Bountiful Harvest: Charitable Giving Using Gifts of Grain

Corn field

For donors who actively engage in farming on a cash basis [1], significant tax savings can be found through donating grain directly to a favorite charity such as a public library, church, or university. Yes, you read that right. Grain. In short, the charities make money by selling the donated grain and the donors get tax deductions at a better rate than just cash donations.

Who Qualifies?

Keep in mind the tax benefits of gifting grain don’t apply to everyone, so not everyone who works in agriculture may qualify. As discussed more fully below, only cash basis farmers are able to reap these benefits.

Farmer in field

Crop Share Landlords Not Eligible

There are two major kinds of farm leases: cash share leases and crop share leases (as well as hybrids of the two) [2]. A crop share landlord would not be eligible to receive the tax benefits discussed here. A crop share landlord’s share of crops is considered rental income and must be reported as such on the landlord’s tax return.

Tax Benefits

Tax Savings

Cash gifts to a charity are deductible if a donor itemizes deductions on Schedule A. Many farmers, however, take the standard deduction [3].

As many farmers take the standard deduction, no tax benefit is gained by making charitable gifts of cash. However, by directly donating grain to a charity organization the cash basis farmer can exclude the sale of the grain from income, which can result in a triple tax savings. The tax savings can include:

  • Federal income tax savings (up to 39.6 percent)
  • State income tax savings (up to 8.98 percent in Iowa)
  • Self-employment tax savings (15.3 percent)

Expenses Related to Production

For most farm operators, the expenses related to the production of the donated grain are deductible on Schedule F [4]. The charitable donation of grain reduces the income that is reportable on Schedule F.

No Charitable Contribution Deduction

Donors of grain should not report the donation on Schedule A. There is no additional deduction allowed since the tax benefit comes from the deduction of production expenses and not reporting a sale on Schedule F.

Timing of Gift

Another great benefit of donating grain is that it doesn’t matter if the donation is made in the year of production or a later year. Gifts of grain can be donated from the current year or previous years’ harvests.

Fewer Forms

Yet another great benefit of donating grain: fewer forms! Generally speaking, if the total of your donated property is more than $500, you have to file an additional form with your return, Form 8283: Noncash Charitable Contributions. For property valued at more than $5,000, generally, you have to produce a qualified appraisal by a qualified appraiser.

However, with gifts of grain, as mentioned above, there is no charitable deduction taken. Therefore, the donor of grain doesn’t need to provide Form 8283 or a qualified appraisal. So, gifts of grain can be easier gifts than other types of property.

Field rows

Cautionary Notes

Take note of these few considerations regarding prior sale commitments; physical delivery; giving up control; and storage, transportation, and risk.

No Prior Sale Commitment

To receive the tax benefits discussed in this article, farmers cannot sell the grain and then order the sales proceeds to be sent to the charity. The gift must be from unsold grain inventory with no prior sale commitment.

Physical Delivery

This is similar to the point made directly above regarding no prior sale commitment. The commodity should be put into the name of the charity when it is delivered to the elevator and a warehouse receipt should be issued in the name of the charity. For grain stored on the farm, the farmer should deliver to the charity a notarized letter of transfer.

Tractor in field

Giving Up Control

The farmer must give up dominion and control over the grain and cannot offer any guidance as to when to sell the grain. The charity must direct the sale and the original sales invoice must list the charity as the seller.

Storage, Transportation, and Risk

After the transfer, the charity assumes the full costs of storage, transportation, and marketing, and bears completely the risk of any loss.

Use Professional Advisors

Donors should always consult with their professional tax and/or legal advisors to determine tax implications specific to their situation prior to making the gift.

Case Study of Tax Savings from Gift of Grain

Pat, a cash-basis grain farmer who takes the standard deduction every year, donates 1,000 bushels of corn to her favorite charity, a local hospital. Her cost of production is $2,000, and the proceeds from the sale of the corn by the hospital is $5,000.

Pat is entitled to deduct her $2,000 of production expenses on Schedule F. In addition, she will not be required to report the proceeds from the sale of the corn as income. Assuming that Pat is in the 25% federal and 8.98% Iowa tax bracket, the following are the tax savings that result when Pat reduces her taxable income by making a gift of the corn to a charity:

$1,250            Federal income tax ($5,000 x 25%)

$449               State income tax ($5,000 x 8.98%)

$765               Self-employment tax ($5,000 x 15.3%)

=$2,464         Tax savings

By donating the corn rather than selling it outright and making a cash gift, Pat saves $2,464 in taxes. In addition, she can still deduct the $2,000 of production expenses she incurred to grow the corn.

(Note: If Pat itemizes her deductions rather than claiming the standard deduction, her additional tax savings through making a gift of corn rather than cash would be limited to the savings on self-employment tax.)

Steps to Make a Gift of Grain to Your Favorite Charity

Field with hay bales

Be sure to consult with your tax preparer or financial advisor to determine the tax implications prior to making a charitable gift of grain. Staff of potential recipient charities are also usually more than happy to assist!

Contact the intended charity recipient of their intention to make a gift. (Some charities actually has forms specific to gifts of grain.)

  1. Donors will deliver the grain to the elevator and tell the elevator of the wish to transfer ownership of X number of bushels (or X fraction of the load) to the donee charity.
  2. Clients will need to request the elevator to issue a warehouse storage receipt in the name of the charity and send it to them. The donor should instruct the elevator not to sell the grain until they are contacted by the receiving charity.
  3. The receiving charity should be notified that the grain is at the elevator.The charity will then contact the elevator to direct the sale of the grain and will send the farmer (donor), an acknowledgment letter.

As you can see, it is very important for professional advisors and the recipient charity to be consulted before making the gift.

Every Iowan and every farm is unique. Be sure to consult with your own professional advisor. This article is not to be construed as legal advice, and is provided merely as general information.

Additional Information

[1] There are several methods of accounting for income. Farmers have been given an advantage in the Internal Revenue Code by being allowed to use the cash method of accounting. Most farmers choose the cash method because of the tax advantages. The cash method of accounting allows (many) farmers to claim the expenses of the current year’s crops while postponing the recognition of income. Under the cash method, all income is included in the year it is actually or constructively received. Farm business expenses are deductible in the year in which they are paid. For much more on farming, income issues, and the IRC, find a wealth of information here on IRS.gov.

