This month we’ve gone “back to school” with lessons related to GFLF’s core services. I’m glad the title didn’t scare you away, because, let’s be honest, economics class was always a little intimidating. But, fear not! The economics of charitable gifts of life insurance are easy to understand because it means mutual benefits for both you, as the donor, and your fave charity.
It may sound weird at first, but making a charitable donation of your life insurance policy can make for a valuable, tax-wise gift. Plus, there are multiple ways to successfully make a gift of life insurance fit in with your charitable giving goals.
A donor can:
Make a lifetime gift of a life insurance policy;
Name a charity as the beneficiary of a life insurance policy death benefit; and/or,
Take donations that would have made to the favorite charity, use this money to pay premiums toward a life insurance policy, and ultimately leverage the cash into a much larger gift.
Lifetime Gift of Policy
A donor can transfer ownership of a life insurance policy to charity during lifetime. To accomplish the transfer, the donor must complete a change of ownership form that is typically available from the insurance company.
If the policy is not paid-up, the charity will need to maintain the policy until the insured individual’s death to receive the policy benefit. A charity may request that a donor make additional cash gift to cover the ongoing premium payments.
A donor will be making an immediate charitable contribution equal to the fair market value of the policy at the time of transfer. If the donor is taking a federal charitable income tax deduction of $5,000 or more, the donor must obtain a qualified appraisal by a qualified appraiser.
Life Insurance Death Benefit
A beneficiary designation is used to specify who the beneficiary of the life insurance policy will be. A beneficiary designation is usually revocable during the donor’s lifetime and it becomes irrevocable at death. A gift specified in a beneficiary designation will not come into effect until the insured individual’s death.
A donor can specify that a charity will receive a percentage of the total death benefit (e.g., 5% of the total death benefit) or a specific dollar amount.
Tax Consequences
A life insurance policy that is owned by the donor will usually be included in his or her estate for estate tax purposes. The donor will receive an estate tax charitable deduction for amounts that are transferred to charity at death, saving federal estate taxes. (Admittedly, a tiny percentage of Americans are wealthy enough to even have to worry about estate taxes).
A gift of life insurance may allow a donor to leverage available cash to provide a more significant gift to charity than might otherwise be available. For example, a donor might pay $5,000 a year in premiums to purchase a $300,000 life insurance policy that benefits charity. In this situation, the donor’s charitable gift may be far greater by purchasing an insurance policy than if he or she contributed the $5,000 cash to charity each year.
Classic Example
A gift of a life insurance policy can be a good fit for donors who have existing policies that are no longer needed. The classic scenario would be policies purchased while kids were little, as time goes by, now donor has sufficient other assets to provide for children, or children are now adults and no longer require financial help in the event of the death of a parent.
Let’s Talk About How to Make This Giving Option Work For You!
Everyone’s financial, tax, estate planning, and charitable giving situation is unique. It’s highly recommended you consult with an estate planner and/or charitable giving expert so you don’t hit any accidental pitfalls! I offer a free one-hour consult, so don’t hesitate to contact me to get your smart tax-wise gift happen.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2018/10/Screen-Shot-2018-10-20-at-4.51.05-PM.png527895Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2019-09-20 16:13:362020-05-18 11:28:45Back to School: Economics of Charitable Gifts of Life Insurance
Constitution Day also stands to recognize everyone who has become an American citizen. According to USCIS, more than 260 naturalization ceremonies were held across the nation as part of this year’s Constitution Week. In fact, before 2004, the day was called Citizenship Day.
For me, the Constitution represents one of the most important legal foundations, on which the world’s oldest constitutional republic is built. That said, we must never forget the privilege it grants us and the duty we all have as citizens to protect it through civic engagement and knowledge. What does Constitution Day mean to you?
“The strength of the Constitution lies entirely in the determination of each citizen to defend it. Only if every single citizen feels duty bound to do his share in this defense are the constitutional rights secure.”
