax and estate law – that’s where planned giving professionals come in. It’s our job to welcome and guide you through the process of making decisions that meet YOUR goals, not ours.

It’s deeply rewarding to help you express what matters most to you in your charitable giving! We are here to serve you and explain in easily digestible terms the ins and outs of various giving vehicles. We can work with you and your family members individually, or with your advisors to achieve your vision.

provide tax advantages and targeted giving that benefit heirs and institutions consecutively. In the case of Charitable Lead Trusts, there is also a chance to experience the joy of seeing the funds used during your lifetime. What a great opportunity!

This is the time to preserve the causes that mean the most to you, and the institutions that make Cleveland a world leader in so many areas.

Myth #5: It’s not the right time to plan your legacy.

As these stressful months of the pandemic have demonstrated, there is nothing we should take for granted. Life can change dramatically, very quickly. Planning is always a good idea, but the events of 2020 have underscored both the challenges and opportunities that individuals have in expressing their love and support for cherished causes and institutions. It is never too early to plan your legacy.

Here is the simple but profound truth: Future generations will benefit tomorrow from your thoughtfulness today. Your gifts make your own life and legacy, as Winston Churchill wisely advised us.

Now is the time.

Myth #4: You can’t provide for both your heirs and the institutions you love.

Planned giving is not an either/ or proposition! In fact, planned giving through Charitable Trusts provides advantageous vehicles that do double duty: one contribution benefitting both family and institution. Charitable Lead Trusts and Charitable Remainder Trusts

SHAMES Katie Shames, JD, is planned giving and major gift officer at The Cleveland Orchestra. Contact her at 216-231-8006 or legacygiving@ clevelandorchestra.com

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ESTATE PLANNING

The inside scoop on choosing an estate planning lawyer

By JENNIFER A. SAVAGE and M. ELIZABETH MONIHAN Schneider Smeltz Spieth Bell

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ou need to do estate planning, but like visiting the dentist, it is not expected to be pleasurable. Good estate planners provide peace of mind, help achieve tax savings, and serve as a trusted advisor for your family. Here is advice on selecting a skilled attorney: • Ask friends and professional advisors about their experiences.

The best referrals come from happy clients. If friends describe their lawyer as smart, trustworthy, a proactive and clear communicator, and with their best interests at heart, consider this lawyer. Financial advisors and accountants also work with estate planners. If you trust your other advisors, you can feel confident about their recommendations.

• A good lawyer should be a good listener. You need to share personal

information for a lawyer to give you sound advice. If a lawyer makes you feel uncomfortable or unintelligent, keep looking. You may need to interview several before you find a good fit. If you are married, both spouses should feel equally comfortable asking questions.

Otherwise, when a spouse dies, an uneasy survivor may lack a trusted advisor when needed most.

• Everything in estate planning can be explained in sufficiently plain language to enable you to feel good about your decisions. You may not be able to explain technical tax details, but you should feel confident that you made a good plan and have rules to live by.

• Cleveland has many competent estate planning lawyers. You want one who knows the tax rules, writes

clearly, communicates plainly, and works well with your other advisors.

Go with your gut to pick a good fit for your family.

• Lawyers’ billing practices vary. It is fair to ask questions and understand process. But a capable lawyer may not be able to provide an accurate cost estimate until they understand your circumstances and assess your needs. Estate planners often start with forms, but most thoughtful plans are customized for the client’s needs. All clients have different circumstances and priorities and make different choices about their needs. Good lawyers expect and price for personal attention.

• Skilled estate planning lawyers provide more than just legal advice and documents. They advise families about issues, approaches and

choices. They understand family dynamics and concerns, work well with advisors, and share experiences of how proposed designs can be effective or problematic. They help you implement the plan.

We hope these tips lead to a pleasant (or at least tolerable) estate planning experience.

SAVAGE

Jennifer A. Savage, Esq., is a partner at Schneider Smeltz Spieth Bell. Contact her at 216-696-4200 or jsavage@sssblaw.com. M. Elizabeth Monihan, Esq., is a partner at Schneider Smeltz Spieth Bell.Contact her at 216-696-4200 or memonihan@sssb-law.com

MONIHAN

An estate needs a plan like a house needs a foundation.