[2] In a cash rent lease, generally, the tenant usually pays a fixed dollar amount in rent (either on a per acre or whole farm basis). These types of leases may be modified depending on crop yield (i.e., increase in good years and decrease in bad years). With cash rent leases, the landlord is not as involved in crop production, thereby giving the tenant more autonomy.

In a typical crop share lease, the landlord will share input costs (including but not limited to seed, fertilizer, and fuel), while the tenant provides all of the labor and remaining input costs. Once harvested, proceeds will be divided according to the agreement (which may range from, say, 25/75 to 50/50). With crop share leases, most often both parties share the risks.

Of course, there are hybrid arrangements. In any case, it’s important for both parties to make sure they have competent legal and tax counsel drafting the lease agreements.

[3] You can either claim the standard deduction or itemize your deductions—whichever lowers your taxes the most. The standard deduction is a fixed dollar amount that reduces the income you’re taxed on. Your standard deduction varies according to your filing status.

Three noteworthy items about the standard deduction:

  1. Standard deduction allows you a deduction even if you have no expenses that qualify for claiming itemized deductions.
  2. It eliminates the need to itemize deductions, like medical expenses and charitable donations.
  3. The standard deduction allows you to avoid keeping records and receipts of your expenses.

The benefit of itemizing is that it allows you to claim a larger deduction that the standard deduction. However, it requires you to complete a Schedule A attachment to your return and to maintain records of all your expenses.

Itemized deductions include a range of expenses that are not otherwise deductible. Common expenses include the mortgage interest you pay on up to two homes, your state and local income or sales taxes, property taxes, medical and dental expenses that exceed 7.5 percent of your adjusted gross income, and the charitable donations you make. Itemized deductions also include miscellaneous deductions such as work-related travel. Once you decide to itemize, you are eligible to claim all of them.

[4] If you earn a living as a self-employed farmer, then you most probably need to include a Schedule F attachment with your tax return to report your profit or loss for the year. The IRS defines “farmer” in a very broad sense and can apply whether you grow crops, raise livestock, or even breed fish!

In addition to money earned from selling crops and livestock, Schedule F also reports other types of farming income, such as any crop insurance payouts, including: federal disaster payments; money you earn through a farming cooperative; and payments you get from an agricultural program.

Cash basis farmers can deduct any cost incurred that’s an ordinary and necessary expense of farming on Schedule F to reduce the profit—or increase the loss—on which you’ll owe taxes. Some of the expenses farmers commonly deduct cover the cost of livestock and feed, seeds, fertilizer, wages paid to employees, interest paid during the year on farm-related loans, depreciation to recover a portion of equipment costs, utilities, and insurance premiums.

/by

What recordkeeping is required for charitable deduction?

,
gifts-to-charity-form

Save $$$ and help your favorite charities even more.

Some say it’s better to give than receive. I say, it’s better to give and receive. You can both give and receive by using the federal income tax charitable deduction.

A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions. Assuming the gifts are deductible, the actual cost of your gift is reduced by your tax savings.

Charitable deduction tax savings

In short, as of March 2017, there are seven federal income tax brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. (For a general discussion of tax brackets, see my post called bracketology.)

The charitable deduction can result in significant tax savings. For example, assume a donor in the 33% tax bracket gives to her favorite qualified charitable organization a donation of $100. The charity still receives the full gift of $100. But, for the donor, the actual out-of-pocket cost of the gift is only $67, and the donor saves $33.

Let’s make these assumptions for all tax brackets and see the savings which result:

Bracket          Donation                 Savings                           Actual cost
10%                     $100                               $10                                       $90
15%                     $100                               $15                                       $85
25%                     $100                               $25                                       $75
28%                     $100                               $28                                       $72
33%                     $100                               $33                                       $67
35%                     $100                               $35                                       $65
39.6%                  $100                               $39.60                                $60.40

This is a good deal for you and a good deal for your favorite causes. So why not consider using the charitable deduction?

The charitable deduction requires you to be organized in your giving and maintain records. Generally speaking, the greater the deduction, the more detailed the records you are required to keep.

The basics of substantiation of your charitable deduction

Here’s a simple explanation of IRS record keeping rules for the charitable deduction:

  • Gifts of less than $250 per donee — you need a cancelled check or receipt
  • $250 or more per donee — you need a timely written acknowledgement from the donee
  • Total deductions for all property exceeds $500 — you need to file IRS Form 8283
  • Deductions exceeding $5,000 per item — you need a qualified appraisal completed by a qualified appraiser

Wait, you ask, is it really that simple? Actually, no, not really. Let’s go through these categories and dig deeper.

Substantiation requirements for monetary gifts less than $250

Donate button on keyboard

A federal income tax deduction for a charitable contribution in the form of cash, check, or other monetary gift is not allowed unless the donor substantiates the deduction with a bank record or a written communication from the donee showing the name of the donee, the date of the contribution, and the amount of the contribution.

Meaning of “monetary gift”

For this purpose, the term “monetary gift” includes, of course, gifts of cash or by check. But monetary gift also includes gifts by use of:

  • credit card;
  • electronic fund transfer;
  • online payment service;
  • payroll deduction; or
  • transfer of a gift card redeemable for cash.

Meaning of “bank record”

Again, to claim the charitable deduction for any monetary gift, you need a bank record or written communication from the donee. The term “bank record” includes a statement from a financial institution, an electronic fund transfer receipt, a cancelled check, a scanned image of both sides of a cancelled check obtained from a bank website, or a credit card statement.

Meaning of “written communication”

The term “written communication” includes email. Presumably it also includes text messages. But, again, the written communication, whether paper or electronic, it must show the name of the donee, the date of the contribution, and the amount of the contribution.

Substantiation of gifts of $250 or more

Hands raising to give to charity

For any contribution of either cash or property of $250 or more, a donor must receive contemporaneous written acknowledgment from the donee. Two keys here: “contemporaneous” and “written acknowledgement”; both have very specific meanings in this context.

