feedbackk survey

I could use your opinions! As a lawyer who strives to maximize charitable giving in Iowa (the mission of Gordon Fischer Law Firm), estate plans are a regular part of my job. But, for most people, estate planning isn’t a normal part of the day-to-day. So, I am doing research on how and why people obtain estate plans and would appreciate if you could take three minutes (or less!) to share your thoughts and experiences with me. The goal of this survey is to gather candid feedback and varying perspectives on this topic. Note that the survey is completely anonymous and confidential.

Click here to take the short survey.

 

Marriage document

In Iowa, Spouses Can’t Disinherit Spouses

Can Monica, my wife, disinherit me? In a word, no.

Assuming a valid marriage in Iowa, a spouse cannot disinherit a spouse. Even if a spouse wants to do so, even if that’s the spouse’s true intent—nope.

What If…?

What if in a legal will, the first-to-die spouse includes the following clause:

“I acknowledge that I have a spouse, named Gordon Fischer, who is not provided for in this will. It is my specific intention to not provide for my spouse Gordon Fischer under the terms of my will.”

Even with a clear clause like this, I, Gordon, am not disinherited. Why is this so?

Statutory “Forced Share”

Iowa Seal

An Iowa statute allows spouses to take a “forced share” against the will. In short, the surviving spouse has a choice; the spouse can inherit any property bequeathed to him/her under the will, OR the spouse can take a forced share. So, even if a will leaves nothing for the surviving spouse, the surviving spouse can take a forced share against the will.

Under Iowa law (specifically, Iowa Code § 633.238), a surviving spouse that elects against the will is entitled to:

  • One-third of the decedent’s real property;
  • All exempt personal property that the decedent held; and,
  • One-third other personal property of the decedent that is not necessary for payment of debts and other charges.

In other words, a surviving spouse can choose (elect) after your death to basically ignore your will or trust that doesn’t provide for said surviving spouse, and take approximately one-third of your estate.

For example, if you left your entire estate to your children and not your spouse, your spouse can say, “You know, I don’t like this at all. I’ll take one-third of my dead spouse’s estate. Thank you!” And, pretty much just like that, boom, the surviving spouse can do so.

Oral Agreement to Disinherit

What if Monica and I talk about this matter and come to an oral agreement. Something like this:

Monica: I want to disinherit you. Should you be the surviving spouse, you should get nothing.

Gordon: Wow. That hurts. But if that’s what you want honey, I agree.

Is this agreement enforceable? No, for several reasons. First, it’s not written and oral agreements are generally unenforceable. Also, it doesn’t and can’t displace the plain language of an Iowa statue which allows a spouse to elect a forced share against the will, and gain one-third of the estate. You can’t orally agree to ignore a statute’s clear intent!

Written Agreement to Disinherit

But what if Monica asked me to agree, in writing, to not take a spousal share? Say, we write up a formal contract stating I’m essentially not getting anything under Monica’s will, no how, no way. I also agree in the contract that under no circumstances will I take a statutory share.

Would such a written contract be enforceable? No.

While Iowans have a great deal of freedom to contract, just like the above oral agreement example, you can’t contract in direct opposition to a clear statute.

Postnuptial Agreements

Also, interestingly, Iowa courts have ruled postnuptial agreements are not enforceable.

Married penguin cake toppers

Postnuptial agreements are written contracts between spouses that are executed after the couple has married (as opposed to the prenuptial agreements you usually hear about). Iowa courts have struck down postnuptial agreements for nearly a century, since 1912 when the Iowa Supreme Court first found postnuptial agreements to be of no validity. In re Kennedy’s Estate, 135 N.W. 53 (Iowa 1912).

But Monica, it’s OK. Very likely you’ll be the surviving spouse anyway.


Beyond just your spouse, it’s important to have an updated estate plan to define all of your beneficiaries and wishes for your estate following your death. Have questions or need more information? Feel free to reach out any time. You can contact me by email at Gordon@gordonfischerlawfirm.com or give me a call at 515-371-6077.

no excuses on chalkboard estate planning

“Santa is having a tough time this year. Last year he deducted eight billion for gifts, and the IRS wants an itemized list.” – Milton Berle

Based on every statistic I’ve seen, the majority of Americans don’t want anything to do with estate planning or the perceived headaches that come with it. It’s understandable why most people balk at conversations likely to include topics like death, taxes, lawyers, and court decisions.