We help families and businesses create a solid base for achieving their long-term goals.

David Weibel

Jeffrey Perlmuter Margaret Metzinger

Matthew Kadish

For families, our estate plans are tailored to their specific needs, including the special needs of beneficiaries, asset protection, and tax planning. We also provide advice on family goals and governance, and establish and represent charitable trusts, private foundations, and donor advised funds within public charities.

For business owners, we advise on business succession matters, including transitioning a business, recruiting, developing and retaining managerial talent, and owner exit strategies, including the formation of ESOPs and the sale of stock to ESPOPs. Contact one of our Estate Planning attorneys today.

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David Weibel – (216) 515-1072 – dweibel@frantzward.com Jeffrey Perlmuter – (216) 515-1654 – jperlmuter@frantzward.com Margaret Metzinger – (216) 515-1075 – mmetzinger@frantzward.com Matthew Kadish – (216) 515-1078 – mkadish@frantzward.com Mia Garcia – (216) 515-1625 – mgarcia@frantzward.com

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William Duncan – (216) 515-1073 – wduncan@frantzward.com

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S8 November 2, 2020

ESTATE PLANNING

Tax advantages to estate planning Establishing a legacy to impact vision for generations to come

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By DEBBIE MAY-JOHNSON, Cleveland Eye Bank Foundation

ifts to foundations can have an impact on the lives of others today and for generations to come. In the case of the Cleveland Eye Bank Foundation, gifts can have far-reaching impacts, as we work with local physicians and researchers to advance treatments and cures for blinding eye diseases.

Planned giving is a great way to give and accomplish your financial, tax or estate planning goals while leaving a lasting legacy in support of vision.

It is important to work with you and your advisors to provide assistance to ensure you choose the best approach for your charitable goals.

FUTURE PLANNING Bequest. A bequest is the simplest way to provide a future gift. Please be sure specific bequest language is included in your will or trust.

Charitable Gift Annuity.

A charitable gift annuity is an irrevocable gift that returns an income stream to the donor or another beneficiary, based on the recipient’s age at the time of the gift. The donor qualifies for a

charitable tax deduction for part of the gift, while the payments may receive favorable tax treatment.

Most importantly, the gift annuity will substantially help meet the needs of your designated charity or foundation.

Life insurance policy. Unused life insurance policies make excellent charitable gifts.

Charitable Remainder Trust.

Charitable remainder trusts enable a donor to make gifts using payment options that best meet their needs.

Additionally, remainder trusts are flexible enough to permit the use of a variety of assets, including cash securities and real property and can provide tax advantages. Donors qualify for a charitable deduction for part of the gift, and trust beneficiaries receive a percentage of the trust annually.

Charitable Lead Trust. Donors can support the needs of their designated foundation or charity now, and the remaining assets can be transferred to other individuals

or even themselves at a future date with possible tax advantages. Assets in the lead trust would benefit the foundation or charity for a fixed number of years or over a donor’s lifetime.

Indeed, your gift today can impact the lives of others for generations to come.

Critical wealth planning steps for business succession

By RYAN T. FULMER, Beese Fulmer Private Wealth Management

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uccessful business owners share one common characteristic — a large portion of their net-worth is illiquid, challenging to transition and requires significant time and planning to turn into cash.

A common misstep in succession and pre-sale planning is to focus entirely on taxes and company valuation while ignoring the impact of the deal structure and the risk to your long-term ability to maintain your lifestyle and wealth.

MAY-JOHNSON

Debbie May-Johnson is executive director at the Cleveland Eye Bank Foundation. Contact her at 216-232-EYES (3937) or debbie@cleyebankfoundation.org.

Leave a legacy that shapes futures.

Invest in student success with a tax-wise gift this year or by including The University of Akron Foundation in your estate plans.

