A Bucket List for Your Estate Plan
A 2007 movie, “The Bucket List,” followed the adventures of two older gentlemen as they completed a to-do list of activities they wanted to experience while they were still on this earth. An equally good idea would be to create an estate planning bucket list for the benefit those who will carry on after you. To-do items for this list should include most or all of the following:
Estate Gifts from Donor Advised Funds
It’s possible to provide a legacy to our future through beneficiary designations on life insurance policies, retirement accounts and most other financial arrangements, including bank accounts, CDs and brokerage accounts. These estate gifts don’t require making or changing a will and can be accomplished simply by requesting a new beneficiary form from the account manager.
Another option, for friends who manage their charitable contributions through donor advised funds maintained by community foundations or financial services companies (Fidelity, Schwab and Vanguard, to name a few), is to name one or more charities to receive any balances remaining in those accounts at death. These beneficiary designations are subject to the terms of the donor advised fund agreements and you should check with your account manager for details and the necessary forms.
AMT Planning and Charitable Giving
As part of the American Taxpayer Relief Act of 2012 (ATRA), Congress installed a permanent “patch” for the alternative minimum tax that increases the exemption amounts and provides an annual inflation adjustment starting in 2013. That’s obviously a welcome development, but some supporters may still find themselves owing AMT, raising the question: “Does the alternative minimum tax affect my charitable gift planning?”
It’s important to note that charitable gifts are deductible against both the regular income tax and the alternative minimum tax. AMT payers, however, will realize charitable deduction savings in a 26% or 28% tax bracket, rather than at 33%, 35% or 39.6%. On the other hand, wise gift planning can actually help donors avoid AMT.
For example, selling stocks or real estate at a profit generates capital gains that may expose investors to AMT and the new 3.8% net investment income tax, as well. But transferring investment assets into charitable remainder trusts will avoid recognition of long-term capital gains, while also providing substantial deductions and lifetime payments to donors or others.
“It’s an ill wind that blows nobody any good,” according to 16th century writer John Heywood. For example, the current low interest rate environment is great for mortgages, not so good for CDs and money market accounts, and very good for certain gift arrangements that people can use to support our programs.
Tax-free Gift Annuity Payments. Donors who arrange charitable gift annuities today will enjoy reliable fixed payments for life, plus charitable deductions. Also important is that recipients’ payments will be mostly tax free during their life expectancies. Under an IRS formula, the tax-free portion of an annuity payment soars if gifts are made while federal interest and discount rates are low. So donors who establish a gift annuity this month might expect that 70% to 85% of their payments would be tax free. We can send you a personalized illustration.
Give a Home But Keep Living There. We’ve received many gifts of residences over the years, usually from peoples’ wills. A better plan – especially while federal interest and discount rates are low – may be to give a personal residence (including vacation homes) today but keep the right to live in the house for life. Charitable deductions are at record high levels for these arrangements, and donors can invest their tax savings for additional income.
Charitable Lead Annuity Trusts – No Time Like the Present. It’s a perfect time to set up trusts that make annual payments to charities for a fixed number of years, and then distribute assets to family members (usually children) at reduced gift and estate taxes. Furthermore, donors can reduce their future income taxes since investment income on assets transferred to the trust will no longer be taxed to them.
The materials contained on this website are intended only to show some ways by which you can make a charitable gift or bequest and thereby minimize federal tax liabilities, as authorized by the Internal Revenue Code. All examples are of a general nature only and should not be applied to your specific situation without first consulting your attorney or other advisers.