Here are some of the excuses I’ve heard from people about why they don’t have an estate plan:

  • “I don’t have any assets, and just a whole bunch of debt.”
  • “Isn’t that just for rich, older people?”
  • “I don’t need a will, my wife and kids are going to inherit everything I own. My wife can take care of it.”
  • “Getting a will made for myself is too expensive and time consuming.”
  • “If I talk too much about it, I might jinx myself.”

Yet, everyone over 18-years old, regardless of age, debts, assets, and marital status should have an estate plan in place. (Here are the six “must have” estate planning documents you can focus on initially.) In the beginning it may feel uncomfortable talking about the details of your estate plan. But, there is deep and lasting peace of mind in knowing that there is a plan in place in the event of your disability or even untimely death, which far outweighs any discomfort.

So, cast off all excuses by embracing the benefits of having a strong estate plan in place. The benefits include, but are certainly not limited to, peace of mind, financial security for your family, established guardianships for your children, reducing taxes, fees, and costs, and saving your family and friends untold time, trouble, and heartbreak. Start your estate plan today.

Have questions? Need more information?

A great place to start is the Estate Plan Questionnaire. Of course, feel free to reach out any time. You can contact me by email at Gordon@gordonfischerlawfirm.com or give me a call at 515-371-6077.

hundred dollar bills wrapped up in ribbon

Phoenix, Arizona may have the Final Four, but Iowa has such generous tax benefits for charitable gifts. In fact, in Iowa, donors can receive four amazing tax benefits for charitable gifts. Your March Madness bracket may be busted already, but these benefits are ones you can bank on.

Appreciated, long-term property

Dollar sign in red outline of house

For donors and potential donors, the ideal asset for charitable donations will depend on a whole range of factors. But, when donating to charity, one type of asset to seriously consider is appreciated, long-term property. Common examples of such property would include publicly traded stock, real estate, and farmland. First a couple terms to be clear on:

  • Appreciated: simply means increased in value.
  • Long-term: property held for more than one year (e.g., 366 days).

Give now, rather than later

The four tax benefits I’ll outline are only available when the charitable gifts are made during lifetime. It’s been said, “You should be giving while you are living, so you’re knowing where it’s going.” Many Iowans have philanthropic intentions to donate to their favorite causes eventually, usually at death through their estate plan, will, and testamentary trust. Why not give now? You can have more say about your charitable gifts while you are still alive, and also feel the joy that comes with helping the causes you care about most. Again, there are also lots of good tax reasons for giving now rather than later. 

Benefits of gifting appreciated, long-term property

Final Four NCAA logo

While not celebrated as much as the Final Four, there are four genuinely exciting tax benefits for charitable gifts of appreciated, long-term property. 

Double federal tax benefit

When you gift appreciated, long-term property to a charity during lifetime, you may receive a double federal tax benefit. First, you can receive an immediate charitable deduction on your federal income tax, which is equal to the fair market value of the property. Second, assuming of course you have owned the property for more than one year, when you donate the property, you avoid the long-term capital gain taxes you would have owed if you sold the property.

US Treasury note on top of IRS forms

Let’s look at a concrete example to make this clearer. Pat owns appreciated, long-term property (again, say, stocks or real estate or farmland) with a fair market value of $100,000. Pat wants to use the property to help favorite causes in the local community. Which would be better for Pat – to sell the property and donate the cash, or give the property directly to favorite charities? Assume that the property was originally purchased at $20,000 (basis), Pat’s income tax rate is 39.6%, and capital gains tax rate is 20%. 

final four table charitable giving

Note: This table is for illustrative purposes only. Only your own financial or tax advisor can advise to your personal situation on these matters.

Again, a gift of appreciated, long-term property, made during your lifetime, is doubly beneficial. You receive a federal income tax charitable deduction equal to the fair market value of the property. You also avoid the capital gains tax. In Iowa, however, there is even more potential benefit. You may receive a 25% state tax credit for such charitable gifts, lowering the after-tax cost of your gift even further.