Requirements of written acknowledgment

The written acknowledgment must include:

  1. The date of the gift and the charity’s name and location.
  2. Whether the gift was cash or a description of the noncash gift.
  3. A statement that no goods or services were provided by the organization in return for the contribution, if that was the case.
  4. A description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution.
  5. A statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

“Contemporaneous”

For a written acknowledgment to be considered contemporaneous with the contribution, a donor must receive the acknowledgment by the earlier of: the date on which the donor actually files his or her individual federal income tax return for the year of the contribution or the due date (including extensions) of the return.

Noncash gifts of more than $500

If you make a total of more than $500 worth of noncash gifts in a calendar year, you must file Form 8283, Noncash Charitable Contributions, with your income tax return.

You’ll only have to fill out Section A of Form 8283 if:

  • the gifts are worth less than $5,000, or
  • you’re giving publicly traded securities (even if they’re worth more than $5,000).

Otherwise, you’ll be required to fill out Section B of Form 8283 and all that entails.

Noncash gifts of more than $5,000

Kids holding a "Give"" sign

If you donate property worth more than $5,000 ($10,000 for stock in a closely held business), you’ll need to get an appraisal. The information goes in Section B of Form 8283, “Noncash Charitable Contributions.”

An appraisal is required whether you donate one big item or several similar items which have a total value of more than $5,000. For example, if you give away a hundred valuable old books, and their total value is more than $5,000, you’ll need an appraisal even though you might think you’re really making a lot of small gifts. The rule applies even if you give the items to different charities.

Requirements for “qualified appraisal” and “qualified appraiser”

Again, noncash gifts of more than $5,000 in value, with limited exceptions, require a qualified appraisal completed by a qualified appraiser. The terms “qualified appraisal” and “qualified appraiser” are very specific and have detailed definitions according to the IRS.

“Qualified appraisal”

A qualified appraisal is a document which is:

  1. made, signed, and dated by a qualified appraiser in accordance with generally accepted appraisal standards;
  2. timely;
  3. does not involve prohibited appraisal fees; and
  4. includes certain and specific information.

Let’s further examine each of these four requirements.

“Qualified appraiser”

Appraiser education and experience requirements

An appraiser is treated as having met the minimum education and experience requirements if she is licensed or certified for the type of property being appraised in the state in which the property is located. In Iowa, for a gift of real estate, this means certification by the Iowa Professional Licensing Bureau, Real Estate Appraisers.

Further requirements for a qualified appraiser include that she:

  1. regularly performs appraisals for compensation;
  2. demonstrates verifiable education and experience in valuing the type of property subject to the appraisal;
  3. understands she may be subject to penalties for aiding and abetting the understatement of tax; and
  4. not have been prohibited from practicing before the IRS at any time during three years preceding the appraisal.

Also, a qualified appraiser must be sufficiently independent. This means a qualified appraiser cannot be any of the following:

  1. the donor;
  2. the donee;
  3. the person from whom the donor acquired the property [with limited exceptions];
  4. any person employed by, or related to, any of the above; and/or
  5. an appraiser who is otherwise qualified, but who has some incentive to overstate the value of the property.

Timing of appraisal

The appraisal must be made no earlier than 60 days prior to the gift and no later than the date the return is due (with extensions).

Prohibited appraisal fees

The appraiser’s fee for a qualified appraisal cannot be based on a percentage of the value of the property, nor can the fee be based on the amount allowed as a charitable deduction.

Specific information required in appraisal

Specific information must be included in an appraisal, including:

  1. a description of the property;
  2. the physical condition of any tangible property;
  3. the date (or expected date) of the gift;
  4. any restrictions relating to the charity’s use or disposition of the property;
  5. the name, address, and taxpayer identification number of the qualified appraiser;
  6. the appraiser’s qualifications, including background, experience, education, certification, and any membership in professional appraisal associations;
  7. a statement that the appraisal was prepared for income tax purposes;
  8. the date (or dates) on which the property was valued;
  9. the appraised FMV on the date (or expected date) of contribution;
  10. the method of valuation used to determine FMV;
  11. the specific basis for the valuation, such as any specific comparable sales transaction; and
  12. an admission if the appraiser is acting as a partner in a partnership, an employee of any person, or an independent contractor engaged by a person, other than the donor, with such a person’s name, address, and taxpayer identification number.

Appraiser’s dated signature and declaration

Again, a qualified appraisal must be signed and dated by the appraiser.  Also, there must be a written declaration from the appraiser that he/she is aware of the penalties for substantial or gross valuation.

Work with professional on taxes

The charitable deduction can result in significant tax savings. But, substantiation rules, as you’ve seen, can be complicated. Also, all Iowans are unique, so be sure to contact the appropriate tax professional for personal advice and counsel.

I provide trainings for nonprofits and their staffs, board members, and stakeholders. Reach out to me any time by emailing me at gordon@gordonfischerlawfirm.com or call 515-371-6077. I’d love to hear from you!

 

/by

Prince Died Without a Will: 4 Reasons YOU Need an Estate Plan

, ,
Prince 1958-2016

When Prince died in 2016 the world lost an icon and amazing contributor to music and art. Unfortunately, it has come to light that the award-winning artist passed away without an estate plan. Considering all of Prince’s 12 properties, eight vehicles, fine art, unreleased music, and hoarded gold bars, it’s estimated his entire estate could be worth $300 million pre-tax. Prince didn’t have any stocks or bonds but he did have about $6 million spread across four companies. A Minnesota court judge on the issue said without the will the estate’s current status is “personal and corporate mayhem.” Comerica Bank & Trust—the company that took over the Bremer Trust’s duties to administer the “Purple Rain” singer’s estate earlier this year—is still appraising the total value of the estate and itemizing everything Prince owned.

Paisley Park

Prince’s Minneapolis estate, Paisley Park Studios

The situation has created a tragic real world example of the infighting and conflict that can occur if passing away without a will; currently there are six potential heirs to Prince’s fortune including his sister and five other half-siblings.

Now, most Iowans aren’t going to have multiple gold bars sitting around and properties valued at over $25 million total, but that doesn’t make what assets and property you do have any less important. If you don’t have a will, it can cost your family and friends a lot of time, a lot of money, and indeed lots of anxiety and even heartache. Here are four reasons you need a will.