― Albert Einstein
While it’s not the U.S. Constitution, your estate plan is similar in the way that it’s a guiding document that guides people in the future as to your goals and intentions for your property, body, charitable giving, and what you want to happen with the people and pets you care for. So, you can think of yourself as a “founding father” of the legacy you want to leave. Ready to put your “John Hancock” on an estate plan? Get started with my free Estate Plan Questionnaire or contact me.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2018/09/Screen-Shot-2018-09-18-at-12.27.11-AM.png647952Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2019-09-17 10:26:072020-05-18 11:28:45Back To School: American History and Constitution Day!
Did anyone sit in the very back row of their high school calculus class, slumped over, the brim of their baseball cap lowered, hoping to become invisible? I’m asking for a friend, of course. The chalk marks on the board—a series of numbers—may as well have been Mandarin Chinese to me. The teacher was no help, he spit numbers faster than a rapper and made less sense than the chalk marks. My “friend” understood nothing but somehow passed by the skin of his teeth. Law school was suddenly a sure destination (or, really, any school without math).
Even Worse: College Math!
However, you needed an undergraduate degree before law school. (Ok…we’re talking about me, not my friend.) Thanks to the aforementioned miracle of passing calculus, my major at Iowa only required one math for graduation, at least at the time. That class was 22M-One, which was literally known on campus as 22M-Dumb. Still, I had to take the class twice. During the first try, halfway through the final exam, my friend got up, left his paper, and simply walked out. He knew he would flunk, so why torture himself or waste anyone else’s time? He barely passed the second time, and only did so after extensive tutoring.
Just curious, anyone have “math phobia” as bad as young me? This school daze story has a happy ending though. Eventually, I got past my major fear of math and was able to master the rules of math, especially as they relate to estate planning.
This Math Makes Sense
I know someone in your life (probably an engineer or actuary) has undoubtedly told you that math is fun and easy. But, when it comes to the IRA Charitable Rollover (AKA qualified charitable distribution (QCD)), this small bit of math really is!
You only need to remember six numbers:
70.5 (years)
$100,000
1 (as in one plan)
Zero (as in taxes owed if you do this right)
Zero again (as in, zero gifts in return);
100% (every time I write about the IRA Charitable Rollover, I always get a certain response).
70.5 years of age
There are two threshold requirements to take advantage of a special provision known as the IRA Charitable Rollover. The first is that to be eligible you must be 70.5 years of age or older. An important nuance to note is the required annual distribution is based on the year the participant reaches age 70.5, not the day they reach that age.
The second threshold requirement is the IRA Charitable Rollover applies to IRAs only. Under the law, charitable gifts can only be made from traditional IRAs or Roth IRAs. The IRA Charitable Rollover does not apply to 403(b) plans, 401(k) plans, pension plans, and other retirement benefit plans. (I’ll discuss another great option, however, for these other retirement benefit plans, so be sure to read to the end of this blog post).
$100,000
Sure, living to 70.5 is great in itself, but it’s also the age where IRA Charitable Rollover allows individuals to donate up to $100,000 from their IRAs directly to a charity, without having to count the distributions as taxable income.
One Plan
A donor’s total combined charitable IRA rollover contributions cannot exceed $100,000 in any one year. The limit is per IRA owner, not per individual IRA account. Also, this amount is not portable (i.e., sharable) between spouses.
Zero (as in Zero Taxes)
The IRA Charitable Rollover permits taxpayers to make donations directly to charitable organizations from their IRAs without counting this money as part of their adjusted gross income (AGI). Consequently, this means not paying any taxes on them. You read that correctly: folks who are 70.5 years or older are able to transfer donations from their IRA directly to charity, up to $100,000, with ZERO taxes on that money!
What charities/nonprofits are eligible to receive the donation(s)?
Allow me to emphasize the gift must go directly to the charity. A donor cannot withdraw the money, and then give it to charity. Rather, the IRA administrator must send the donation straight to the charity.
