In the spirit of St. Patrick’s Day, pour yourself a pint and read up on some simple, yet smart, charitable giving strategies. Whether you want to support the great work of an Oscar Wilde literary foundation or an Irish heritage association, tools and benefits that align with your charitable giving goals can help to stretch your green and make a difference in the causes you care about.
Top O’ the Morning Giving: Now Rather than Later
It’s been said, “you should be giving while you are living, so you’re knowing where it’s going,” so let’s explore a few options in the case of a hypothetical Irish Iowan, Sinead O’Sullivan.
Sinead O’Sullivan intends to donate to charity eventually, at death through her will and estate plan. But why not give now? Sinead can have more say about the use of gifts while she’s alive, and also feel the joy that comes with helping worthy causes. There are also positive tax benefits for Sinead to give now rather than later. Let’s look at these potential positive tax benefits.
Faith and Begorrah: Double Federal Tax Benefit!
Gifts of long-term capital assets, such as stock, real estate, and farmland (where leprechauns may live!), can receive a double federal tax benefit.
First, Sinead can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock, real estate, or farmland. Even with the increased standard deduction under the Tax Cuts and Jobs Act, this is still a valuable consideration give the value of charitable donation would exceed the standard deduction. (It would be especially beneficial if Sinead is considering “bunching” as a tax-saving strategy.)
Second, assuming Sinead owned the asset for more than one year when the asset is donated, Sinead can avoid the long-term capital gain taxes which would have been owed if the asset was sold.
Let’s look at a concrete example to make this clearer. Sinead owns shares of publicly-traded stock in Diageo (Guinness‘ parent producer and distributor company), with a fair market value of $100,000. She wants her stock to help her favorite causes. Which would be better for Sinead (a single taxpayer) to do—sell the stock and donate the cash, or give the stock directly to her favorite charities? Assume the stock was originally purchased at $20,000 (basis), Sinead’s federal income tax rate is 37%, and her capital gains tax rate is 16%.
Donating cash versus donating long-term capital gain assets
Donating cash proceeds after sale of stock
Donating stock
Value of gift
$100,000
$100,000
Federal income tax charitable deduction
($37,000)
($37,000)
Federal capital gains tax savings
$0
($16,000)
Out-of-pocket cost of gift
$63,000
$47,000
NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.
Again, a gift of long-term capital assets, such as stocks, real estate, or farmland, made during lifetime, can be doubly beneficial. Sinead can receive a federal income tax charitable deduction equal to the fair market value of the asset and also avoid capital gains tax.
In Iowa, however, there is an even more potential tax benefit.
Saints Preserve Us: 25% Iowa Tax Credit
Under the Endow Iowa Tax Credit program, gifts made during a lifetime can be eligible for a 25% tax credit. There are only three requirements to qualify.
The gift must be given to, or receipted by, a qualified Iowa community foundation (there’s a local community foundation near you).
The gift must be endowed– that is, a permanent gift. Under Endow Iowa, no more than 5% of the gift can be granted each year – the rest is held by, and invested by, your local community foundation.
Let’s look again at the case of Sinead, who is donating stock per the table above. If Sinead makes an Endow Iowa qualifying gift, the tax savings are very dramatic. There are potentially huge tax benefits of donating long-term capital gain assets, such as stocks, real estate, and farmland while claiming the Endow Iowa Tax Credit:
Value of gift
$100,000
Federal income tax charitable deduction
($37,000)
Federal capital gains tax savings
($16,000)
Endow Iowa Tax Credit
($25,000)
Out-of-pocket cost of gift
$22,000
NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.
Put another way, Sinead made a gift of $100,000 to her favorite charity, but the out-of-pocket cost of the gift to her was less than $25,000.
This is a great deal for Sinead and a great deal for Sinead’s favorite tax-exempt organizations. But, to be a smart donor you must also, of course, consider the potential areas of caution as well as the benefits.
Additionally, records are required to obtain a federal income tax charitable deduction. The more the charitable deduction, the more detailed the recording requirements. For example, to receive a charitable deduction for certain gifts of more than $5,000, you need a “qualified appraisal” by a “qualified appraiser,” two terms with very specific meanings to the IRS. It’s a wise idea to engage the right financial and legal professionals to be sure all requirements are met.