  1. Without a will, probate courts and the Iowa Legislature decide everything about your estate.

If you die without a will, you are leaving it up to the legislature/courts to decide who will receive your property. Or possibly even who will get to raise your children!

  1. Without a will, you cannot choose a guardian for your children.

After Prince died multiple claims were put forth about potential biological and adopted children. Whether or not those claims are true, you likely do know who your children are and if you die without a will, the courts will choose guardians for your children. One of the most important aspects of a will is that it allows you to designate who will be the guardian for your children. This can ensure that your children are cared for by the person that you want, not who the court chooses for you.

  1. Without a will, the probate court will choose your estate’s executor.

If you die without a will, the probate court is forced to name an executor. The executor of your estate handles tasks like paying your creditors and distributing the rest of your assets to your heirs. Of course, if the probate court has to pick who will be your estate’s executor, there is always a possibility that you would not have approved of that person if you had been alive.

If you have a will, it will name an executor who will carry out all of your final wishes, pay your bills, and distribute your assets just as you wanted.

Prince and purple symbol

  1. Without a will, you can’t give your favorite nonprofits gifts from your estate.

Prince was a resident of Minnesota, and each state has different matters regarding intestate succession (dying without a valid will). If you die without a will, your estate assets—your house, savings, life insurance, trusts—will pass to your heirs under Iowa’s statute. But, if you have a will, you can include gifts to your favorite nonprofits and see that they are helped for many years to come. Prince may have wanted to give to charities given his track record while living. He gave to Black Lives Matter, Harlem Children’s Zone, and National Public Radio. Prince was actively engaged with #YesWeCode, an initiative to train black children for good jobs in the tech industry. He gave more than $1.5 million over just two years to Love 4 One Another Charities Tour and supported an environmentalist group working to fight climate change and grown green jobs among other initiatives, Green For All. Regrettably, without an estate plan Prince didn’t have a chance to support these charities through his estate in the event of his death.

/by

April 2017 Edition of The Iowa Lawyer

,
The Iowa Lawyer

The April 2017 issue of The Iowa Lawyer is out and I’m proud to say my article, “How can you give more to your favorite charity? Consider gifts of stock!” is included. Scroll to page 11 for info that’s helpful on taxes, just in time for Tax Day.

Tax tips just in time for Tax Day

The Iowa Lawyer magazine is The Iowa State Bar Association’s official publication. The magazine features information on legal developments, legislative news, bar history, views from the bench, profiles of legal community leaders, and ISBA events.

Any questions after reading? Feel free to contact me any time to discuss how to maximize the potential of appreciated, long-term, publicly-traded stock. I offer a one-hour free consultation, without any obligation. I can be reached any time at my email, gordon@gordonfischerlawfirm.com, or by phone at 515-371-6077.

/by

Record Keeping Requirements for the Federal Income Tax Charitable Deduction

,
Federal Income Tax

I say, it’s better to give and receive. You can both give and receive by using the federal income tax charitable deduction.

A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions. Assuming the gifts are deductible, the actual cost of your gift is reduced by your tax savings.

Charitable Deduction Tax Savings

For a discussion of tax brackets, see my post called bracketology. In short, as of this writing (April 2017), there are seven federal income tax brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.

The charitable deduction can result in significant tax savings regardless of which bracket you’re in, although the bracket does change the savings. For example, assume a donor in the 33% tax bracket gives a donation of $100 to her favorite qualified charitable organization. The charity receives the full gift of $100, but, for the donor, the actual out-of-pocket cost of the gift is only $67, and the donor saves $33.

Let’s make these assumptions for all tax brackets and see the savings which result:

Bracket of Gift Donation Savings Actual Cost
10% $100 $10 $90
15% $100 $15 $80
25% $100 $25 $75
28% $100 $28 $72
33% $100 $33 $67
35% $100 $35 $65
39.6% $100 $39.6 $60.40

This is a good deal for you and a good deal for your favorite causes. So why not consider using the charitable deduction?

One common is excuse is that the charitable deduction requires you to be extremely organized in maintaining records. Generally speaking, the greater the deduction, the more detailed the records you are required to keep. Yet, this organization is made a little bit easier when fully understanding the deduction.

Charitable Deduction: Basics of Substantiation

Here’s a simple explanation of IRS record keeping rules for the charitable deduction:

  • Gifts of less than $250 per donee — you need a cancelled check or receipt
  • $250 or more per donee — you need a timely written acknowledgement from the donee
  • Total deductions for all property exceeds $500 — you need to file IRS Form 8283
  • Deductions exceeding $5,000 per item — you need a qualified appraisal completed by a qualified appraiser

Wait, you ask, is it really that simple? Actually, no, not really. Let’s go through these categories and dig deeper.

Substantiation Requirements for Monetary Gifts less than $250

A federal income tax deduction for a charitable contribution in the form of cash, check, or other monetary gift is not allowed unless the donor substantiates the deduction with a bank record or a written communication from the donee showing the name of the donee, the date of the contribution, and the amount of the contribution.

Meaning of “Monetary Gift”

For this purpose, the term “monetary gift” includes the common ones you think of when thinking of the term–gifts of cash or by check. But monetary gift also includes gifts by use of:

  • credit card;
  • electronic fund transfer;
  • online payment service;
  • payroll deduction; or
  • transfer of a gift card redeemable for cash.

Definition: Bank Record

Again, to claim the charitable deduction for any monetary gift, you need a bank record or written communication from the donee. The term “bank record” includes a statement from a financial institution, an electronic fund transfer receipt, a cancelled check, a scanned image of both sides of a cancelled check obtained from a bank website, or a credit card statement.

Definition: Written Communication

The term “written communication” includes email. Presumably it also includes text messages. But, again, the written communication, whether paper or electronic, it must show the name of the donee, the date of the contribution, and the amount of the contribution.

Substantiation of Gifts of $250 or more

For any contribution of either cash or property of $250 or more, a donor must receive contemporaneous written acknowledgment from the donee. Two keys here: “contemporaneous” and “written acknowledgement” both have very specific meanings in this context.

