Personal Planning Ideas

Planned Giving

  • The Incredible Shrinking Estate Tax

    When the estate tax credit was raised in 2013, sheltering estates up to $5 million, it was estimated that only about 4,000 estates per year would be subject to the tax. The recently passed Tax Cuts and Jobs Act doubled the sheltered amount ($11.2 million in 2018, adjusted for inflation).  When combined with portability, which allows a surviving spouse to “inherit” the unused credit of a deceased spouse, married couples can shelter up to $22.4 million.  For all but a few estates per year, taxes are no longer a concern.

    Many people may decide to make current gifts, particularly gifts offering lifetime payments, and enjoy an income tax charitable deduction.  For example, David has a $2 million estate, so he will not be subject to estate tax, but he still wants to create a legacy at his favorite charity.  David decides to fund a charitable remainder unitrust from which he will receive payments for life.  When the trust ends, assets in the trust will pass to charity, just as if he had left a gift in his will.  Not only does David save income taxes, but he can use appreciated stock to fund his trust and save the 15% capital gains tax — and possibly the 3.8% net-investment income tax — that he would owe if he sold the shares for reinvestment.  His trust payments are based on the full value of the shares.

    While most donors won’t owe estate tax, many still own assets that generate income taxes at death.  IRAs, U.S. savings bonds and certain other assets are considered income in respect of a decedent, subject to income tax.  If these are left to charity, all income tax is avoided.  It’s also possible to use IRAs and savings bonds to fund charitable gifts that will make payments to loved ones for life.

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