Endow Iowa Tax Credits are also capped – both statewide and per individual. Iowa sets aside a pool of money for Endow Iowa Tax Credits, and it’s available on a first-come, first-serve basis. Submitting an application at the beginning of the tax year is advised, as tax credits often run out toward year’s end. In fact, this year approximately $6 million in tax credits were awarded and there are no more available credits to be granted. However, you can submit your application to be placed on the waitlist for 2020 tax credits.
Endow Iowa also has a cap per individual. Tax credits of 25% of the gifted amount are limited to $300,000 in tax credits per individual for a gift of $1.2 million, or $600,000 in tax credits per couple for a gift of $2.4 million.
Finally, all individuals, families, businesses, and farms are unique and have unique tax issues. This article is presented for informational purposes only, not as tax advice or legal advice. Consult your own professional for personal advice.
Sláinte!
Our case study subject, Sinead, found the pot o’ gold at the end of the charitable giving rainbow by working with a qualified attorney who specializes in complex donations. You may not be in the same tax bracket as Sinead or have stocks valued at the same rate, but regardless, I would recommend to all donors with large gifts (especially assets of the non-cash variety). Want to discuss your giving goals and options for long-term capital assets? I offer a free consultation to all, so don’t hesitate to contact me.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2016/03/amy-reed-408611-unsplash.jpg18781878Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2020-03-17 14:00:162020-05-18 11:28:34Case Study for St. Patrick's Day: Save Some Green on Gifts of Long-Term Capital Assets
Awarding grants is a primary way for private foundations to accomplish their charitable goals. It’s also an oft-used way to meet annual distribution requirements to avoid an IRS-imposed penalty of an excise tax. However, this area of nonprofit activity can be ripe for misstep and noncompliance because some grants are prohibited. Further, others require heightened diligence to steer clear of trouble.
Taxable expenditures
Taxable expenditures for non-charitable purposes are not considered qualifying distributions, including:
Scholarships to individuals for travel or study are considered grants. However, grant-making plans need prior approval from the IRS and must include certain provisions, such as monitoring the performance of the grantee.
It is in the best interest of private foundations to exercise expenditure responsibility by setting in place a formal set of policies and procedures for grant-making. This document and its provisions, among other things, should:
Ensure that grant funds are spent solely for grant purposes
Obtain full and detailed reports from the grantee on how grant funds are spent
Make full and detailed reports to the IRS with respect to such grants
When it comes to high quality policies and procedures, you can and should avoid the time, energy, and monetary costs of DIY Internet templates. Set the foundation up for success when you enlist an attorney well-versed in nonprofit law to draft a document (or set of documents) and implement with an effective, engaging board/staff training. The benefits of investing in a qualified attorney to craft your important policies (like those related to grant-making) are numerous; the right attorney will put your organization’s best interests first, saving you resources in the long run.
It’s important to note that the info in this post is, at best, a mere outline of just one of the complex regulations governing private foundations. If you want to learn more, don’t hesitate to contact me as I offer a free consultation. You can also download my free, no-obligation nonprofit formation guide if you’re thinking about topics like this the pre-formation phase of the foundation’s life cycle.
Pi (π) is the ratio of a circle’s circumference to its diameter. Pi is a constant number, meaning that for all circles of any size, Pi will be the same. (It’s also a great day to deliver pie to Gordon Fischer Law Firm…any kind will do!)
Like geometry, in estate planning there are many variables, and some constants, too. Ironically, one of the constants in estate planning is change. And as your life and circumstances changes, your estate plan needs to change too.
Change & Your Estate Plan
Let’s assume you’ve gone to an estate planning lawyer, and you have (at the very least) the six “must have” estate planning documents. That’s great, well done. (You can read all about these six documents here.).
But remember you also need to keep these documents updated and current.
Major Life Events
If you undergo a major life event, you may well want to (re)visit with your estate planning lawyer, to see if this life event requires changing your estate plan through different provisions, tools, and strategies.
