Florida Estate Planning, Probate and Asset Protection

Giving Your IRA For Good

The IRA-to-charity strategy is particularly helpful for people who have accumulated a lot of money in their IRAs but don’t need the money to live on -- and would have to pay a big tax bill when they take their required withdrawals.

Not having enough retirement income from your IRA can be a pretty serious problem. On the other hand, having too much retirement income outside of the IRA can be a bit of a problem, too. Have you heard of the Charitable IRA Rollover?

A Charitable IRA Rollover lets you give to your favorite charity while avoiding taxes on IRA distributions. Consequently, this is a very popular win-win strategy for taxpayers who would rather be “voluntary philanthropists” as opposed to “involuntary philanthropists.”

A recent Kiplinger article titled “Who Can Transfer IRA Funds to Charity?” explains the ins and outs of Charitable IRA Rollovers. Essentially, not everyone has the option to transfer their IRA distributions directly to charity. For starters you must be older than age 70-1/2, the same age upon which you are required to take Required Minimum Distributions from your IRA. And not by coincidence.

Read the original article for a better perspective on the politics behind the planning. Suffice it to say Congress has elected to give you a choice between taxation and charitable giving. The Charitable IRA Rollover gives you this option.

Beware! All of this must be done According to Hoyle or you may get caught in a tax trap. Nevertheless, this alternative is well worth considering as part of your overall retirement, estate and charitable planning.

Reference: Kiplinger (April 30, 2013) “Who Can Transfer IRA Funds to Charity?”

Family Foundations – Doing Well by Doing Good

As parents, we worry about our children. And if we have more than one, we worry about how they will interact with each other, not just when they’re young but when they've grown up. Independence is great; interdependence is what keeps them together when we're gone.

There are a lot of things that can keep a family together, just as there are many ways to keep a business together. But, then again, there are just as many ways to drive the family or the business apart. Regardless, ensuring continuity of both your family harmony and your family business is as much an art as it is a science.

For a family with means, and perhaps also as a model for a family with fewer resources, a family foundation may offer just a unifying bond.

A family foundation represents a way of doing good as a family and even making those foundation goals the goals of the family itself. This kind of unifying goal was explored by CNBC in an article titled “Family Foundations Prepare for the Next Generation.”

If you are the family member who established the family foundation, the goal should expressly be to include and to establish a succession for your family foundation. In point of fact, a family foundation is like a family business and shares many of the same concerns, anxieties, and goals.

Now, even a family of modest means can see the value in the family foundation model. If for no other reason, your family foundation can be a means of doing good as a family and letting everyone in the family work together to accomplish that good end.

Is there some goal around which your family can come together?

Reference: CNBC (February 9, 2013) “Family Foundations Prepare for the Next Generation”

Valuations Matter – Making Your Gifts Count

Make no mistake: the IRS has been cracking down on charitable contributions. It’s not that they don’t want you out there giving; to the contrary … It’s just that they want you to properly document your contribution so they can govern any abuses, particularly when the donation consists of property rather than cash.

Qualifying for the charitable tax deduction is not simply a matter of giving, then claiming the deduction. No, there are a few steps to take and items of proof to gather if you want your generosity to count at tax time.

Fundamentally, you need to prove the value of what you have given, but that can get complicated when you are giving in the form of things. You need an appraisal of any thing you give (e.g., art, a house, an easement, or a service), and you need that appraisal to answer all the tax man’s questions even before he asks them. In short, appraisals can get tricky.

For example, if you give art you need an art appraiser, and if you give real estate you need a real estate professional. However, what if you give interest or stock in a company? Then the appraisal becomes even trickier.

When you are giving less than obviously valued interest, then you might want to consider the advice given in a recent Forbes article titled “It's Hard To Satisfy The Qualified Appraisal Requirement For A Charitable Contribution If You Appraise The Wrong Property.” The problem with interest or stock in a company is that the interest or stock is different than the things the company owns. So, 10% of the stock in a company with $5 million in assets is not (necessarily) equivalent to 10% of $5 million. Such is the case, even when the sole purpose of the company is to hold well-documented and appraised assets worth $5 million.

