Gift Planning Tips

Charitable Bequest Planning for Clients Who Don’t Face Estate Taxes

Now that only the smallest of minorities need worry about federal estate taxes, what considerations should estate planners keep in mind for clients who want to make charitable bequests?

• • The client may be subject to inheritance or estate taxes in one or more states, which generally can be offset by charitable deductions or exemptions;

• • The client may own items of income in respect of a decedent (retirement accounts and U.S. savings bonds are good examples) that can satisfy charitable obligations and avoid income taxes for the estate or other beneficiaries;

• • Nonqualified testamentary charitable remainder trusts (e.g., trusts that pay ALL trust income to family members, remainder to charity) may provide more flexibility to clients than qualified CRTs;

• • However, clients may wish to establish qualified testamentary CRTs if the plan is to fund the CRTs with retirement accounts and other IRD and take advantage of the trusts’ tax-exempt status;

• • Clients who face high capital gains tax rates and the new 3.8% net investment income tax might find it helpful to accelerate charitable bequests into inter vivos charitable remainder unitrusts that provide them with lifetime payments, charitable deductions and the ability to harvest capital gains inside a tax-exempt trust.  Future unitrust payments will be subject to tax under the “four-tier” rules, and liable for net investment income tax, as well.

 

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