What do I mean by a major life event? Some common such events include:
The birth or adoption of a child or grandchild
Marriage or divorce
Illness or disability of a spouse or beneficiary
Purchasing a home or other large asset
Moving to another state
Large increases or decreases in the value of assets, such as investments
If you or your spouse receives a large inheritance or gift
If any family member or other heir dies, becomes ill, or becomes disabled
Launch or closure of a business
This is just a short list of life events that should cause you to reconsider your estate plan; there are many others.
Changes in goals
It’s not just life changes, though. It may be that your overall goals for your estate plan have changed over time. You may want to change the amounts of inheritances. As your financial situation changes, you may want to increase or decrease, your charitable bequests.
And, it’s not just changes in your own life you need to think about, either. Congress, the Iowa legislature, and the courts are constantly changing the laws. When the rules change, so too must your estate plan.
To illustrate when estate plans should be updated, let’s look at the Donor Family. Jill and Dave have been married for 25 years and have four grown children. They executed a common-sense estate plan a few years ago.
Since that time, the Donors have gone through many changes, as you would expect, and as all families have. Should Jill and Dave update their estate plan to reflect changes in their family’s circumstance? Consider the following:
Divorce
One of the Donor kids filed for a divorce from his wife. Jim and Carol need to update their estate plan since they decided they now want to exclude the ex-spouse as a beneficiary.
Jill’s uncle passed away and left her a great deal of money. The Donors need to determine how this inheritance will affect their current plan and future estate tax liability. The Donors may want to be more generous to their favorite charities. They may want to talk to their estate planning lawyer about charitable giving through a planned gift, such as a charitable gift annuity or charitable remainder trust.
Our example couple’s youngest child recently announced that she and her spouse are expecting their first child. Jill and Dave must update their estate plan to provide for the new grandchild.
Major changes in health
The Donor’s youngest child was in a serious car accident, which resulted in severe disability. He can no longer work and is receiving government disability benefits. The Donors will want to seriously consider setting up a special needs trust. This type of trust will allow a beneficiary to receive inheritances, without it being considered income by the government for qualification purposes.
Jill and Dave recently bought a vacation home in Arizona. The vacation home may well be affected by Arizona laws. In any case, the Donors’ estate plan should reflect this new asset.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2017/03/toa-heftiba-239004-unsplash.jpg34565184Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2020-03-14 18:30:022020-05-18 11:28:34Happy Pi Day: The One Constant in Estate Planning is Change
Case Study for St. Patrick’s Day: Save Some Green on Gifts of Long-Term Capital Assets
Charitable Giving, Taxes & FinanceIn the spirit of St. Patrick’s Day, pour yourself a pint and read up on some simple, yet smart, charitable giving strategies. Whether you want to support the great work of an Oscar Wilde literary foundation or an Irish heritage association, tools and benefits that align with your charitable giving goals can help to stretch your green and make a difference in the causes you care about.
Top O’ the Morning Giving: Now Rather than Later
It’s been said, “you should be giving while you are living, so you’re knowing where it’s going,” so let’s explore a few options in the case of a hypothetical Irish Iowan, Sinead O’Sullivan.
Sinead O’Sullivan intends to donate to charity eventually, at death through her will and estate plan. But why not give now? Sinead can have more say about the use of gifts while she’s alive, and also feel the joy that comes with helping worthy causes. There are also positive tax benefits for Sinead to give now rather than later. Let’s look at these potential positive tax benefits.
Faith and Begorrah: Double Federal Tax Benefit!
Gifts of long-term capital assets, such as stock, real estate, and farmland (where leprechauns may live!), can receive a double federal tax benefit.
First, Sinead can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock, real estate, or farmland. Even with the increased standard deduction under the Tax Cuts and Jobs Act, this is still a valuable consideration give the value of charitable donation would exceed the standard deduction. (It would be especially beneficial if Sinead is considering “bunching” as a tax-saving strategy.)
Second, assuming Sinead owned the asset for more than one year when the asset is donated, Sinead can avoid the long-term capital gain taxes which would have been owed if the asset was sold.
