Presentation is loading. Please wait.

Presentation is loading. Please wait.

Presented by Marc Carmichael President R&R Newkirk Company Planned Giving Council of Houston.

Similar presentations


Presentation on theme: "Presented by Marc Carmichael President R&R Newkirk Company Planned Giving Council of Houston."— Presentation transcript:

1 Presented by Marc Carmichael President R&R Newkirk Company Planned Giving Council of Houston

2 Only a Few Thousand Estates Now Face Federal Estate Tax* How will estate tax “freedom” affect charitable bequests? How should donors and charities plan? * Out of 2.5 million deaths (average)

3 Permanent Estate Tax Relief American Taxpayer Relief Act of 2012 (“ATRA”) raised the exemption to $5.25 million ($5.34 million for 2014) Spouses can “inherit” unused exemptions, sheltering $10.68 M

4 Will People Get Married to Obtain Portable Estate Tax Credits?

5 Estate Tax Return for First Spouse Executors must make elections on estate tax returns (Form 706) for the first spouse to die or the survivor won’t “inherit” portable exemption Even small estates should file 706 at first death, in case the surviving spouse later has a windfall (strikes oil, wins the lottery, etc.)

6 Estate Tax Exemption History Year Tax-Sheltered Estate 2000 and 2001 $675,000 2002 and 20031,000,000 2004 and 20051,500,000 2006 through 20082,000,000 20093,500,000 20105,000,000 (tax optional) 20115,000,000 20125,120,000 20135,250,000 20145,340,000

7 70% of Americans make lifetime charitable gifts Only 6-8% of general population leaves anything to charity 19% of estate tax returns show charitable bequests

8 The Estate Tax Charitable Deduction Formerly Put Giving on the Table “You have three choices as to who gets your estate: family, charities, or the estate tax collector…and you must choose TWO OUT OF THREE” – Advisers

9 Why Should Donors Make Estate Plans if They Won’t Owe Federal Estate Tax?

10 Everyone Still Needs Estate Planning Thoughtful, Fair Distribution of Estates through Wills, Living Trusts and Beneficiary Designations Keep Probate Expenses as Low as Possible Trusts That Protect Family Beneficiaries Income Taxes at Death (IRD) and State Death Taxes Living Wills and Healthcare Powers of Attorney Powers of Attorney/Standby Trustees Charitable Bequests

11 State Death Taxes May Be a Concern 19 states and DC have some form of “death tax” “Inheritance taxes” are based on relationship to heir Some states have “state estate taxes” similar to federal estate tax Hawaii reinstated estate tax in 2010

12 Charitable Estate Planning – Without the Estate Tax Potential State Inheritance/Estate Taxes (out-of- state property could be taxed even if home state has no “death tax”). Charitable bequests reduce these taxes. Income in Respect of a Decedent (IRD) Problems Trusteeship/Money Management for Beneficiaries Donors who don’t face estate tax should set up life income gifts during life for income tax savings

13 Charitable Estate Planning – Without the Estate Tax Potential State Inheritance/Estate Taxes (out-of- state property could be taxed even if home state has no “death tax”). Charitable bequests reduce these taxes. Income in Respect of a Decedent (IRD) Problems Trusteeship/Money Management for Beneficiaries Donors who don’t face estate tax should set up life income gifts during life for income tax savings

14 Will You Owe Capital Gains Tax if You Inherit Uncle Louie’s Studebaker?

15 Death Is a Tax Shelter for Capital Gains Taxes …but not for “income in respect of a decedent” (IRD)

16

17 Leave Charity “Tax-Burdened Assets” U.S. Savings Bonds IRAs and qualified retirement plans Accounts receivable Installment payments on land sale contracts Unpaid commissions Commercial annuities

18 Leave “Tax-Burdened Assets” to CRTs U.S. Savings Bonds IRAs and deferred compensation Accounts receivable Installment payments on land sale contracts Unpaid commissions Commercial annuities

19 Charitable Estate Planning – Without the Estate Tax Potential State Inheritance/Estate Taxes (out-of- state property could be taxed even if home state has no “death tax”). Charitable bequests reduce these taxes. Income in Respect of a Decedent (IRD) Problems Trusteeship/Money Management for Beneficiaries Donors who don’t face estate tax should set up life income gifts during life for income tax savings

20 Nonqualified Remainder Trusts Set up trusts in a will or during life that protect spouses or others who need trusteeship. Trusts can pay all trust income to family and friends for life, then pass part or all of the remainder interest to your organization Trusts Need Not Be Qualified CRTs