Lia Jones Director, Center for Gift and Estate Planning LiaJones@uakron.edu n 330-972-2819 uakron.edu/RiseTogether The University of Akron is an Equal Education and Employment Institution. ©2020 by The University of Akron – uakron.edu/eeo

Early in succession or pre-sale planning, it is critical to complete a detailed cash flow and wealth projection analysis. This analysis should review the timing of proposed pay-outs and the impact

You will only have one chance at transitioning your business, and devoting the appropriate time and resources with experienced professionals will increase your odds of success. structures is to discount future payment streams with a discount rate similar to your investment portfolio’s expected rate of return, making evaluating different deal structures comparable.

Questions addressed from this analysis might include: • How sensitive are your wealth goals to various EBITDA multiples and pay-out structures?

• How much risk can you afford to take with seller notes and earnouts, and still achieve your goals?

• Does advanced estate planning need to occur before a transition to reduce your federally taxable estate?

on your ability to maintain your lifestyle post-transition and achieve generational wealth goals.

The analysis starts by estimating incoming and outgoing cash flows until age 90, considering large cash outflows such as: purchasing a second home, paying for grandchildren’s education or other large gifts. Forecasts incorporate proposed company valuations, deal structures, other investments, and net cash flows, to show your ability to achieve your goals under different deal structures and investment environments.

As an example, let us assume you are comparing an all-cash offer to an offer that has half cash upfront, but a considerable portion of the sale price contingent on achieving profitability targets.

Stress test analyses on earn-outs can demonstrate how sensitive your goals are to achieving the profitability targets.

Another approach to reviewing contingent deal

Start preparing at least five years prior to when you think a liquidity event may occur, as the process will likely reveal other areas needing attention. You will only have one chance at transitioning your business, and devoting the appropriate time and resources with experienced professionals will increase your odds of success.

FULMER

Ryan T. Fulmer is president and portfolio manager at Beese Fulmer Private Wealth Management. Contact him at 330-454-6555 or rfulmer@ beesefulmer.com.

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ESTATE PLANNING

The CARES Act: Affording charitable giving options for everyone

By NELSON J. WITTENMYER JR., Cleveland Clinic Philanthropy Institute

The package includes several new charitable provisions, which are set to expire on Dec. 31, 2020: NEW ABOVE-THE-LINE STANDARD DEDUCTION Up to $300 deduction per tax return for annual charitable contributions is available for those who take the standard deduction. It is an “abovethe-line” adjustment that will reduce a donor’s adjusted gross income (AGI), and thereby reduce taxable income. If you have made a cash gift this year, it counts toward the $300 cap. Stock gifts are not eligible for this above-the-line deduction, and this benefit does not apply to gifts made to donor-advised funds.

INCREASED CHARITABLE DEDUCTION LIMITS Individuals who itemize can deduct much greater amounts of their cash contributions. This year, they can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). This benefit is only for cash gifts that go to a public charity, such as Cleveland Clinic.

Gifts of stock (held more than one year) remain deductible for up to only 30% of AGI. REQUIRED MINIMUM DISTRIBUTIONS WAIVED IN 2020 (FOR MOST PEOPLE) Required minimum distributions (RMDs) for individuals over age

72 (who would have been required to start receiving RMDs in 2020) do not have to begin until 2021.

While they have been waived for 2020, RMDs remain attractive for individuals who would like to make a significant charitable gift directly from an IRA to a charity through a qualified charitable distribution (QCD). Such transfers are not subject to income taxes.

It’s important to keep in mind that donors may have more IRA dollars available for charitable giving.

Directing a QCD to a charity this year (of up to $100,000 per individual of age 70 ½ and older) will still reduce the taxable IRA balance.

These options allow all taxpayers – itemizers and non-itemizers – to direct gifts to charities in a taxefficient manner.

Estate planning, life insurance and business solutions

Protecting Your Family.

Preserving Your Legacy.

WITTENMYER

Nelson J.Wittenmyer Jr., Esq., is vice chair at the Cleveland Clinic Philanthropy Institute. Contact him at 216-444-1245 or giftplanning@ccf.org.

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he Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted as an economic stimulus package designed to provide immediate relief for individuals and businesses, including nonprofits, in an effort to enable recovery during the COVID-19 pandemic.

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S10 November 2, 2020

ESTATE PLANNING

Choosing your executor or trustee Consider long-term obligations as you consider the right person to fulfill your wishes

By MARY EILEEN VITALE HW&Co.