In a “simple case,” the IRS likely will provide leniency and determine that such and such an appraisal was “substantially compliant” if not fully so. Nevertheless, the greater the business complexity, the greater the risk of misstep and attending (and costly) determination of insubstantial compliance.

An appraisal is a very necessary step when recognizing the tax implications of any transfer of property that is more than simply money itself. In the end, when giving to charity or to loved ones it just stings all the more when your attempted good deed is punished.

Reference: Forbes (February 5, 2013) “It's Hard To Satisfy The Qualified Appraisal Requirement For A Charitable Contribution If You Appraise The Wrong Property”

Fiscal Cliff Falls on the Charitable “Rich”

There is much confusion and misinformation about the impact of the “fiscal cliff” tax law on charitable giving. Witness this tweet from Ari Fleischer, former press secretary for President George W. Bush, quoted in an article he wrote that was published in The Wall Street Journal on Friday, January 4:

“I increased donations to charities in 2012. This deal limits my deductions so I, & many others, will likely donate less in 2013.”

It’s quite fortunate that there were relatively few casualties in the fiscal cliff deal. In fact, some areas of the tax law became better, or at least safer, because the laws are now more predictable.

Nonetheless, there were certain casualties and, according to a great many writers, charitable giving and donors themselves were cut a raw deal.

The fiscal cliff deal reintroduces the Pease Amendment, so named after former Congressman Donald Pease. Forbes recently wrote about this in an article titled “Pease Limitation Puts A Lid On Itemized Deductions For Wealthy Folks.” Indeed, as you can tell by the title of the article, the Pease Amendment is just one more of those “stealth taxes” working to decrease deductions rather than increase taxation. In this case, for example, this stealth tax chips away at the charitable deductions for high-earners.

For taxpayers with adjusted gross incomes (AGI) above $250,000 (or above $300,000 for joint filers), they will see an itemized deduction limitation kick in that is the lesser of (a) 3% of the adjusted gross income above the applicable amount, or (b) 80% of the amount of the itemized deductions otherwise allowable for the taxable year.

Among other itemized deductions, this hits the charitable deduction, deductions for mortgage interest, deductions for various lower level taxes, and so on with some specific exclusions. That can start to really add up in a year when you happen to have an increase in your AGI.

So, the tax game has gotten a bit more complex, and charitable giving has fewer tax deduction rewards for some individuals these days.

Reference:

Forbes (January 9, 2013) “Pease Limitation Puts A Lid On Itemized Deductions For Wealthy Folks”

When Gifts Become a Burden

The Brooklyn Museum seemed to have garnered a bonanza in 1932 when it received a large bequest from the estate of Col. Michael Friedsam, president of the elegant retail emporium B. Altman. But eight decades later that cache of Dutch and Renaissance paintings, Chinese porcelains, jewelry and furniture has become something of a burden. A quarter of the 926 works have turned out to be fakes, misattributions or of poor quality, and the museum potentially faces a hefty bill to store the 229 pieces it no longer wants.

It’s an awkward thing to give away or sell a gift made to you. However, it can be even more awkward when you can’t hold onto a gift. No, this is not a post-Christmas catastrophe, rather it’s the very real problem so many museums face every year.

One museum currently on the hook is the Brooklyn Museum in New York. The New York Times recently reported on its plight regarding a gifted collection in an article titled “Brooklyn Museum Finds Some Problematic Gifts Can’t Be Returned.”

It seems that in 1932, Colonel Michael Friedsam gave a massive collection to the then fledgling museum. Nevertheless, since then the museum has grown and has too much to put on its walls, no longer displays items like historic battle axes, and half the Colonel’s collection turned out to be fakes or “not of museum quality.” Bottom line: the museum wants to give or sell the artworks and stop paying the exorbitant storage and restoration fees.

Now, it’s not that the museum is unappreciative. No, it’s more complicated even than that. Unfortunately, the Colonel’s will legally excludes any option the Colonel’s estate executor hasn’t signed off on. Even more unfortunately, the last executor died in 1962.

The lesson for those with artworks worth preserving for future generations is to include alternatives permitting like-minded individuals (executors) to further your objectives for your gifts in the future.

The Colonel and his estate planners couldn’t have foreseen the next 90 years, but therein lies the challenge. Predicting the future can be a very tricky thing and, certainly, a very inexact science. So, how are your gifts structured?