21 Charitable Estate Planning – Without the Estate Tax Potential State Inheritance/Estate Taxes (out-of- state property could be taxed even if home state has no “death tax”). Charitable bequests reduce these taxes. Income in Respect of a Decedent (IRD) Problems Trusteeship/Money Management for Beneficiaries Donors who don’t face estate tax should accelerate bequests into life income gifts during life for income tax savings

22 Tax-wise, Lifetime Gifts Beat Bequests for All Donors Income tax savings plus transfer tax savings for taxable estates (and lifetime personal satisfaction and recognition) Include power to accelerate bequests in durable power of attorney (or enable trustee to prepay charitable distributions) Accelerating bequests using CRTs and gift annuities is great for high-bracket donors saddled with low- basis assets, 20% capital gains rates and the new 3.8% net investment income surtax

23 Gifts Can Achieve Personal Goals 1. Help family member 2. Control behavior 3. Protect privacy 4. Leave a Legacy__ 5. _______________ 6. _______________

24 Charitable Remainder Trusts Can Provide trusteeship for beneficiaries who need money management Achieve other “non- tax” estate planning goals of donors Gift annuities provide similar benefits

25 Early Gift Annuities Motivated by Personal Goals, Not Tax Savings

26 CRT Pays to Special Needs Trust Special Needs Family Member CRT Payout

27 “Ruling from the Grave” With a Contingency CRT How do you get family to make cemetery visits? Leona Helmsley knew.

28 The Problem with Eddie

29 Gift Annuities and Privacy Gift of cash or securities o Payments for one or two lives o Large charitable deduction o Partial tax-free payments o Reduced capital gains taxes for gifts of securities o Payouts can be deferred

30 Independent trustee could sprinkle income among good/ not-so-good beneficiaries & discourage bad behavior Wayward Son, plus one charity

31 Charities Now Need to Emphasize Another Message with Donors You still need an estate plan, even if federal estate taxes are no longer a threat You should include our organization in your estate plan

32 Marketing Should Emphasize Need for an Estate Planning “Bucket List” Thoughtful, Fair Distribution of Estates through Wills, Living Trusts and Beneficiary Designations Keep Probate Expenses as Low as Possible Trusts That Protect Family Beneficiaries Income Taxes at Death (IRD) and State Death Taxes Living Wills and Healthcare Powers of Attorney Powers of Attorney/Standby Trustees Charitable Bequests

33 Estate Planning Bucket List Arrange for a thoughtful, fair distribution of your estate through wills, living trusts and beneficiary designations in a manner that minimizes family conflict and best provides for the welfare of your survivors Avoid the “Heartbreak of Intestacy”

34 Estate Planning Bucket List Plan to minimize the costs and delays of probate (especially multi-state probate) through revocable living trusts and other non- probate transfers such as joint ownership, P.O.D. transfers and other beneficiary designations

35

36 Revocable Living Trusts Can: Avoid probate Enable standby trustee to take over financial affairs Provide for charities Facilitate tax planning Afford privacy Avoid challenges by disgruntled heirs

37 Estate Planning Bucket List Set up trusts in a will or during life that protect spouses or others who need trusteeship. Trusts can pay all trust income to family and friends for life, then pass part or all of the remainder interest to your organization Trusts Need Not Be Qualified CRTs

38 Estate Planning Bucket List Plan to avoid Income in Respect of a Decedent (IRD) problems that may arise from leaving certain types of assets to family members or others – resulting in severe income tax burdens after your death Plan for state/federal estate taxes (if necessary) Death erases capital gains taxes…but not IRD

39 Estate Planning Bucket List Donors who don’t face estate tax should consider accelerating estate gifts into life income gifts during for income tax savings. Those who still face estate tax receive double tax savings. Accelerate Bequests!!