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our estate plan isn’t complete without appointing someone to carry out your wishes. The important decision of your executor or trustee includes considering the time involved in assuming either role, the scope of duties and the burden that both roles may impose.

EXECUTOR Under the supervision of the probate

court, an executor manages and distributes the estate according to the decedent’s will or, in the absence of a will, according to state laws of intestacy. Without a will, the court appoints an executor.

When deciding on an executor, keep in mind the potential conflicts of interest that could disrupt family harmony. Your heirs should regard

your choice as someone who has common sense and is fair. You can appoint a family member, friend or a third party.

BE SURE THAT YOUR CHOICE IS WILLING TO SERVE Settling an estate is time consuming.

Even if your choice is willing and able to take on the job today, he or

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she may not be able to continue in the future. Always name a successor in your will.

TRUSTEE You might consider a revocable trust if your goals include factors such as controlling distributions of assets to heirs, professional management or creditor protection. In establishing a trust, you will also appoint a trustee.

A trustee manages the assets in your trust for the benefit of your beneficiaries according to the instructions provided in your trust document. A trustee has duties similar to those of an executor; a trustee’s decisions can have longlasting consequences. Thus some people rely on the professional services of a trust company.

Important considerations when choosing a trustee: • Competence. A good trustee understands the trust document and his or her duties. The trustee can seek expert advice on legal, tax or investment issues when needed.

• Impartial. Your trustee understands that they have an obligation to consider the needs of all beneficiaries and not favor one over another.

• Maturity. The ideal trustee should have the family’s/beneficiary’s respect.

A good trustee understands the trust document and his or her duties. The trustee can seek expert advice on legal, tax or investment issues when needed.

• Astute. Your choice should have a history of making good financial and personal decisions.

Naming your executor and trustee(s) is an important piece of completing your estate plan. He/she will represent you after you have passed.

• Willing and able. A trustee should be able to devote the time necessary.

• Insight. A good trustee understands what you, the grantor, had in mind and is close enough to beneficiaries to understand their needs.

VITALE

Mary Eileen Vitale, CPA, CFP, AEP, is a principal at HW&Co., CPAs & Advisors. Contact her at 216-378-7210 or vitale@hwco.com.

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ESTATE PLANNING

Charitable giving: life insurance and your legacy

By JEFFREY WASSERMAN

TOGETHER, WE CAN HELP YOU LEAVE YOUR MARK ON CLEVELAND.

Oswald Specialty Life Oswald Companies

P

eople donate to charities for many reasons – to support a cause they are passionate about, to help the less fortunate or to honor a loved one. And while most donations are made through one time or annual contributions, planned giving provides donors with the opportunity to make a more significant gift. For those looking to make a major impact, donating a life insurance policy can be a very effective way to leverage charitable giving.

For example: A couple in their 60s can establish a $5 million life insurance policy owned by a charity. Each year they make a donation equal to the annual premium of $45,000. Because their annual donation is deductible, the net cost at life expectancy is only $882,000. The leverage provided by the life insurance policy created an ultimate gift that was five times greater than their cash contribution.

While this example is the most common approach, several factors can impact the ownership and source of funds. For families who have donor-advised funds or private foundations, life insurance can be a way to diversify assets and provide long-term sustainability to continue the family’s mission. Life insurance provides a guaranteed payout and is not correlated to financial markets, making it a great complementary asset to the fund or foundation’s other investments.

Another consideration is the source of funds. If there is no need for an income tax deduction, the donation of highly appreciated stock or IRA assets is common.

Individuals who are over 70½ may donate up to $100,000 per year to charities directly from their IRA. The amount donated is excluded from income and counts toward required minimum distributions. A 72-year-old couple could leverage a $100,000 qualified charitable distribution to create a $5 million life insurance policy.

Bank financing is another source of funding that may be available, especially for life insurance

policies greater than $10 million. Borrowing funds from a commercial bank can create even more leverage and generate returns of 15% or more at death.

For families who have donor-advised funds or private foundations, life insurance can be a way to diversify assets and provide long-term sustainability to continue the family’s mission.