Let’s look at a concrete example to make this clearer. Sinead owns shares of publicly-traded stock in Diageo (Guinness‘ parent producer and distributor company), with a fair market value of $100,000. She wants her stock to help her favorite causes. Which would be better for Sinead (a single taxpayer) to do—sell the stock and donate the cash, or give the stock directly to her favorite charities? Assume the stock was originally purchased at $20,000 (basis), Sinead’s federal income tax rate is 37%, and her capital gains tax rate is 16%.
NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.
Again, a gift of long-term capital assets, such as stocks, real estate, or farmland, made during lifetime, can be doubly beneficial. Sinead can receive a federal income tax charitable deduction equal to the fair market value of the asset and also avoid capital gains tax.
In Iowa, however, there is an even more potential tax benefit.
Saints Preserve Us: 25% Iowa Tax Credit
Under the Endow Iowa Tax Credit program, gifts made during a lifetime can be eligible for a 25% tax credit. There are only three requirements to qualify.
Let’s look again at the case of Sinead, who is donating stock per the table above. If Sinead makes an Endow Iowa qualifying gift, the tax savings are very dramatic. There are potentially huge tax benefits of donating long-term capital gain assets, such as stocks, real estate, and farmland while claiming the Endow Iowa Tax Credit:
NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.
Put another way, Sinead made a gift of $100,000 to her favorite charity, but the out-of-pocket cost of the gift to her was less than $25,000.
This is a great deal for Sinead and a great deal for Sinead’s favorite tax-exempt organizations. But, to be a smart donor you must also, of course, consider the potential areas of caution as well as the benefits.
Cautionary Ballads
The federal income tax charitable deduction is capped. Generally, the federal charitable deduction for gifts of stock, real estate, and farmland is limited to 30% of adjusted gross income. A taxpayer may, however, carry forward any unused deduction amount for an additional five years.
Additionally, records are required to obtain a federal income tax charitable deduction. The more the charitable deduction, the more detailed the recording requirements. For example, to receive a charitable deduction for certain gifts of more than $5,000, you need a “qualified appraisal” by a “qualified appraiser,” two terms with very specific meanings to the IRS. It’s a wise idea to engage the right financial and legal professionals to be sure all requirements are met.
Endow Iowa Tax Credits are also capped – both statewide and per individual. Iowa sets aside a pool of money for Endow Iowa Tax Credits, and it’s available on a first-come, first-serve basis. Submitting an application at the beginning of the tax year is advised, as tax credits often run out toward year’s end. In fact, this year approximately $6 million in tax credits were awarded and there are no more available credits to be granted. However, you can submit your application to be placed on the waitlist for 2020 tax credits.
Endow Iowa also has a cap per individual. Tax credits of 25% of the gifted amount are limited to $300,000 in tax credits per individual for a gift of $1.2 million, or $600,000 in tax credits per couple for a gift of $2.4 million.
Finally, all individuals, families, businesses, and farms are unique and have unique tax issues. This article is presented for informational purposes only, not as tax advice or legal advice. Consult your own professional for personal advice.
Sláinte!
Our case study subject, Sinead, found the pot o’ gold at the end of the charitable giving rainbow by working with a qualified attorney who specializes in complex donations. You may not be in the same tax bracket as Sinead or have stocks valued at the same rate, but regardless, I would recommend to all donors with large gifts (especially assets of the non-cash variety). Want to discuss your giving goals and options for long-term capital assets? I offer a free consultation to all, so don’t hesitate to contact me.
Private Foundations: Prohibited Grants
NonprofitsAwarding grants is a primary way for private foundations to accomplish their charitable goals. It’s also an oft-used way to meet annual distribution requirements to avoid an IRS-imposed penalty of an excise tax. However, this area of nonprofit activity can be ripe for misstep and noncompliance because some grants are prohibited. Further, others require heightened diligence to steer clear of trouble.