Requirements of written acknowledgment

The written acknowledgment must include:

  1. The date of the gift and the charity’s name and location.
  2. Whether the gift was cash or a description of the non-cash gift.
  3. A statement that no goods or services were provided by the organization in return for the contribution, if that was the case.
  4. A description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution.
  5. A statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

“Contemporaneous”

For a written acknowledgment to be considered contemporaneous with the contribution, a donor must receive the acknowledgment by the earlier of: the date on which the donor actually files his or her individual federal income tax return for the year of the contribution or the due date (including extensions) of the return.

Non-Cash Gifts of more than $500

If you make a total of more than $500 worth of non-cash gifts in a calendar year, you must file Form 8283, Noncash Charitable Contributions, with your income tax return.

You’ll only have to fill out Section A of Form 8283 if:

  • the gifts are worth less than $5,000, or
  • you’re giving publicly traded securities (even if they’re worth more than $5,000).

Otherwise, you’ll be required to fill out Section B of Form 8283 and all that entails.

Non-Cash Gifts of more than $5,000

If you donate property worth more than $5,000 ($10,000 for stock in a closely held business), you’ll need to get an appraisal. The information goes in Section B of Form 8283, Noncash Charitable Contributions.

An appraisal is required whether you donate one big item or several similar items which have a total value of more than $5,000. For example, if you give away a hundred valuable old books, and their total value is more than $5,000, you’ll need an appraisal even though you might think you’re really making a lot of small gifts. The rule applies even if you give the items to different charities.

Requirements for “qualified appraisal” and “qualified appraiser”

Again, non-cash gifts of more than $5,000 in value, with limited exceptions, require a qualified appraisal completed by a qualified appraiser. The terms “qualified appraisal” and “qualified appraiser” are very specific and have detailed definitions according to the IRS.

Qualified appraisal

A qualified appraisal is a document which is:

  1. Made, signed, and dated by a qualified appraiser in accordance with generally accepted appraisal standards;
  2. timely;
  3. does not involve prohibited appraisal fees; and
  4. includes certain and specific information.

Let’s further examine each of these four requirements.

“Qualified Appraiser”

Appraiser Education and Experience Requirements

An appraiser is treated as having met the minimum education and experience requirements if she is licensed or certified for the type of property being appraised in the state in which the property is located. In Iowa, for a gift of real estate, this means certification by the Iowa Professional Licensing Bureau, Real Estate Appraisers.

Further requirements for a qualified appraiser include that they:

  1. Regularly performs appraisals for compensation;
  2. demonstrates verifiable education and experience in valuing the type of property subject to the appraisal;
  3. understands they may be subject to penalties for aiding and abetting the understatement of tax; and
  4. not have been prohibited from practicing before the IRS at any time during three years preceding the appraisal.

Also, a qualified appraiser must be sufficiently independent. This means a qualified appraiser cannot be any of the following:

  1. The donor;
  2. the donee;
  3. the person from whom the donor acquired the property [with limited exceptions];
  4. any person employed by, or related to, any of the above; and/or
  5. an appraiser who is otherwise qualified, but who has some incentive to overstate the value of the property.

Timing of Appraisal

The appraisal must be made not earlier than 60 days prior to the gift and not later than the date the return is due (with extensions).

Prohibited Appraisal Fees

The appraiser’s fee for a qualified appraisal cannot be based on a percentage of the value of the property, nor can the fee be based on the amount allowed as a charitable deduction.

Specific Information Required in an Appraisal

Specific information must be included in an appraisal, including:

  1. A description of the property;
  2. the physical condition of any tangible property;
  3. the date (or expected date) of the gift;
  4. any restrictions relating to the charity’s use or disposition of the property;
  5. the name, address, and taxpayer identification number of the qualified appraiser;
  6. the appraiser’s qualifications, including background, experience, education, certification, and any membership in professional appraisal associations;
  7. a statement that the appraisal was prepared for income tax purposes;
  8. the date (or dates) on which the property was valued;
  9. the appraised FMV on the date (or expected date) of contribution;
  10. the method of valuation used to determine FMV;
  11. the specific basis for the valuation, such as any specific comparable sales transaction; and
  12. an admission if the appraiser is acting as a partner in a partnership, an employee of any person, or an independent contractor engaged by a person, other than the donor, with such a person’s name, address, and taxpayer identification number.

Appraiser’s Dated Signature and Declaration

Again, a qualified appraisal must be signed and dated by the appraiser.  Also, there must be a written declaration from the appraiser she is aware of the penalties for substantial or gross valuation

The charitable deduction can result in significant tax savings. But, substantiation rules, as you’ve seen, can be complicated. Almost all Iowans have a unique estate plan, so be sure to contact the appropriate professional for personal advice and counsel.

gordon fischer looking in book

Feel free to contact me any time to discuss how to maximize your charitable gift. I offer a one-hour free consultation, without any obligation. I can be reached any time at my email, gordon@gordonfischerlawfirm.com, or on my cell, 515-371-6077.

/by

How Best to Give More to The Rotary Foundation

, , ,
Rotary Logo

I’m proud to be an active Rotarian. I’m also proud to be an Iowa lawyer.

And, I am proud of the singular, perhaps even unique, mission of my law firm. The mission of Gordon Fischer Law Firm is to promote and maximize charitable giving in Iowa.

Iowa City Noon Rotary

To achieve this mission, I help individuals, families, and businesses with estate planning that ranges from simple wills to complex trusts. I assist nonprofits reach their philanthropic goals. I guide donors in increasing their charitable giving.

Naturally, my membership in Rotary and the mission of my law firm intersect perfectly when it comes to supporting the Rotary Foundation. The Rotary Foundation does so much good both here at home and around the world.

As the Rotary Foundation states on its website, the Foundation “taps into a global network of Rotarians who invest their time, money, and expertise into our priorities, such as eradicating polio and promoting peace. The Foundation grants empower Rotarians to approach challenges such as poverty, illiteracy, and malnutrition with sustainable solutions that leave a lasting impact.”

Rotary Club Cover Photo

As a Rotarian, and as a lawyer, I wanted to share some of my expertise to allow Rotarians to give even more generously, so the Rotary Foundation can continue to do, and perhaps even expand, their great work.