Reference: The New York Times (January 15, 2012) “Brooklyn Museum Finds Some Problematic Gifts Can’t Be Returned”

IRA Charitable Rollover – A Powerful Win-Win

As part of the "fiscal cliff" deal, Congress has resurrected a popular tax-law provision, known as the "IRA charitable rollover," that had expired at the end of 2011. The rule allows many investors 70½ or older to transfer as much as $100,000 a year from an individual retirement account directly to a qualified charity without having to count any of that transfer as taxable income.

Tax law and sausage. Two things you should never watch while being made. However, the recent tax law contains at least one healthy ingredient: the IRA Charitable Rollover.

This may not be a new revelation, but it bears repeating. It is just that good. The reinstitution of the IRA Charitable Rollover will benefit many qualifying taxpayers and their favorite charities alike. An article in The Wall Street Journal titled “IRA Charitable Rollover Is Back” provided an excellent, brief summary of the practical points you should know.

Until the end of 2011, you could “rollover” the required minimum distribution (RMD) from your IRA directly into the charity of your choice. Consequently, you avoided income taxation on that amount. But what about tax year 2012? Until the American Taxpayer Relief Act (ATRA) was passed on January 1, 2013, and subsequently signed into law the next day, this opportunity for 2012 did not exist. It had expired.

Now that ATRA is law, however, if you are age 70 ½ or older you can once more kill two birds with one stone and rollover funds from your IRA directly to a charity for 2012. That’s right, there is a limited window open to go back to 2012 (figuratively speaking) and make a qualifying charitable rollover from your IRA.

As noted in the article cited above, taxpayers who took their RMDs late in December while awaiting resolution of the “fiscal cliff” debacle may still re-characterize that withdrawal into a rollover if they act now! However, this opportunity expires at the end of this month.

Reference: The Wall Street Journal (January 6, 2012) “IRA Charitable Rollover Is Back”

An Integral Time for Giving

"Demand for nonprofit services has been skyrocketing for the last four years," says Tim Delaney, president and CEO of the National Council of Nonprofits in Washington, D.C. "Demand for services is going up, but the resources available have been going down. We are struggling to meet the demand, but we cannot continue to do so much more for so much less."

The 4^th quarter of 2012 is well on its way, and typically this is a time when non-profits bring in the most donations.  Charities are feeling the full effect of the economic struggles we’ve been hit with in recent years, making this time a make-or-break giving season.

Why would this December be an especially trying time for charities? US News and World Report offered their own pithy list not too long ago and it’s worth a pause: “Nonprofits Face Challenging End-of-Year Giving Season.” Simply put, at a time when the services of charities have been needed more than ever (with hurricanes, droughts, and winter storms all taking their tolls during a sluggish economy) charitable giving has, understandably, been less than “generous.” That said, as a recent article published by the Chronicle of Philanthropy indicates, the “Average Gift by the Wealthy Has Declined Since 2009.”

If you’re inclined to contribute to a worthy cause before year’s end, you are well-advised to visit with your estate attorney or financial advisor about ways to best leverage your gift both for charitable and tax purposes. There are many strategies available that may make a larger gift more affordable than you think.

As we near the end of the 2012, lend your attention to your giving plans and make steps to get the ball rolling …before it drops in Times Square.

References: US News and World Report (November 12, 2012) “Nonprofits Face Challenging End-of-Year Giving Season”

The Chronicle of Philanthropy (October 29, 2012) “Average Gift by the Wealthy Has Declined Since 2009”

Annual Gift Exclusion to Increase in 2013

Individuals can generally receive up to $13,000 a year as a gift without getting hit by a federal gift tax. In 2013, as a result of cumulative indexing, this amount is projected to increase to $14,000 per person.

Any victory, large or small, is worth celebrating. So when it was projected that the annual gift exclusion will increase from the current $13,000 to $14,000 per year per person in 2013, many people are thrilled to see this change in the tax code.

This increase has been a small victory heralded by the financial press, included in a recent CBS MoneyWatch article titled “Gift-tax limits to rise in 2013.”

Now, the extra $1,000 may not sound like much if you haven’t been making full use of your gift limits. Nevertheless, when it comes to tax advantage wealth transfers, every little bit helps.