25% Endow Iowa Tax Credit

Under the Endow Iowa Tax Credit program, gifts during lifetime can be eligible for a 25% tax credit. There are three requirements to qualify.

  1. The gift must be given to, or receipted by, a qualified Iowa community foundation.
  2. The gift must be made to an Iowa charity.
  3. 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, Pat’s local community foundation.

Endow Iowa Tax Credit logo

Let’s look again at the case of Pat, who is donating appreciated, long-term property per the table above. If Pat makes an Endow Iowa qualifying gift, the tax savings are very dramatic:

appreciated long-term property table

Note: This table is for illustrative purposes only. Only your own financial or tax advisor can advise to your personal situation on these matters.

Pat gave a significant and generous gift to charity of $100,000. But using the Endow Iowa Tax Credit, coupled with the federal income tax charitable deduction and capital gains savings, the after-tax cost of the gift of $100,000 is less than $20,000. Plus, because the gift was endowed, it will be invested by Pat’s local community foundation and will presumably grow through its investment. Thus, it will continue benefiting the charities Pat cares about most!

Note again Pat’s huge tax savings. In this scenario, by giving appreciated, long-term property during lifetime, Pat receives $39,600 as a federal charitable deduction, avoids $16,000 of capital gains taxes, and gains a $25,000 state tax credit, for a whopping total tax savings of $80,600.

Gift Tax Considerations

Money with bow on top
Yet another benefit: charitable gifts are exempt form federal gift tax. In fact, charitable contributions made to qualifying charities are not only deductible on itemized tax returns, you may also deduct the value of your charitable donations from any amount of gift taxes you owe.

Areas of Caution

Going back to our example, this is a great deal for Pat and a great deal for Pat’s favorite causes. But, could anything go wrong with this scenario? There are a few areas of caution.

Charitable Deduction Capped

The federal income tax charitable deduction is capped. Generally, the federal charitable deduction for gifts of appreciated, long-term property is limited to 30% of your adjusted gross income (AGI). You may, however, carry forward any unused deduction amount for an additional five years.

Endow Iowa Capped

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 is first come, first served. In 2014, approximately $6 million in tax credits are available annually through Endow Iowa. So, get your application in now, as tax credits often run out toward the end of the year.

There is also a cap on Endow Iowa tax credit per individual. Tax credits of 25 percent 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.

IRS Requirements for Non-Cash Gifts

Additionally, to receive a charitable deduction for non-cash gifts of more than $5,000, you need a “qualified appraisal” by a “qualified appraiser,” two terms with very specific meanings to the IRS. You need to engage the right professionals to be sure all requirements are met. A notable exception to the appraisal requirement is appreciated, long-term, publicly traded stock.

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. Make a fast break to consult a legal professional for personal advice.


The mission of Gordon Fischer Law Firm, P.C. is to promote and maximize charitable giving in Iowa. He offers training on complex gifts for nonprofit boards, staff, and stakeholders. Contact him for a free one-hour consultation; Gordon can always be reached at mailto:gordon@gordonfischerlawfirm.com or at 515-371-6077.

Estate planning revisions

Oh, you have an estate plan? High five!

You are already better off than most of your fellow citizens. In fact, numerous surveys have shown that about half of adult Americans do not even have a basic will.

So, kudos to you if you’ve already knocked out this major life decision and planning initiative. If you already have a will, there are at least five major scenarios in which you should revisit and make changes accordingly:

  1. Moving out-of-state or, of course, out-of-country. What makes a will legal and valid in Iowa is not the same in other states, like, say, Ohio or Rhode Island. Each state has its own set of laws governing wills, probate, and so on. Also, if you buy property in another state and/or set-up a secondary residence, this must be included in your estate plan.
  2. If something happens to one of your beneficiaries or fiduciaries. Life happens to everyone else in your plan, and sometimes this means beneficiary passes away or a fiduciary retires. Reviewing your plan’s key contact list at least annually, in addition to on an as-needed basis, will keep everything fresh and relevant.
  3. If your marriage status changes. Needless to say, you will want to update your estate plan in the case of a marriage or divorce. Every attorney I know, myself included, has heard horror stories of what happens when an ex-spouse inherits a huge sum of money, merely because an estate plan wasn’t properly updated.
  4. If you have kids (or more kids). You’ll want to ensure that in case something happens to you that your children are going to be protected by a trusted guardian. And, also, presumably you’ll want to add the children as beneficiaries, etc.
  5. If your financial situation changes significantly. This includes inheriting money or complex assets. Perhaps your business accelerates astronomically. Maybe you have what professional advisors call “a liquidity event,” (e.g., you’re flush with cash). Your estate plan, and its distributions, will need to be revisited to accommodate such changes in fortune.

life change ahead road sign

This, however, is just the tip of the iceberg. I wrote a longer blog post about revisiting your estate plan in light of major life changes, which you can find here.

Have questions? Need more information?

A great place to start is the Estate Plan Questionnaire, or feel free to reach out at any time. You can contact me by email at Gordon@gordonfischerlawfirm.com or give me a call at 515-371-6077.

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.

final resting place black balloons

There are six main documents that should be part of almost everyone’s estate plan. One of these is called “Disposition of Final Remains.” This document is where you tell your loved ones exactly how you want your body to be treated after you pass away.

It’s best to approach the subject of final disposition of remains with thoughtfulness, consideration, and, yes, indeed, even a little levity. Discussing your passing can feel morbid or even downright creepy. However, taking the time to think through your final services (whatever it is you want) is a wonderful gift to your family. It ensures that clear instructions are passed on, and alleviates, perhaps even eliminates, the avalanche of headaches that inevitably accompanies such planning.

Your estate plan’s disposition of remains directs your family and friends as to how you want your remains handled after you have passed away. This includes your funeral, service, and maybe a place of internment. If you want a party complete with a piñata you can detail that in the disposition of remains. Choices for what to do with your physical remains can include earth burial, above-earth burial, or cremation . . . or you could always go with something unique to you, like being made into a diamond. Some of my clients have insisted that there be only the shortest and simplest of memorial services. Others have wanted a marching band and fireworks shooting their ashes into the sky. (Yes, that is a thing). It’s completely up to you.

multi-colored fireworks

 

What is incredibly important is that you leave clear instructions of your desires, whatever they may be. That way, your loved ones won’t have to guess as to what you would have wanted, during a time that is already stressful, turbulent, and full of grief. Again, leaving behind a fully thought out “disposition of final remains” is a wonderful gift to your loves ones.

Have questions? Need more information?

A great place to start is the Estate Plan Questionnaire. Feel free to reach out at any time; you can contact me by email at Gordon@gordonfischerlawfirm.com or give me a call at 515-371-6077.

Couple overlooking ocean on boat

Iowans’ retirement benefit plans hold tremendous wealth. Your IRAs, 401(k)s, 403(b)s, and so on, could have a huge impact on the charities you care about most.

Nonprofits should be aware that retirement benefit plans are incredibly underutilized for charitable giving. It’s in nonprofit stakeholders’ best interest to educate themselves and potential donors about the benefits of charitable giving of retirement benefit plans.

Categories of Charitable Giving

There are several ways to categorize charitable giving. For example:

  • Cash versus non-cash gifts
  • Planned giving versus “unplanned” giving
  • Income producing charitable gifts (such as charitable gift annuities and charitable remainder trusts) versus non income producing gifts
  • Gifts of different types or classes of assets

When discussing gifts of retirement assets, perhaps the most helpful categorization is lifetime gifts versus gifts at death. Lawyers sometimes call charitable gifts made during lifetime as inter vivos gifts and gifts at death as testamentary gifts.

Let’s start with testamentary gifts of retirement plan assets. This can be an easy and convenient way for your clients to support their favorite causes.

Testamentary Gifts of Retirement Plan Assets

Name charity as beneficiary

You can make a very meaningful gift simply by naming your favorite charity or charities as beneficiary of an IRA, 401(k), 403(b), or other retirement plan. Giving retirement assets in this way is quite easy.  Just 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.