Taxable expenditures
Taxable expenditures for non-charitable purposes are not considered qualifying distributions, including:
Scholarships
Adopt Smart Grant-Making Policies & Procedures
It is in the best interest of private foundations to exercise expenditure responsibility by setting in place a formal set of policies and procedures for grant-making. This document and its provisions, among other things, should:
When it comes to high quality policies and procedures, you can and should avoid the time, energy, and monetary costs of DIY Internet templates. Set the foundation up for success when you enlist an attorney well-versed in nonprofit law to draft a document (or set of documents) and implement with an effective, engaging board/staff training. The benefits of investing in a qualified attorney to craft your important policies (like those related to grant-making) are numerous; the right attorney will put your organization’s best interests first, saving you resources in the long run.
It’s important to note that the info in this post is, at best, a mere outline of just one of the complex regulations governing private foundations. If you want to learn more, don’t hesitate to contact me as I offer a free consultation. You can also download my free, no-obligation nonprofit formation guide if you’re thinking about topics like this the pre-formation phase of the foundation’s life cycle.
Happy Pi Day: The One Constant in Estate Planning is Change
Estates & Estate Planning, EventsPi (π) is the ratio of a circle’s circumference to its diameter. Pi is a constant number, meaning that for all circles of any size, Pi will be the same. (It’s also a great day to deliver pie to Gordon Fischer Law Firm…any kind will do!)
Like geometry, in estate planning there are many variables, and some constants, too. Ironically, one of the constants in estate planning is change. And as your life and circumstances changes, your estate plan needs to change too.
Change & Your Estate Plan
Let’s assume you’ve gone to an estate planning lawyer, and you have (at the very least) the six “must have” estate planning documents. That’s great, well done. (You can read all about these six documents here.).
But remember you also need to keep these documents updated and current.
Major Life Events
If you undergo a major life event, you may well want to (re)visit with your estate planning lawyer, to see if this life event requires changing your estate plan through different provisions, tools, and strategies.
What do I mean by a major life event? Some common such events include:
This is just a short list of life events that should cause you to reconsider your estate plan; there are many others.
Changes in goals
It’s not just life changes, though. It may be that your overall goals for your estate plan have changed over time. You may want to change the amounts of inheritances. As your financial situation changes, you may want to increase or decrease, your charitable bequests.
Laws are dynamic and changing
And, it’s not just changes in your own life you need to think about, either. Congress, the Iowa legislature, and the courts are constantly changing the laws. When the rules change, so too must your estate plan.
Meet the Donor Family
To illustrate when estate plans should be updated, let’s look at the Donor Family. Jill and Dave have been married for 25 years and have four grown children. They executed a common-sense estate plan a few years ago.
Since that time, the Donors have gone through many changes, as you would expect, and as all families have. Should Jill and Dave update their estate plan to reflect changes in their family’s circumstance? Consider the following:
Divorce
One of the Donor kids filed for a divorce from his wife. Jim and Carol need to update their estate plan since they decided they now want to exclude the ex-spouse as a beneficiary.
Changes in financial status
Jill’s uncle passed away and left her a great deal of money. The Donors need to determine how this inheritance will affect their current plan and future estate tax liability. The Donors may want to be more generous to their favorite charities. They may want to talk to their estate planning lawyer about charitable giving through a planned gift, such as a charitable gift annuity or charitable remainder trust.
Birth
Our example couple’s youngest child recently announced that she and her spouse are expecting their first child. Jill and Dave must update their estate plan to provide for the new grandchild.
Major changes in health
The Donor’s youngest child was in a serious car accident, which resulted in severe disability. He can no longer work and is receiving government disability benefits. The Donors will want to seriously consider setting up a special needs trust. This type of trust will allow a beneficiary to receive inheritances, without it being considered income by the government for qualification purposes.
New real estate outside Iowa
Jill and Dave recently bought a vacation home in Arizona. The vacation home may well be affected by Arizona laws. In any case, the Donors’ estate plan should reflect this new asset.
As you can see the Donor Family has many reasons to revisit their estate plan, and more than likely, so do you! In between bites of your favorite pie, review your current estate plan to make sure its current. (If you still need an estate plan, the best place to start is with my Estate Plan Questionnaire.) Additionally, I can always be found at gordon@gordonfischerlawfirm.com and 515-371-6077.