What’s Ahead for 2014 Charitable Gifts from IRAs

Congress ended 2013 without taking action on a variety of “extender” tax provisions such as higher education deductions and the research tax credit.  One piece of legislation donors and charities are hoping will be extended for 2014 is the law permitting qualified charitable distributions (QCDs) from IRAs by persons over age 70½.  Congress may yet renew the “IRA charitable rollover” and you can contact our office for status updates.   But what if Congress fails to take action until late 2014 – as some Washington observers are predicting?  (Keep in mind that the IRA gift law was not extended for 2012 until January of 2013.)

Qualified IRA donors who are certain they will be able to itemize deductions for 2014 might consider making charitable distributions up to their required minimum distributions, in the hope that Congress will extend the law.  If Congress failed to renew QCDs for 2014, donors would be taxable on their charitable distributions but could take offsetting charitable deductions – if they itemize.  If Congress does extend the IRA gift law, a QCD would replace part or all of the donor’s required 2014 IRA distribution, reducing adjusted gross income.

 


 

Outliving a Life Insurance Beneficiary

What would happen if a beneficiary of your life insurance were to die before you?   It’s a good idea to provide that contingent beneficiaries, such as the heirs of a deceased beneficiary, or an alternative beneficiary, such as our organization, will receive benefits that would have passed to the deceased person, if that is your wish.  It’s true that you can fill out a new beneficiary form if a beneficiary dies before you, but what if you become disabled or simply forget to make needed changes?  Pre-planning for contingencies provides greater certainty.
           
Take the case of Susan, who has designated her three adult children – Adam, Barry and Carrie – as co-beneficiaries of a life insurance policy.  Adam and Barry do not have children but Carrie has a son and daughter.  Suppose Carrie dies before Susan.  Susan might want Carrie’s children to receive her one-third share of the life insurance, rather than have it pass to Adam and Barry. 

Susan should ask the life insurance company about designating Adam, Barry and Carrie as “per stirpes” beneficiaries of her policy.  Such language would enable each child’s descendants to “inherit” a share of the policy without Susan having to revise the beneficiary designations.  If none of Susan’s offspring has children, she might want to provide that the share of a deceased beneficiary would be divided among the survivors or be paid to benefit our programs.  What’s important is that Susan determine her wishes and objectives and consult with her advisers on the best plan.

 



Advantages of Making Contributions on Behalf of Children

People who support charitable, religious or educational organizations often have adult children who also give to worthwhile causes.  It might make sense for such parents to make charitable contributions on their children’s behalf, covering the kids’ annual gifts and possibly major gifts to capital campaigns.  Several advantages should be available:

  • Parents in high tax brackets may enjoy larger deduction tax savings than their children;
  • Contributed amounts are removed from the parents’ estates and should not constitute taxable gifts unless they satisfy legally binding pledges of the children;
  • Gifts can be planned so that the children receive gift recognition from the charity.

Would it ever make sense to reverse the process and have children make charitable contributions on behalf of parents?  The idea would be for parents to give cash or securities to children, sheltered by the $14,000 per donee annual gift tax exclusion ($28,000 where couples “split” gifts).  Children would then contribute to the parents’ charities.  This plan may be helpful where:

  • Parents have exceeded the charitable deduction ceilings (50% of AGI for cash gifts, 30% for securities) and can’t use up carried over deductions from past years;
  • Parents are subject to the “Pease” limitation on certain itemized deductions, reducing their contribution deductions;
  • Parents don’t have enough deductions to “itemize” but the children do.

 



Your Estate Plan Should Not Be a “Surprise Package”

Parents sometimes find it harder to talk to adult children about their estate plans than it was, years earlier, to have “the talk” about where babies come from.  Nevertheless, it’s important for parents to speak to their offspring individually or as a group about estate plans they have made or intend to make.  Some or all of the following topics should be on the agenda:

  • Does the parent have a will and/or a living trust?  Where are the documents located?  How can internet accounts be accessed?  Who is the executor or trustee? 
  • Does the parent have particular funeral preferences?  The child should know of any special requests concerning funeral services, burial, cremation, etc., and if pre-need arrangements have been made.
  • Has the parent signed a living will or health care power of attorney that expresses their feelings about life-prolonging care?  Where are those documents located?
  • Talk with your children about the provisions in your will or trust, particularly if you are leaving more to one child than the others.  This “favoritism” may be due to health problems, financial setbacks or to “even out” assistance given to others during your lifetime. 

Many of our friends also are proud to share that they are providing a legacy to our future as part of their estate plans.  Children almost invariably understand that mom or dad have a desire to leave the world a better place, and that their bequest to support our programs is a source of satisfaction to them.


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