Keep in mind, however, that if the account holder is married, the spouse should be informed. Depending on the type and terms of the plan, the spouse may have to consent to the gift.

Tax rules may make testamentary gifts of retirement plan assets more favorable

Retirement plan assets are a good choice for testamentary gifts for tax reasons, too. In fact, the interplay of a few tax rules may make charitable gifts of retirement plan assets more attractive to you than charitable gifts of other kind of assets.

To understand why this might be so, we need to look at three important concepts:

(1)     Inheritance generally is not income.

(2)     Income in respect of a decedent (IRD)

(3)     Step-up in basis (also called, stepped up basis)

Inheritance is not income.

Generally speaking, inheritance is not income, for federal tax purposes. Most inherited property passes tax-free.

(It’s true there is an Iowa inheritance tax. To keep this simple, I’ll focus on federal tax.)

Income in respect of a decedent (IRD)

Most inherited property passes tax-free, but not all. IRD is income that the deceased was entitled to, but had not yet received, at the time of death. IRD can come from various sources, including:

(1)     Unpaid salary, fees, commissions, and/or bonuses;

(2)     Deferred compensation benefits;

(3)     Accrued but unpaid interest, dividends, and rent; and

(4)     Distributions from retirement benefit plans

That’s right—retirement benefit plans are IRD.

Federal tax law provides for IRD to be taxed when it’s distributed to the deceased’s beneficiaries. IRD retains the character it would have had in the deceased’s hands.

Step-up in basis

Step-up in basis refers to the readjustment of the value of an appreciated asset for tax purposes upon inheritance. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of inheritance, not the value at which the original party purchased the asset.

Interplay Between Tax-Free Inheritance, IRD, and Step-Up in Basis

There can be interesting interplay between tax-free inheritance, IRD, and step-up in basis, which may make testamentary gifts of retirement benefit plans very attractive. Here’s a simple example:

Alex dies, with three surviving children, Brett, Casey, and Dana. At her death, Alex owned three major assets: a house, stock, and an IRA. She bequests each child one asset. What result?

Assume:

Alex’s house is worth $100,000. She purchased it for only $20,000.

Alex owns shares of stock in Acme Company, worth $170,000. She purchased the stock for just $50,000.

Alex’s IRA is worth $200,000.

Alex’s house is inherited by Brett. There’s no federal tax on this transfer. Brett sells the house shortly thereafter. Still no federal tax. Although Alex purchased the house for only $20,000, Brett receives a step up in basis. Brett’s basis is $100,000, the value of the house. Since she sells it for $100,000, there’s nothing to tax.

When Casey inherits the stock, no tax—as there’s no taxable event. Later, Casey sells the stock. Although Alex purchased the stock for only $50,000, Casey receives a step up in basis. Casey’s basis is $170,000, the value of the stock. Since Casey sells the stock for $170,000, there’s nothing to tax.

How about Dana and the IRA? The IRA was registered with Dana as beneficiary, but no money is taken out of it immediately, so no taxes. When Dana withdraws money from the IRA, however, Dana must pay federal income tax of up to 39.6 percent. (It is true that Dana could defer withdrawals from the IRA for a long time, and of course such deferral reduces the impact of taxes.)

To sum up, in this hypothetical, the house and stock passed to the beneficiaries without any taxable event. The IRA passed to the beneficiary, but the beneficiary will have to pay taxes when she withdraws funds.

As can be seen, testamentary gifts of retirement benefits to a worthy charity can be tax-savvy. Let’s move on to inter vivos gifts of retirement benefits to charity.

Inter Vivos Gifts of Retirement to Charity

A helpful way to discuss charitable gifts of retirement plan assets during lifetime is to break them down into three categories:

  1. IRA Charitable Rollover;
  2. Required Minimum Distributions (RMDs), and
  3. NonRMDs

 IRA Charitable Rollover

The federal law known as the IRA Charitable Rollover allows individuals aged 70½ and older to donate up to $100,000 from their IRAs directly to charities without having to count the distributions as taxable income. This gift transfer is called a “qualified charitable distribution” or “QCD.”