TYPES OF CHARITABLE GIVING

It’s easiest to understand charitable giving by looking at it in two broad categories: giving during lifetime (called inter vivos transfers), and giving at death (testamentary transfers). There is a third category which lawyers call “split interest gifts”—tools that can be used during life or by operation of a will (such as, charitable gift annuities and charitable remainder trusts).

Read on to learn more about testamentary gifts made through your estate plan. Then we’ll talk about charitable giving during your lifetime. Finally, we’ll discuss two special philanthropic tools that can both be used during life and at death.

CHARITABLE GIVING THROUGH YOUR ESTATE PLAN

You can help on chalkboard

Estate plan is set of legal documents

An estate plan is simply a set of legal documents to prepare for the event of your death or disability. Note I said “estate plan,” and not “will.” While these terms are often used synonymously, they are not at all the same thing. An estate plan is a set of legal documents, and a will is just one of those documents, albeit an important one.

Six “Must Have” Estate Planning Documents

There are six documents that should be part of most everyone’s estate plan. Plus, you should keep these documents updated and current. Also, don’t forget about assets with beneficiary designations, such as savings and checking accounts, and retirement benefit plans. For many Iowans, that’s enough— keeping six documents and assets with beneficiary designations current.

I’ll just briefly touch on five of the six documents, before we dive into your will and charitable gifting to the Rotary Foundation.

Estate Planning Questionnaire

You should begin with an estate planning questionnaire. (Like this one on my website.) An estate plan questionnaire is an easy way to get all of your information in one place, and it should help you understand and prioritize estate planning goals.

Powers of Attorney

A power of attorney for healthcare designates someone to handle your healthcare decisions for you if you become unable to make those decisions for yourself. This essentially gives another person the power to make medical decisions on your behalf.

The power of attorney for financial matters is similar, only your designated agent has the power to make decisions and act on your behalf regarding your finances. This document gives your agent the authority to pay bills, settle debts, sell property, or anything else that needs to be done if you become incapacitated and unable to do this yourself.

Disposition of Personal Property

Another useful document is the disposition of personal property. This is where you get to be specific about items you want people to have, say, your eldest daughter getting your wedding ring, or your nephew getting your baseball card collection.

Disposition of Final Remains

Yet another helpful document is the disposition of final remains, where you get to tell your loved ones exactly how you want your body to be treated after you pass away. This could include details on burial or cremation, and what type of service(s) you want.

Where there’s a Will, There’s A Way to Help Rotary Foundation

Now let’s get to the will. With your will, you’ll be answering four major questions:

  1. Who do you want to have your stuff? A will provides orderly distribution of your property at death per your wishes. Your property includes both tangible and intangible things. (An example of tangible items would be your coin collection. An example of an intangible asset would be stocks.)
  1. Who do you want to be in charge of carrying out your wishes as expressed in the will? The “executor” is the person who will be responsible for making sure the will is carried out as written.
  1. Who do you want to take care of your kids? If you have minor children (i.e., kids under age 18), you’ll want to designate a legal guardian(s) who will take care of your children until they are adults.
  1. What charities do you want to support with your estate assets? Which of your favorite causes do you want to support at death, like the Rotary Foundation?

Four Types of Bequests

Charitable gifts in a will are called “bequests.” Generally speaking, there are four types of bequests.

  1. Pecuniary Bequest: A gift of a fixed or stated sum of money designated in a donor’s will. An example: “I give the sum of $10,000 (ten thousand dollars) to Rotary Foundation.”
  1. Specific Bequest: A gift of a designated or specific item in the will. The item will most likely be sold by the organization and the proceeds would benefit that nonprofit. An example: “I give my Grant Wood painting to Rotary Foundation.”
  1. Residuary Bequest: In legal terms, a “residue” of the estate is what is left of the estate after payment of debts, funeral expenses, executors’ fees, taxes, legal, and other expenses incurred in the administration of the estate, and after any gifts of specific assets or specific sums of cash. The estate residue would include all property, both personal and real estate. A residuary clause is a provision in a will that passes the residue of an estate to beneficiaries identified in the will. An example: “I give all of the residue of my estate to the Rotary Foundation.”
  1. Contingent Bequest: A gift in a will made on the condition of a certain event that might or might not happen. A contingent bequest is specific and fails if the condition is not made. An example: “I give the sum of $10,000 (ten thousand dollars) to my niece, Jane Smith, if still living. If my niece fails to survive me, I give the sum of $10,000 (ten thousand dollars) to the Rotary Foundation.”

Which type of bequest to the Rotary Foundation should you choose? It really depends on your personal circumstances. Consult your individual estate planner for specific advice.

CHARITABLE GIVING DURING LIFETIME

It’s been said, “you should be giving while you are living, so you’re knowing where it’s going.” Many Rotarians have intentions to donate eventually to the Rotary Foundation, often, as we’ve been discussing, at death through their estate plan. But why not give now? You can have more say about your gifts while you are still alive, and also feel the joy that comes with helping the cause you care about most. There are also lots of good tax reasons for giving now rather than later.

Imagine Rotarian Jill Donor, wanting to help her favorite nonprofit. When asked for a charitable gift to the Rotary Foundation, Donor agrees and immediately reaches for her checkbook, or goes online to donate with a debit/credit card.

It’s noble for Donor to give. However, consider this question: should Donor give cash? Or, does Donor own other non-cash assets which might be more tax-savvy? Can Donor be even more generous in support of her favorite cause, while lowering her out-of-pocket costs for charitable gifts?

Also, keep in mind that cash is only a small sliver of Donor’s overall assets and net worth. Even putting aside tax benefits, couldn’t Donor give more to the Rotary Foundation by looking at her much more robust non-cash assets? Let’s explore some non-cash gift options.

Giving quote

Appreciated, Long Term, Publicly Traded Stock

All sorts of non-cash assets can be used for charitable gifts to the Rotary Foundation, but for several reasons, appreciated, long-term, publicly traded stock is a wise choice. It’s convenient to give, you can save money on capital gains taxes you would have paid had you sold the stock, and it’s easy to value.

Endow Iowa Tax Credit

 

All Iowans should be aware of the Endow Iowa Tax Credit. Endow Iowa allows donors who give qualifying charitable gifts to receive a whopping 25% state tax credit. I have some illustrations showing what great tax savings can be realized by use of the Endow Iowa Tax Credit.

