Estate planning isn’t just about preserving and distributing your assets among your loved ones; it’s also an opportunity to leave a lasting impact on your broader community through the causes and organizations you care deeply about. The holidays are a great time to give back, and charitable giving is a powerful and fulfilling aspect of estate planning that allows you to support your favorite charities and make a positive difference in the world even after you’re gone. In this blog, we will explore the benefits of incorporating charitable giving into your estate plan and provide guidance on how to do so effectively. [Read more…]
Saying “I Love You” Through Estate Planning
February is the month of love. With Valentine’s just passing, it is important to show your loved ones that you love and care for them. Estate planning is a creative way to show your love. Here are a few ways you can express your love for others in your estate plan.
Ways to Give Back this Holiday Season
Charitable donations are a way to spread the holiday spirit and practice generosity. We encourage clients to make donations to causes they truly believe in.
The values of philanthropy can be a part of your estate plan through charitable donations. Making donations through your estate plan can also reduce tax liability for yourself, your estate, and your loved ones. Including giving in your estate plan can inspire your loved ones to follow your legacy, and you can set an example for generations after to be charitable, volunteer, and display empathy in everyday life.
The Most Generous Givers Are 65 Plus
The generosity of the 50 million Americans over 65 may be in part because of their perspective, but it may also reflect their controlling more assets and having a higher net worth than any prior generation. The Federal Reserve says that the average net worth for Americans age 65-74 is $1,066,000. The median American net worth is $224,000.
The Denver Post reports in the article “On Philanthropy: Giving in the last third of life,” that older Americans are the most generous generational group in the country. Those born before 1964 are responsible for almost 70% of all charitable giving.
What You Need to Know About Charitable Giving
There are many ways to support causes that matter to you. Some charitable giving can be incorporated into your estate plan, according to Investopedia’s article, “A Primer on Philanthropic Vehicles.” However, some people enjoy giving while they are living, to have control over their generosity and enjoy the positive impact their giving has on others.
Cash is the most basic donation and is one that most people know about. That’s as simple as writing a check to the charity or other tax-qualified organization of your choosing.
Gifts of appreciated securities, like shares of individual stocks, mutual funds, ETFs, or closed-end funds, can be made to qualified organizations. After contacting the organization directly to confirm they can accept such gifts, transfer the shares from your account to the brokerage account of the organization. You get the tax benefit of the charitable contribution, based on the market value of the shares at the time the contribution is made, and you won’t be subject to the capital gains that would incur, if the security was sold outright. This can be a large amount for securities that have been held for some years with an extremely low-cost basis.
Can You Make Charitable Donations from Retirement Accounts Without Triggering Taxes?
First, let’s define the RMD (Required Minimum Distributions). This is the least amount of money that someone who owns a retirement plan is required to withdraw every year, starting the year that the individual turns 70½, or, if they retire later, the year when they retire.
However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs have to start once the account holder is age 70 ½—even if she’s not retired. The rules of what can and cannot be done with retirement plans are very strict, so you may need help from a professional.
A recent Kiplinger article, “Making Charitable Donations From Your Retirement Accounts,” explains that retirement plan participants and IRA owners—including owners of SEP IRAs and SIMPLE IRAs—must take the correct amount of RMDs on time every year from their accounts, or face big penalties. [Read more…]
Tax Benefits from a Tax-Free Transfer from an IRA to a Charity
Once you hit the mark at 70 ½, it’s time to start taking the RMDs from retirement accounts. This can send you into a higher income level. One way to manage this: make a tax-free transfer from an IRA to charity and have that count as the RMD. We know what your first question is going to be: why don’t I just take the money out and make a charitable donation? There’s more to it than you might think.
According to a recent Kiplinger article, “The Advantages of a Tax-Free Transfer From an IRA to Charity,” if you itemize, the tax deduction will appear to be identical. But let’s take a closer look. [Read more…]
Charitable Donations from an IRA
Contributing directly to a charity is a great idea. If you are thinking of giving your required minimum distribution (RMD) from an IRA to one or more charities, make sure that you understand the steps you need to take, so you’re not taxed on the RMD.
Kiplinger’s recent article, “How to Ensure Your IRA Donation to Charity Is Tax-Free,” explains that folks older than 70½ can transfer up to $100,000 annually from their traditional IRAs to charity. This move can satisfy the RMD, but isn’t taxable, if they follow the rules for a qualified charitable distribution (QCD).
The gift is not a part of your adjusted gross income, if you make a direct transfer from your IRA to the charity. That means it will not count as a tax-free transfer, if you withdraw the money first and then make the charitable donation. You should speak with your IRA administrator about the required steps. These procedures are different with different firms.
Some will have several options. For instance, if you have check-writing privileges on your IRA, you may be able to simply write a check directly from the IRA to the charity. You may also have the option to use the IRA’s QCD form and direct the money from your account.
You should be timely in submitting the form or writing the check, so it is processed in the current year. November 30 is a good cut-off to give the IRA administrator sufficient time for processing.
If your IRA sends the money, the check will be written out to the charity and include your name. You should give the charity a head’s up that it should expect your donation. You’ll also want to give them your address, so the organization can send you a receipt for your tax records. Another way to go about this is to have the IRA administrator cut the check payable to the charity and mail it to your home address. You can then forward the donation to the charity yourself.
For example, Vanguard requires you to either complete a form or call them to request the transfer, so the donation will be counted as a QCD. Vanguard will make out the check to the charity and send it to you to forward. You should be certain to make your request with ample time to receive the check and deliver it to the charity.
While there may be no limit on the number of charities you can support each year, be aware that IRA administrators typically have a minimum amount you can transfer to each charity. Check with your administrator for the specific details and take note that you can’t transfer more than $100,000 tax-free from your IRAs in any one year.
As with all planning of this type, please be sure to consult with your accountant and estate planning attorney as there are rules that must be specifically followed in order to obtain these tax benefits.
For more information on how this could affect your retirement and estate planning, explore our website and contact us to schedule your consultation today!
Reference: Kiplinger (July 28, 2017) “How to Ensure Your IRA Donation to Charity Is Tax-Free”