To be a valid QCD, there are two threshold requirements. First, you must be age 70½ or older. Second, the retirement plan account must be an IRA.

Age requirement of 70½

Taxpayers who are 70½ and older are required to make annual distributions from IRAs which are then included in the taxpayers’ adjusted gross income (AGI) and subject to taxes. The IRA Charitable Rollover permits those taxpayers to make donations directly to charitable organizations from their IRAs without counting them as part of their AGI and, consequently, without paying taxes on them. You can be either an IRA participant donating from your own IRA, or a beneficiary donating from an inherited IRA.

Again, the IRA Charitable Rollover requires you (whether owner or beneficiary) to be age 70½ or older. This is based on the year you reach age 70½, not the day you reach that age.

IRA Charitable Rollover is for IRAs only

QCD 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 eligible for the IRA Charitable Rollover law.

Annual cap of $100,000

Your total combined IRA Charitable Rollover contributions cannot exceed $100,000 in any one year. The limit is per IRA owner, not per IRA. Also, this amount is not portable between spouses.

Eligible charities

Under the IRA Charitable Rollover, charitable contributions from an IRA must go directly to a public charity that is not a supporting organization. Contributions to client-advised funds and private foundations, except in narrow circumstances, do not qualify for tax-free IRA rollover contributions.

I must emphasize that QCD must go directly to charity. You can’t withdraw the money, and then give it to charity – rather, the IRA administrator must send QCD straight to the charity.

IRA Charitable Rollover & quid pro quo

What about gifts to your client from a charity, in return for QCD? You cannot receive any goods or services in return for QCD to qualify for tax-free treatment.

IRA Charitable Rollover and IRS substantiation

The IRA Charitable Rollover requires substantiation for the IRS. You must obtain written receipt of each IRA rollover contribution from each recipient charity.

Specific tax advantages of QCD

Keep in mind the specific tax advantages of QCD under the IRA Charitable Rollover. For Iowans who don’t itemize deductions, and so thereby don’t get to deduct their charitable contribution, the IRA Charitable Rollover obviously helps.

For Iowans who are “itemizers,” it may also be tax-advantaged. There’s a good example of doing the math (although this is a few years old) in “Charity Strategy” in Forbes.

IRA Charitable Rollover and QCD can’t fund split interest gifts

QCD must be a contribution that would be 100 percent deductible if paid from the owner’s non-IRA assets, so a split-interest gift will not qualify. Therefore, IRA Charitable Rollover funds generally cannot be made to a charitable remainder trust, charitable gift annuity, or pooled income fund.

No federal income tax charitable deduction with IRA Charitable Rollover

QCD, from the IRA Charitable Rollover, are excluded from your gross income for all purposes. Of course, there is no charitable deduction for any IRA Charitable Rollover funds.

IRA Charitable Rollover helps with three notable challenges to lifetime giving

Speaking very generally, there are three notable challenges to lifetime giving:

First, consider taxpayers who don’t itemize. Most fundamentally, a taxpayer has to itemize to take advantage of the charitable deduction. A taxpayer who uses the “standard deduction,” rather than itemized deductions, of course wouldn’t see any tax benefit from the charitable deduction.

Second, look at AGI percentage limits on charitable deductions. The federal income tax charitable deduction is limited to a certain percentage of adjusted gross income. The percentage is either 30% or 50%, depending on the type of property given and the type of donee charity.

Third, remember the Pease limitation. The “Limitation on Itemized Deductions” (known as the “Pease limitation,” after Donald Pease, the Ohio congressman who helped create the law), reduces most itemized deductions by 3 percent of the amount by which AGI exceeds a specified threshold, up to a maximum reduction of 80 percent of itemized deductions. The income thresholds for Pease vary by filing status.

You can readily see these three potential obstacles are just not at issue at all with the IRA Charitable Rollover. Again, simply put, QCD does not increase AGI.

IRA Charitable Rollover can fulfill RMDs

QCD, from the IRA Charitable Rollover, can fulfill RMDs. So, it’s an excellent way for Iowans over 70½ to both fulfill RMDs and help favorite causes.