IRA Charitable Rollover

The federal law known as the IRA Charitable Rollover allows individuals aged 70½ and older to donate up to $100,000, tax free, from their IRAs directly to Rotary Foundation. There are two threshold requirements. First, you must be age 70½ or older. Second, the retirement plan account must be an IRA. Want more details? This blog post digs in.

Retirement Benefit Plans

For those not yet 70 ½ and/or who don’t have an IRA, but another type of retirement plan, think about this. Sometimes owners’ retirement benefit plans must make what are called Required Minimum Distributions, or RMDs. Since you must withdraw RMDs, anyway, why not give the money to a worthy charity like Rotary Foundation?

For those who don’t yet have to make RMDs, remember that after age 59 ½, generally you can make withdrawals from your retirement benefit plan without any tax penalty. If indeed there’s no penalty, and you make a charitable gift from your retirement benefit plan, you can presumably take an income tax charitable deduction. This should therefore be a “wash” for tax purposes.

Also, keep in mind: you can make a very meaningful gift simply by naming the Rotary Foundation as beneficiary of an IRA, 401(k), 403(b), or other retirement plan. Giving retirement assets in this way is quite easy. Simply contact the institution holding your retirement plan, request a change of beneficiary form, fill the form out completely and correctly, and return the form. Typically naming a beneficiary in this way does not require drafting or amending a will or trust.

“SPLIT INTEREST” GIFTS

A “split interest” gift is when a donor makes a gift to a qualified charity, like the Rotary Foundation, but retains the right to a portion of the gift. Typically, the gift is divided into lifetime income and asset value at death. The majority of donors retain income during their lifetime.

There are two split interest gifts which might be greatly helpful to donors wanting to support the Rotary Foundation. Let’s discuss each briefly.

Charitable Gift Annuity

A Charitable Gift Annuity (CGA) is a contract. It’s a contract that combines the benefits of an immediate income tax deduction and a lifetime income stream. Also, your future taxable estate will be reduced for the remainder value of the property transferred to charity.

A CGA is an arrangement in which you make a gift of cash, or other property, in exchange for a guaranteed income annuity for life. This is similar to buying an annuity in the commercial marketplace, except that you can claim an immediate charitable tax deduction for the excess of the value of the property over the value of the annuity, based on IRS tables. The charity must receive at least 10% of the initial net value of the property transferred in order for you to claim a charitable deduction for a portion of the purchase price.

There’s much more to say about CGAs. I wrote an article detailing more specifics, as well as their benefit, check it out here.

Charitable Remainder Trust

A charitable remainder trust (CRT) provides a unique opportunity for donors to retain lifetime income from property while obtaining a current income tax deduction (or estate tax deduction) for the remainder interest which will pass to charity.

Charitable remainder trusts are often appealing to donors with appreciated assets, producing little or no income, such as real estate or securities. This is because the assets can be sold without capital gains tax and invested to provide a higher income stream.

A CRT separates the current interest and future interests in property and disposes of each differently. Income from trust assets is paid to at least one non-charitable beneficiary (often, the grantor or the grantor’s family) for a certain period. The payments can be made for the non-charitable beneficiary’s lifetime (or joint lives for multiple beneficiaries), or over a fixed period of up to 20 years. When the non-charitable beneficiary’s interest ends, the trust assets pass irrevocably to a charity. I’m doing a deep dive into CRTs with a three-part series, you can read the first post, here.

SUM IT ALL UP

Iowa City Noon Rotary

What all this means is that you, dedicated Rotarian, have a treasure chest of choices when it comes to making charitable gifts that can have an impact. Charitable giving can, and should, be a mutual positive situation that benefits the Rotary Foundation as well as the donor. Of course, this is just the tip of the iceberg. I would love to start a conversation with you about your estate planning and charitable giving goals. Feel free to reach out at any time; you can find me by email at Gordon@gordonfischerlawfirm.com or by phone at 515-371-6077. Or just grab me at Rotary Lunch!

Gordon Fischer has been an active and accomplished Iowa lawyer for more than 20 years. Gordon received his law degree, summa cum laude, from Southern Illinois University. After law school, Gordon clerked for the Iowa Court of Appeals. He then joined the Des Moines firm of Bradshaw, Fowler, Proctor & Fairgrave, P.C. He became a partner and gained a reputation for skilled and conscientious litigation in all areas of law, with a focus on employment. In 2013, Gordon left the firm to become Vice President of Gift Planning Strategies for the Community Foundation of Greater Des Moines, where he helped donors plan and achieve their philanthropic goals. In 2014, he received the Chartered Advisor in Philanthropy designation from The American College of Financial Services.   

Gordon serves his community and his profession in a variety of ways, on boards and commissions and as a mentor and hands-on volunteer, and through his involvement as a Rotarian. At Gordon Fischer Law Firm, P.C., he blends his legal expertise and commitment to the charitable sector and those who support its work.

/by

St. Patrick’s Day Special: Erin G. Bragh’s Trust

, ,

Top of the morning to you! On this happy St. Patrick’s Day, let’s discuss a great charitable giving tool that we are lucky to have—the Charitable Remainder Trust (CRT).

On this holiday, we see lots of depictions of green clover. Like most clovers, this series will come in three parts. Today, we’ll discuss the very basics of trusts. In Part Two (coming soon), we’ll discuss all the ins and outs of CRTs. Part Three will feature a simple but powerful case study to illustrate how beneficial—both to donors and donee charities—a Charitable Remainder Trust can be.

Why Are Charitable Remainder Trusts So Grand?

When it comes to the legal tool we call “trusts,” I can be said to be like Molly Bloom, the heroine in James Joyce’s Ulysses:

“[my] heart was going like mad and yes I said yes I will Yes.”

Why though? What is so great about trusts, anyway?

Trusts come in an almost limitless variety, but some of the key benefits include:

  • Saving taxes
  • Avoiding probate
  • Getting assets to your beneficiaries more quickly and easily
  • Maintaining privacy

Trusts also make challenges to your property more difficult. Since they can be so useful, let’s toast trusts with a pint of Guinness. Sláinte!