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Finally, for families who want to see the impact of their donations during life, it may not be appropriate to structure life insurance for the benefit of the charity. Instead, it may be appropriate to structure life insurance for the benefit of their heirs to replace the assets donated to charity.

Regardless of how it is structured, it is important to remember that life insurance provides a death benefit several times larger than the premiums paid, making it a great tool to help families satisfy both their charitable and estate planning objectives.

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WASSERMAN Jeffrey Wasserman is executive vice president and managing director of Oswald Specialty Life Oswald Companies. Contact him at jwasserman@oswaldcompanies.com.

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S12 November 2, 2020

ESTATE PLANNING

2020 year-end tax planning with Glenmede: constructing a comprehensive strategy

By LINDA OLEJKO Glenmede Income tax planning Work with your tax preparer to understand the consequences of accelerating income, particularly capital gains, into 2020 if higher taxes are on the horizon.

Independent of election-related planning, consideration of the following should be revisited annually:

not considered taxable gifts and therefore do not consume any of the payer’s lifetime gift and estate tax exemption.

Complete large gifts: Independent of who wins the presidential election, the current estate tax exemption amount is slated to revert to $5 million (increased by inflation) in 2026. Individuals who can afford to make gifts to use up this exemption would be well served to do so.

• Tax-loss harvesting • Tax-efficient trust distributions • Implications of the kiddie tax The election: uncertainty in the mix

P

olicy approaches to tax rates, deductions and exemptions differ significantly between the presidential candidates. Whereas President Trump’s tax policy would make permanent the 2017 Tax Cuts and Jobs Act (TCJA) and proposes a further middle-class tax cut, former Vice President Biden seeks to roll back the TCJA, revert

to 2016 rates and exemptions, and implement select tax increases and expanded deductions. Further, it is possible either administration could raise taxes in response to mounting budgetary concerns and national debt.

What actions should we take now in anticipation of tax increases? How imminent are they? A Democratic sweep would enable Democrats to

take action immediately, but it is also quite possible a new administration would prioritize the economy over immediate tax changes. In all cases, the nature, extent and timing of any tax modifications are unpredictable.

Regardless of the election outcome, the possibility of higher future taxes and lower exemptions suggests it would be prudent to plan now for actions that can be implemented after the election.

• Capital gains bracket management • Fully funding your IRA or 401(k) • Converting a traditional IRA to a Roth IRA • Making annual exclusion gifts • Funding 529 plans Tax-efficient ways to make charitable gifts • Making a qualified charitable distribution from an IRA • Bunching charitable gifts • Defer tax on capital gains with a charitable remainder trust Estate and gift tax planning The aggregate amount exempt from estate and gift tax per individual in 2020 is $11.58 million. This amount reverts to half that amount ($5 million increased for inflation) on January 1, 2026, and may also be reduced sooner by the possible tax law changes previously discussed.

The starting point for all estate and gift tax planning should be to understand your goals-based wealth plan. Before you make any asset transfer, understand whether your assets are sufficient, within a reasonable degree of certainty, to be likely to achieve your personal goals.

Annual exclusion gifts: Annual exclusion gifts of $15,000 per recipient accumulate over time to reduce a taxable estate. Any assets removed from your estate through non-taxable gifts avoid the potential 40% tax at your death.

Tuition and medical expenses: Medical expenses paid directly to the provider and tuition paid directly to an educational institution are

Even if you do not make any large gifts, it’s possible to use techniques to remove future appreciation from your estate so the appreciation is not subject to the 40% estate tax at your death. Grantor retained annuity trusts (GRAT), a loan to an irrevocable trust for your children and other similar techniques, work well in this low-interest-rate environment. These techniques preserve your access to the underlying capital should you need it and minimize any taxable gifts that consume your estate tax exemption.

To read the full version of this article, view the elements of both President Trump’s and former Vice President Biden’s tax policy and read more comprehensive planning points and techniques, visit our website: https:// go.glenmede.com/2020-tax-strategy.

This material is intended to be a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and does not provide investment, estate planning, tax or legal advice.When provided, investment advice is based on a client’s applicable circumstances. This material may contain Glenmede’s opinions or expectations, which may change without notice after date of publication.