Don’t confuse RMDs and QCDs

QCD and RMDs are actually completely different. It’s true that QCD counts toward RMDs, to the extent RMDs have not already been taken. But QCD can be taken, regardless of whether RMD for the year is more or less than $100,000; regardless of whether the plan participant has already taken RMD; and regardless of any other distributions from the IRA.

Charitable Giving and RMDS

The IRA Charitable Rollover applies only to IRAs. Generally, a retirement plan participant, aged 70½ or older, must take annual RMDs – whether the plan is an IRA, or a 401(k), another type of plan.

These RMDs would seem to be an ideal charitable gift. After all, if a plan participant must take an RMD anyway, why not use it to support her favorite causes?

A beneficiary who inherits a retirement benefit plan is also generally required to take annual RMDs. The same analysis would presumably apply.

Charitable Giving and Non-RMDs

Depending on individual circumstances, taxpayers may also choose to make lifetime charitable gifts using funds withdrawn from retirement benefit plans. Individuals over age 59½ may generally withdraw funds from retirement plans without penalty, make a gift with these funds, and then claim an offsetting charitable deduction. In most cases, charitable gifts made in this manner will be a “wash” for tax purposes.

Conclusion

Whether you are a donor or a donee charity, I would be happy to visit with you about increasing your charitable giving. Please feel free to contact me any time for a free one-hour consultation. I am always available at gordon@gordonfischerlawfirm.com or 515-371-6077.

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!

march madness basketball

Want to help make your favorite charity a winner? Encourage the charity to discuss the potential of charitable gifts of non-cash assets with donors. Donee charities can gain access to what has been called prospective donors’ “treasure chest” of non-cash assets. After all, the vast majority of a potential donor’s net worth will not be in cash, but in non-cash assets such as a home, retirement benefit plan, life insurance, etc.

March Madness basketball with bracket in background

Inspired by the start of NCAA March Madness, and the number of bracketed teams, here are 64 non-cash assets that could be used for charitable gifting.

Please note the alphabetized listing, I’m not recommending one gift over another, since so much depends on the individual circumstances of the donor.

Yellow small plane

  1. Airplanes
  2. Antique Automobiles
  3. Antiques
  4. Artwork
  5. Assets held by C Corporation
  6. Assets held by S Corporation
  7. Autograph Books
  8. Barn Doors
  9. Beach House
  10. Beanie Babies
  11. Boats
  12. Bonds
  13. Books
  14. C Corporation Stock
  15. Coin collections
  16. Comic books collection
  17. Commercial and residential real estate
  18. Condominiums
  19. Credit Card Rebates
  20. Depression-era Glass
  21. Dolls
  22. Enamelware
  23. Equestrian Ribbons
  24. Farmland
  25. Gold Bullion
  26. Grain
  27. Guitars
  28. Hedge Fund Carried Interest
  29. Historic Papers
  30. Installment Notes
  31. Intellectual Property
  32. Life Insurance
  33. Limited Liability Partnerships
  34. Livestock
  35. Marbles
  36. Mineral Rights
  37. MLB Team
  38. Mutual Funds
  39. Oil and Gas Interests
  40. Operating Partnership Units
  41. Paint-by-number Landscapes
  42. Painted Planks
  43. Paintings
  44. Patents
  45. Photographs
  46. Pooled Income Funds
  47. Racehorses
  48. Real estate
  49. Restricted Stock (144 and 145)
  50. Retained Life Estate
  51. Retirement benefits
  52. Royalties
  53. S Corporation Stock
  54. Sculpture
  55. Sculpture Garden
  56. Seat on New York Mercantile Stock Exchange
  57. Seats at Events
  58. Stamp Collection
  59. Stocks
  60. Tangible Personal Property
  61. Taxidermy
  62. Timber Deeds
  63. Vacation Home
  64. Vehicles

Car with bow on top like gift

Pretty exhaustive list right? Like stamps and dolls, there are so many assets that you likely never even considered could be a charitable gift. And, that’s where I come in and can assist! If you’re a donor or donee nonprofit do not ever hesitate to contact me. I can always be reached at gordon@gordonfischerlawfirm.com and 515-371-6077.