Sláinte Scottish Toast

Simplest Terms

In simplest terms, a trust is a legal agreement between three parties: grantor, trustee, and beneficiary. Let’s look at each of these three parties.

Grantor

All trusts have a grantor, sometimes called the “settler” or “trustor.” The grantor creates the trust, and also has legal authority to transfer property to the trust.

Trustee

The trustee can be any person or entity that can take title to property on behalf of a beneficiary. The trustee is responsible for managing the property according to the rules outlined in the trust document, and must do so in the best interests of the beneficiary.

Beneficiary

The beneficiary is the person or entity benefiting from the trust. The beneficiary can be one person/entity or multiple parties (which is also true of grantor and trustee). Multiple trust beneficiaries can have different interests in the trust property. Also, trust beneficiaries don’t have to even exist at the time the trust is created.

Trust property

A trust can be either funded or unfunded. By funded, we mean that property has been placed “inside” the trust. This property is sometimes called the “principal,” “corpus,” or the “res.” By unfunded, we mean that no property has yet been placed inside the trust.

Any Asset

Any asset can be held by a trust. Trust property can be real estate, intangible property, personal property—a farm, building, vacation home, money, publicly traded stocks, closed corporation stocks, bonds, collections (such as say, shamrocks or Guinness mugs), business interests, personal possessions (such as an antique hard owned by Nana), vehicles, and so on.
Glasses of Guinness

“Imaginary Container”

Leprechauns, some may argue, are imaginary. Think of a trust as an “imaginary container.” We speak of putting assets “in” a trust, but assets don’t actually change location. It’s not a geographical place that protects, say, your car, but a form of ownership that holds it for your benefit. For example, on your car title, the owner blank would simply read “The Erin G. Bragh Trust.” It’s common to put real estate such as farms, homes, vacation homes and entire accounts like bank, credit union, and brokerage accounts into a trust.

After the trust is funded, the trust property will still be in the same place before the trust was created—your land where it always was, your car in the garage, your money in the bank, your stamp collection in the study, and so on. But the property will have a different owner: “The Erin G. Bragh Trust,” not Erin G. Bragh.

Transfer of Ownership

Putting property in trust transfers it from personal ownership to the trustee, who holds the property for the beneficiary. The trustee has legal title to the trust property. For most purposes, the law treats trust property as if it were now owned by the trustee. For example, trusts have separate taxpayer identification numbers.

But, trustees are not the full owners of trust property. Trustees have a legal duty to use trust property as provided in the trust agreement and permitted by law. The beneficiaries retain what is known as equitable title, the right to benefit from trust property as specified in the trust.

Assets to Beneficiary

The grantor provides terms in a trust agreement as to how the fund’s assets are to be distributed to a beneficiary. The grantor can provide for the distribution of funds in any way that is not against the law or against public policy.

Almost Limitless Possibilities

The types of trust are almost as limitless as rainbows. Trusts can be classified by their purpose, duration, creation method, or by the nature of the trust property. Next time, let’s look at the specifics of a very helpful trust—the Charitable Remainder Trust. Until then, may the road rise up to meet you!

/by

The Oscars & Estate Planning

, , , , , ,
Winning an Oscar Award Academy Award leaves a legacy

What could the Oscars possibly have to do with the estate planning?

Actually, a lot. The most celebrated films – the Best Picture Award nominees – all feature themes of death and legacy. Certainly, in some films, this theme is more pronounced than in others. But in all the films, death and legacy are present, almost as if unseen actors just offstage.

In Fences, an ex-ballplayer openly mocks death, wryly declaring more than once, and always with a wink, “Death ain’t nothing but a fastball on the outside corner.” Later, confronted with a sudden tragedy, he throws open a window and shouts into a storm, daring death to take him on.

In Manchester by the Sea, the tragedy of premature deaths washes over the entire story. Like waves relentlessly pounding the beach during a storm, the characters cannot escape memories of tragic loss.

Hacksaw Ridge is of course about death in war. The protagonist struggles, with tremendous courage, to save lives during the horrific carnage of battle.

Arrival actually features a “canary in a coal mine.” In movie’s dénouement, the characters are given a whole new way of looking at life and death, at past and present.

We shouldn’t be the least bit surprised by any of this, of course. Great art so often wrestles with the meaning of death and legacy. Think about Homer’s The Iliad and The Odyssey, to Shakespeare’s plays, all the way to recent novels like Marilynne Robinson’s Lila and Anne Tyler’s A Spool of Blue Thread.

In movies, characters so often face the riddles of death and legacy, because we do so in real life. How to give life meaning? How best to leave a legacy? Allow me to suggest that one very practical, and even relatively easy, way to secure your legacy is through estate planning.

For all of us, at some point, the credits will roll and the screen will go dark. Before that time comes, diligently plan so that your loved ones are protected and taken care of.

Perhaps most importantly for the question of legacy, through estate planning we can leave meaningful charitable gifts to our favorite charities. Without estate planning, it’s just not possible to make charitable gifts at death.

Do estate planning, do it right, so your testamentary gifts can help nonprofits for decades to come – quite a legacy for you. One might even say, proper estate planning, with a charitable component, is deserving of an award.

Now, pass the popcorn, and enjoy the show. Tomorrow, take some time to get started on your own legacy, by downloading my Estate Planning Questionnaire.

/by

Estate Planning Seminar, Monday, April 25, Iowa City Senior Center, free & open to all

, ,

EstatePlanningSeminar-3

Monday, April 25, 2:00 – 3:30 p.m.

Iowa City Senior Center

28 S. Linn Street

FREE AND OPEN TO THE PUBLIC 

– Why you need a will

– 7 most common estate planning mistakes

– 5 easy ways to super charge charitable giving

Please register by emailing gordon@gordonfischerlawfirm.com
or calling 319-356-5220

Thank you to sponsors:

Community Foundation of Johnson County

Elder Services, Inc.

Friends of the Animal Center Foundation

Friends of The Center

Gordon Fischer is an Iowa lawyer with more than 20 years experience.
The mission of his law firm is to promote and maximize charitable giving.

Reach out any time — Gordon’s email is
gordon@gordonfischerlawfirm.com and his cell phone is 515-371-6077.

Come one, come all! 🙂

####

/by