In fact, annual giving to loved ones is a time-honored tradition and strategy. Every portion of your estate given removes that much from coming under the estate tax scythe at your death. Remember: beginning in 2013 you can transfer $14,000 per year per person, to as many persons as you see fit, without reducing your lifetime exclusion (currently $5.12 million, but we’ll see what comes of that in 2013).

In addition, these gifts don’t count as charitable gifts either, which are without limit and can provide significant tax deductions when done correctly. If you are looking for even more ways to maximize your wealth transfers through gifting, then consult the original article. For example, two very specific and useful suggestions are to make gifts to cover educational costs (i.e., tuition) or medical costs.

Gifting is a great way to transfer wealth to future generations, and any small victory (even a $1,000 increase in the annual gift exclusion) is worthy of attention and consideration.

Reference: CBS MoneyWatch (October 10, 2012) “Gift-tax limits to rise in 2013”

Hurry Up or Wait? A Giving Dilemma

Some clients may want to give big now because the charitable gift tax write-off is among the deductions that may become a casualty of tax reform. But tax rates for the wealthy could jump next year, in which case they'd want to set aside deductions for 2013, when the deductions potentially would be worth more.

Hurry up! No, wait! Well, which is it? It all depends on your giving strategy. If you want to take advantage of current charitable giving options you better “hurry up” and get those gifts lined out.  But if you are apprehensive about a possible increase in your taxes for next year, you may decide it’s best to “wait” and set those gifts aside for 2013 deductions.

The rallying cry of “hurry up and wait” regarding charitable giving was sounded by Reuters in a recent article titled “Charitable giving in unclear tax times.” One reason for playing “wait and see” is that we are still in the dark when it comes to the tax implications 2013 will bring. In fact, that darkness may not lift until long after the election, especially with retroactive tax policies a possibility.

Nevertheless, giving is easy, as far as major financial moves go. So you can wait and see if some definitive answer pops up before year’s end. If 2013 will be a bad year tax-wise, and the gift can wait until 12:01 a.m. on New Year’s Day, then the deduction can do the most good to offset new taxation. But, on the other hand; you might not want to waste the giving opportunity this year, and a deduction for 2012, by that minute.

Unfortunately, your legal, financial and tax advisors likely do not have a crystal ball to help you make the call. So what will your giving strategy be for this year and beyond?

Reference: Reuters (October 18, 2012) “Charitable giving in unclear tax times”

Charitable Giving Options

Given some simple strategies for giving, whether it’s to family or to the community, I firmly believe people respond the same way.

Sometimes the act of giving can be complicated, especially when it comes to setting up foundations in the style of Bill Gates and the upper 1%. A recent Forbes article provides some alternatives you may want to consider. The article is titled “Five Ways To Be Charitable Even If You Aren't Bill Gates.” Luckily, the “five ways” do not require the complexities of family foundations.

Here are the Forbes tips for your charitable consideration:

1. Give the gift of education. Have you thought about giving to your own children or grandchildren and in the form of a 529 college savings plan or a direct gift to the college?
2. Give your IRS distribution to charity. Since you have to take your required minimum distribution anyhow, send it directly to a charity instead. This option is available for the remainder of 2012, but its future is uncertain. 
3. Name your charity as your beneficiary on your retirement account. This option is appropriate if you’ve decided that any retirement funds left over should eventually pass to charity instead of loved ones. Be sure to designate your charitable beneficiaries accordingly! Note: The full amount of your retirement account given to charity is income tax free. If left to a non-charity, then the full amount is taxable as ordinary income.
4. Donor-advised funds. By giving to a donor advised fund, you can give today, take the charitable deduction in this year’s taxes, but decide which charities to benefit next year or beyond. They are easy to establish too.
5. Charitable gift annuity. Are you keen on the idea of receiving a guaranteed lifetime monthly income, especially as an assurance in old age? If you also want to benefit charity in the process, then consider hitting two birds with one stone by opting for a charitable gift annuity.

Be sure to consult with your financial, tax and legal advisors regarding these giving options in order to choose the best plan for your donations.

Reference: Forbes (September 20, 2012) “Five Ways To Be Charitable Even If You Aren't Bill Gates”