Donors cannot receive any goods or services in return for IRA Charitable Rollover amounts in order to qualify for tax-free treatment. As one philanthropist explained, “Why would you want to (potentially) mess up a $100,000 tax-free donation by getting a $25 tote bag?” No matter how good the bag looks, it’s not worth that!
Once again, to be eligible you must be 70.5 years or older. Also, qualifying gifts can only be made from traditional IRAs or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are not covered by the IRA Charitable Rollover law.
100%
Every time I write about the IRA Charitable Rollover, I receive communication from someone saying that life sucks because they don’t qualify for the Rollover. They aren’t 70.5 years old, or they have a different retirement benefit plan than an IRA, or both.
But, here’s the thing, anyone can still use their retirement benefit plan(s) to help their favorite charities.
Magic of Beneficiary Designations
No matter what your age, or what your type of retirement benefit plan (IRA, 401(k), 403(b), etc.), there is a super-easy way for you to help your favorite charity. Simply contact the account holder and name your favorite nonprofit as a beneficiary! This is so simple. No lawyer or drafting of legal documents is required—the owner of the retirement benefit plan simply has to direct the account holder to change the beneficiary. There are also no taxes with this charitable giving approach because, frankly, when the donation passes to the charity it’s because you’re dead. No taxes for the nonprofit either; as a qualified nonprofit, they don’t pay taxes on donations.
Note that if the account owner is married, the spouse should be informed and may need to consent to the designation. And, please follow up with the account holder to make sure the account holder received your request and made the beneficiary changes properly in full.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2018/09/Screen-Shot-2018-09-05-at-11.46.50-AM.png6861035Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2019-09-09 11:50:552020-05-18 11:28:45Back to School Math Lesson: Wonderful Numbers of the IRA Charitable Rollover
Back to School: Economics of Charitable Gifts of Life Insurance
Charitable GivingThis month we’ve gone “back to school” with lessons related to GFLF’s core services. I’m glad the title didn’t scare you away, because, let’s be honest, economics class was always a little intimidating. But, fear not! The economics of charitable gifts of life insurance are easy to understand because it means mutual benefits for both you, as the donor, and your fave charity.
It may sound weird at first, but making a charitable donation of your life insurance policy can make for a valuable, tax-wise gift. Plus, there are multiple ways to successfully make a gift of life insurance fit in with your charitable giving goals.
A donor can:
Lifetime Gift of Policy
A donor can transfer ownership of a life insurance policy to charity during lifetime. To accomplish the transfer, the donor must complete a change of ownership form that is typically available from the insurance company.
If the policy is not paid-up, the charity will need to maintain the policy until the insured individual’s death to receive the policy benefit. A charity may request that a donor make additional cash gift to cover the ongoing premium payments.
A donor will be making an immediate charitable contribution equal to the fair market value of the policy at the time of transfer. If the donor is taking a federal charitable income tax deduction of $5,000 or more, the donor must obtain a qualified appraisal by a qualified appraiser.
Life Insurance Death Benefit
A beneficiary designation is used to specify who the beneficiary of the life insurance policy will be. A beneficiary designation is usually revocable during the donor’s lifetime and it becomes irrevocable at death. A gift specified in a beneficiary designation will not come into effect until the insured individual’s death.
Form of Gift
A donor can specify that a charity will receive a percentage of the total death benefit (e.g., 5% of the total death benefit) or a specific dollar amount.
Tax Consequences
A life insurance policy that is owned by the donor will usually be included in his or her estate for estate tax purposes. The donor will receive an estate tax charitable deduction for amounts that are transferred to charity at death, saving federal estate taxes. (Admittedly, a tiny percentage of Americans are wealthy enough to even have to worry about estate taxes).
A Great Planning Opportunity!