Information gathered from third-party sources is assumed reliable but is not guaranteed.

OLEJKO Linda Olejko is business development director of The Glenmede Trust, N.A. Contact her at 216-514-7876.

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November 2, 2020 S13

ESTATE PLANNING

The necessity of advance directives

By MARGARET M. METZINGER, Frantz Ward LLP

E

veryone needs an estate plan, and every estate plan should include advance directives.

Nobody wants to think about the end of life. We don’t want to tempt the fates or acknowledge our mortality.

But advance directives are vital tools in our estate planning arsenal and really are one of the greatest gifts we can leave our families and loved ones.

Advance directives are written statements of your intentions regarding your future medical needs that you prepare while you are healthy and which may be used in the event you become so ill that you are unable to communicate with your medical providers.

The information contained in advance directives arms your family and loved ones with the information they will need to make difficult decisions for you when you can’t speak for yourself.

That’s why it is so important to have these discussions while you are healthy and can fully explain your decisions to them.You should talk to your family

and loved ones about your advance directives and end-of-life decisions, and then set it all aside and get back to your regularly scheduled life.

Ohio recognizes advance directives in the form of the living will and durable power of attorney for health care. These documents work together to provide notice of your end-of-life wishes and allow another person to make medical decisions for you if you are in a terminal condition or in a permanently unconscious state, as long as two physicians agree that there is little to no chance for your recovery.

The living will is a written expression of your wishes about future health care decisions so that if you are unable to make such decisions, your family, loved ones and your medical providers understand what your end-of-life expectations are. The living will specifies the type of medical treatment you want and under what circumstances extraordinary measures to prolong your life should be started or stopped.

You can also use the living will to direct whether you want a “do not resuscitate” order (DNR). If you have a DNR and you stop breathing or your heart stops, nothing will be done to try to keep you alive. If you do not have a DNR designation, you will be resuscitated and your medical team will take measures to re-start your heart and breathing using methods such as CPR, a ventilator or a defibrillator.

Typically, your family and loved ones will know that you are in a medically fragile condition, but in addition to expressing your end-of-life decisions, the living will enables you to identify two or three people who should receive notice about your medical state.

In a durable power of attorney for health care, you designate an agent who will make your health care decisions for you if you are terminally ill or in a permanently unconscious state and are otherwise unable to express your wishes. This document allows your agent to confer with your

medical providers to determine the best course of treatment which may include the use or discontinuation of life-saving equipment like ventilators or dialysis machines.Your agent can also request a DNR order. Likewise, your agent can request that you are provided comfort care or a treatment plan that eases pain and other symptoms and provides or discontinues artificial nutrition or hydration.

Similar to the living will, in order for your agent to act under a durable power of attorney for health care, two physicians must agree that you will not likely recover.

The selection of your agent is one of the most important estate planning decisions you will make. First, keep in mind that your agent will be asked to make decisions for you during what will almost certainly be an emotional time. Next, your agent has to be able to make difficult decisions in accordance with your wishes, regardless of his or her feelings or emotional state. Finally, your agent should also be comfortable conferring with your doctors regarding your treatment plan and advocating on your behalf.

In your durable power of attorney

for health care, you have the ability to identify a primary agent and up to two additional agents who can make medical decisions for you. Your “back up” agents can step in if your primary agent is unable or unwilling to act on your behalf.

Talk to your physicians about your medical options. Talk to you family about your wishes. Having these difficult discussions while you are healthy can help everyone understand your decisions and guide them through a very difficult time.

METZINGER Margaret M. Metzinger is a partner at Frantz Ward LLP. Contact her at 216-515-1075 or mmetzinger@frantzward.com.

The Power of Every

Legacy

Our donors’ generosity puts big ideas to work on discoveries and innovations, so even the smallest, most treasured moments in life are possible.

That’s the legacy that donors leave here.

Learn about the powerful ways charitable giving to Cleveland Clinic can impact patients and communities.

Visit PowerOfEveryOne.org, call 216.444.1245 or email giftplanning@ccf.org

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