40 Arrange for Medical Directives Execute a living will or health care power of attorney (proxy) to guide medical staff and family if you are incapacitated

41 Practical Concerns Who will manage your financial affairs if you become disabled?  Durable General Power of Attorney  “Standby” Trustee  Avoid need for a court-appointed guardian

42 Create a Personal Affairs Record Listing of assets and their current values Location of wills, trust documents, living will Passwords, PIN numbers for your “digital estate” Names of advisers Family information Funeral preferences

43 Ethical Wills Impart Final Messages Statements of faith and philosophy Messages of gratitude Words of forgiveness or reconciliation Recognition of people who were important in a person’s life Format can be written, video or audio

44 Unified Plan for Assets that Pass under Your Will and Those That Don’t Real estate Personal assets Cash Business interest Stocks/bonds Life insurance IRAs Joint property P.O.D. accounts Living trust Probate AssetsNonprobate Assets Estate Beneficiaries

45 Estate Planning Bucket List Donors should consider leaving a legacy to organizations that they supported during life, through will bequests, trust distributions or other beneficiary designations, such as IRAs, life insurance, POD accounts, etc.

46 Polish Your Estate Planning Elevator Conversation “We’re encouraging all of our friends to review their estate plans after the recent tax changes” “Have you made plans to reduce the impact of probate on your family?” “Could I send you more information on…”

47 Polish Your Estate Planning Elevator Conversation “It’s EASY to join our Legacy Society simply by including us as one of the beneficiaries of your life insurance, IRA or P.O.D. account. Just ask the company or account manager for a new beneficiary form.”

48 Reinvigorate Bequest Marketing, Especially Beneficiary Designations

49 “Will you include our organization in your will, living trust, IRA or other beneficiary arrangement?”

50 Message to Donors You need a will Here’s how to get a will Review your will regularly Here’s how to name us in your will (include your correct legal name and sample bequest language) Please tell us about your bequest

51 What Does a Bequest Prospect Look Like?

52 Getting Bequests from People Who Won’t Make Wills (60% don’t have them)

53 Use of Wills and Trusts Declining Good News: Among adults 55 and older, who have completed a will or trust, there is an increasing trend to include bequests to charity. Bad News: Use of wills and trusts is declining, and TOD/POD designations can enable transfer of estates without a will or living trust –Russell N. James, Texas Tech

54 Charitable Beneficiary Designations IRAs and Qualified Retirement Plans (QRPs) Payable-on-Death (POD) bank deposits Transfer-on-Death (TOD) brokerage accounts Life insurance Commercial annuities Donor advised fund balances Real estate and motor vehicles (in some states) All are revocable None require making or changing a will or trust

55 $21 Trillion in Retirement Accounts – $5.7 Trillion in IRAs

56 Leave Charity “Tax-Burdened Assets” U.S. Savings Bonds IRAs and Qualified Retirement Plans Accounts receivable of professionals Installment payments on land sale contracts Unpaid commissions

57 Taxes on Retirement Accounts Federal Estate Tax, State Death Tax Federal Income Tax (IRD) State Income Tax Generation-Skipping Transfer Tax

58 Tax Erosion of Retirement Plans Income Estate Left Tax Tax for Heirs Harold’s Estate $100,000 IRA$37,690None62% Sarah’s Estate $1 million IRA$247,5400412,00034% ($7 million taxable estate)

59 IRA to CRT at Death

60 Payable on Death (POD) Accounts Certificates of deposit Checking Savings Share accounts Alternative arrangements such as “Totten trusts,” self-declaration trusts or “in trust for” accounts are found in some areas

61 Transfer-on-Death Registrations for Brokerage Accounts Stocks and bonds Mutual fund shares Most states have adopted the TOD Security Registration Act – but firms are not required to offer TOD registrations

62 Life Insurance in Gift Planning Valuable asset for giving Charity can be 100% or partial beneficiary

63 Refunds on Commercial Annuities Refunds or survivor benefits from commercial annuities are taxable – unless the beneficiary is a tax-exempt organization Estate tax charitable deduction also would be available

64 Other POD/TOD Possibilities Undistributed balances in donor advised funds Real estate deeds: AZ, AR, CO, DC, HI, IL, IN, KS, MN, MO, MN, NE, NV, NM, ND, OH, OK, OR and WI. Motor vehicles: AR, AZ, CA, CN, DE, IL, IN, KS, MO, NE, NV, OH and VT

65 Check State and Federal Laws Surviving spouses must sign waivers in order for charities to benefit from qualified retirement plans (but not IRAs). State laws often provide that surviving spouses are entitled to an “elective share” of a decedent’s probate and nonprobate assets (one-third to one-half). In community property states surviving spouses are entitled to one-half of any community property. With multiple POD/TOD beneficiaries, some states (e.g., Florida) require that they all get equal shares.


Download ppt "Presented by Marc Carmichael President R&R Newkirk Company Planned Giving Council of Houston."

Similar presentations


Ads by Google