A gift of life insurance may allow a donor to leverage available cash to provide a more significant gift to charity than might otherwise be available. For example, a donor might pay $5,000 a year in premiums to purchase a $300,000 life insurance policy that benefits charity. In this situation, the donor’s charitable gift may be far greater by purchasing an insurance policy than if he or she contributed the $5,000 cash to charity each year.
Classic Example
A gift of a life insurance policy can be a good fit for donors who have existing policies that are no longer needed. The classic scenario would be policies purchased while kids were little, as time goes by, now donor has sufficient other assets to provide for children, or children are now adults and no longer require financial help in the event of the death of a parent.
Let’s Talk About How to Make This Giving Option Work For You!
Everyone’s financial, tax, estate planning, and charitable giving situation is unique. It’s highly recommended you consult with an estate planner and/or charitable giving expert so you don’t hit any accidental pitfalls! I offer a free one-hour consult, so don’t hesitate to contact me to get your smart tax-wise gift happen.
Back To School: American History and Constitution Day!
Estates & Estate Planning, EventsWe’re headed “back to school” on the blog this month, and I couldn’t pass up today’s fantastic excuse for a short American history lesson!
Fourth of July gets all the attention for red, white, and blue pride, but Constitution Day is a lesser-known, but still important reason to celebrate America’s values of freedom, democracy, and liberty. Constitution Day commemorates the formation and signing of the U.S. Constitution on September 17, 1787. The Constitution was signed in Pennsylvania at the Constitutional Convention by 39 men including Alexander Hamilton, Benjamin Franklin, James Madison, and George Washington.
There’s a wealth of American history I encourage you to explore to understand in full the lead-up of events that led to the execution of the Constitution. TIME wrote a great piece and the National Archives offers up some great information.
Constitution Day also stands to recognize everyone who has become an American citizen. According to USCIS, more than 260 naturalization ceremonies were held across the nation as part of this year’s Constitution Week. In fact, before 2004, the day was called Citizenship Day.
For me, the Constitution represents one of the most important legal foundations, on which the world’s oldest constitutional republic is built. That said, we must never forget the privilege it grants us and the duty we all have as citizens to protect it through civic engagement and knowledge. What does Constitution Day mean to you?
While it’s not the U.S. Constitution, your estate plan is similar in the way that it’s a guiding document that guides people in the future as to your goals and intentions for your property, body, charitable giving, and what you want to happen with the people and pets you care for. So, you can think of yourself as a “founding father” of the legacy you want to leave. Ready to put your “John Hancock” on an estate plan? Get started with my free Estate Plan Questionnaire or contact me.
Back to School Math Lesson: Wonderful Numbers of the IRA Charitable Rollover
Charitable Giving, Taxes & FinanceDid anyone sit in the very back row of their high school calculus class, slumped over, the brim of their baseball cap lowered, hoping to become invisible? I’m asking for a friend, of course. The chalk marks on the board—a series of numbers—may as well have been Mandarin Chinese to me. The teacher was no help, he spit numbers faster than a rapper and made less sense than the chalk marks. My “friend” understood nothing but somehow passed by the skin of his teeth. Law school was suddenly a sure destination (or, really, any school without math).
Even Worse: College Math!
However, you needed an undergraduate degree before law school. (Ok…we’re talking about me, not my friend.) Thanks to the aforementioned miracle of passing calculus, my major at Iowa only required one math for graduation, at least at the time. That class was 22M-One, which was literally known on campus as 22M-Dumb. Still, I had to take the class twice. During the first try, halfway through the final exam, my friend got up, left his paper, and simply walked out. He knew he would flunk, so why torture himself or waste anyone else’s time? He barely passed the second time, and only did so after extensive tutoring.
Just curious, anyone have “math phobia” as bad as young me? This school daze story has a happy ending though. Eventually, I got past my major fear of math and was able to master the rules of math, especially as they relate to estate planning.
This Math Makes Sense
I know someone in your life (probably an engineer or actuary) has undoubtedly told you that math is fun and easy. But, when it comes to the IRA Charitable Rollover (AKA qualified charitable distribution (QCD)), this small bit of math really is!
