A Satisfying Alternative to Required IRA Distributions
IRA owners who are 70½ or older have only a few months left before they must take required minimum distributions for 2013. But they also have the option this year to make tax-free charitable gifts from their IRAs, up to a maximum of $100,000. Charitable deductions are not available, but gifts count toward satisfying minimum IRA distributions required after age 70½, which can reduce donors’ taxable incomes – even if they don’t “itemize.”
Keep in mind that only the IRA custodian or trustee can make qualified gifts from your account. If IRA owners withdraw funds and then write checks to us separately, amounts withdrawn will be taxable to the donor.
IRA donors need receipts of the same kind provided for other types of charitable contributions, so it’s important that you coordinate IRA contributions with our office to ensure that appropriate documentation is provided. Please call if you would like more information about making an IRA gift for 2013.
Preparing for the Future
“Frank takes care of everything on the outside of the house – the yard, the garage and the car – and I do the cooking, housekeeping and bill paying.” – Betsy R.
Sound familiar? Frank and Betsy’s division of labors may not track 100% with the arrangements of other married couples, but oftentimes one spouse does end up being responsible for all the household bills and budgeting. Married couples need to ensure that both of them fully understand the financial side of their marriage. It’s just good estate planning to train the other partner so he or she can “carry on when the time comes.”
The “bookkeeper spouse” should maintain detailed records and instructions on family finances to help the other partner become self-sufficient, if need be. Self-sufficiency may not always be possible if a spouse is not in good health. Many husbands and wives set up living trusts, or a power of attorney, that enable a third person to provide financial management if they become incapacitated.
Americans like to collect things, but eventually the time may come to sell. One attractive gift technique involves the liquidation of highly appreciated collectibles within a charitable remainder unitrust.
Example: Gerald has collected rare books for most of his lifetime – quite successfully, in fact. He’s invested $100,000 over the years and the collection has grown in value to $600,000. Gerald is retiring soon and wants to sell his collection to augment his retirement income. His accountant tells him, however, that his $500,000 profit will be subject to a 28% tax, taking away $140,000 from his nest egg, plus 3.8% net investment income tax ($19,000). Gerald can avoid these taxes, however, by transferring the books to a charitable remainder unitrust that pays him a 6% income for life, with eventual benefit for our programs. After the trustee sells the books, Gerald will be entitled to a partial charitable deduction. More important, he can receive income from the full $600,000, not the $441,000 he would have kept had he sold the books himself. Gerald will be taxable on his annual payments, which may include both capital gain and net investment income taxes.
Gerald’s unitrust typically would be structured as a so-called flip unitrust that would not make any income payments until the year after the rare books are sold by the trustee.
The will of actor James Gandolfini was recently in the news, sparking debate among estate planning experts over the wisdom of various parts of his plan. Mr. Gandolfini left behind a widow, an ex-wife, a son age 14 from the first marriage, an infant daughter from the second marriage and two sisters.
One adviser suggested Mr. Gandolfini had distributed his assets in a manner that cost his estate more in taxes than was necessary. A counterargument was that he wanted his estate to go to particular people and that this was more important to him than saving estate taxes. Other commentators noted that his son and daughter were receiving different assets from the estate, which could result in unequal treatment and future conflicts.
On the surface, the son’s share of the estate might seem to have exceeded the daughter’s. But as one adviser pointed out, fair doesn’t necessarily mean equal. One planner suggested that will makers should also have “ethical wills” – a message to family members on various personal subjects that could also include explanations of “why” certain provisions were included.
While estate planners may not always agree on strategy, most would support the following conclusion: Every estate, large or small, is different, and it makes sense to hire an experienced estate planner who can recognize – and head off – potential problems, especially where blended families are involved.
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.