You only need to remember six numbers:
70.5 years of age
There are two threshold requirements to take advantage of a special provision known as the IRA Charitable Rollover. The first is that to be eligible you must be 70.5 years of age or older. An important nuance to note is the required annual distribution is based on the year the participant reaches age 70.5, not the day they reach that age.
The second threshold requirement is the IRA Charitable Rollover applies to IRAs only. Under the law, charitable gifts can only be made from traditional IRAs or Roth IRAs. The IRA Charitable Rollover does not apply to 403(b) plans, 401(k) plans, pension plans, and other retirement benefit plans. (I’ll discuss another great option, however, for these other retirement benefit plans, so be sure to read to the end of this blog post).
$100,000
Sure, living to 70.5 is great in itself, but it’s also the age where IRA Charitable Rollover allows individuals to donate up to $100,000 from their IRAs directly to a charity, without having to count the distributions as taxable income.
One Plan
A donor’s total combined charitable IRA rollover contributions cannot exceed $100,000 in any one year. The limit is per IRA owner, not per individual IRA account. Also, this amount is not portable (i.e., sharable) between spouses.
Zero (as in Zero Taxes)
The IRA Charitable Rollover permits taxpayers to make donations directly to charitable organizations from their IRAs without counting this money as part of their adjusted gross income (AGI). Consequently, this means not paying any taxes on them. You read that correctly: folks who are 70.5 years or older are able to transfer donations from their IRA directly to charity, up to $100,000, with ZERO taxes on that money!
What charities/nonprofits are eligible to receive the donation(s)?
Charitable contributions from an IRA must go directly to a qualified public charity. Contributions to donor-advised funds and private foundations, except in certain (narrow) circumstances, do not qualify for tax-free IRA rollover contributions.
Allow me to emphasize the gift must go directly to the charity. A donor cannot withdraw the money, and then give it to charity. Rather, the IRA administrator must send the donation straight to the charity.
Zero (as in gifts/services back from charity)
Donors cannot receive any goods or services in return for IRA Charitable Rollover amounts in order to qualify for tax-free treatment. As one philanthropist explained, “Why would you want to (potentially) mess up a $100,000 tax-free donation by getting a $25 tote bag?” No matter how good the bag looks, it’s not worth that!
70.5 years of age and IRAs only
Once again, to be eligible you must be 70.5 years or older. Also, qualifying gifts can only be made from traditional IRAs or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are not covered by the IRA Charitable Rollover law.
100%
Every time I write about the IRA Charitable Rollover, I receive communication from someone saying that life sucks because they don’t qualify for the Rollover. They aren’t 70.5 years old, or they have a different retirement benefit plan than an IRA, or both.
But, here’s the thing, anyone can still use their retirement benefit plan(s) to help their favorite charities.
Magic of Beneficiary Designations
No matter what your age, or what your type of retirement benefit plan (IRA, 401(k), 403(b), etc.), there is a super-easy way for you to help your favorite charity. Simply contact the account holder and name your favorite nonprofit as a beneficiary! This is so simple. No lawyer or drafting of legal documents is required—the owner of the retirement benefit plan simply has to direct the account holder to change the beneficiary. There are also no taxes with this charitable giving approach because, frankly, when the donation passes to the charity it’s because you’re dead. No taxes for the nonprofit either; as a qualified nonprofit, they don’t pay taxes on donations.
Note that if the account owner is married, the spouse should be informed and may need to consent to the designation. And, please follow up with the account holder to make sure the account holder received your request and made the beneficiary changes properly in full.
Want to work through how the IRA Charitable Rollover math fits in with your planned giving goals and current/future tax strategy? Reach out to me anytime. I offer a free, no-obligation one-hour consultation. You can contact me by email (gordon@gordonfischerlawfirm.com) or on my cell (515-371-6077).