I, along with all of you, just watched the totally wild end of Oscars 2017. Here are five legal lessons you can take away from this debacle.
(1) Absolutely, positively ANYTHING can happen at ANY time. So, be smart, plan ahead, and secure your future and your family’s future. A major way to do that is through estate planning.
(2) Planning is paramount. Somewhere along the line, protocols weren’t met, and a wrong envelope was handed out at the wrong time. Proper planning would have — SHOULD HAVE — prevented that.
(3) Double check EVERYTHING. Are you SURE your will is updated? Are you POSITIVE your estate planning documents are still in that safety deposit box, and your kids have access? Are you CERTAIN you updated your estate planning documents after your third kid was born? Go see your estate planning lawyer.
(4) Did Warren Beatty seem a bit confused? He and his family might consider a medical checkup, and might also consider a Healthcare Power of Attorney. I explain all about healthcare PoAs and their importance here: LINK. And I’m not picking on Warren, I’m really not. A Healthcare PoA is good for everyone. Seriously, everyone should strongly consider a Healthcare PoA.
(5) Download my Estate Planning Questionnaire. The Oscars may end in total confusion, but you shouldn’t. The Estate Planning Questionnaire will ensure a smooth and predictable ending, just like you want.
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.
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.
How to Avoid Income Taxes on $100,000 While Supporting Your Favorite Charity
The Individual Retirement Account (IRA) charitable rollover allows individuals aged 70.5 years of age 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 (QCD).
Why is this important?
Taxpayers age 70.5 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.
Who is eligible?
The donor can be either an IRA participant donating from his or her own IRA, or a beneficiary donating from an inherited IRA. In either case, the IRA holder must be over 70.5 years of age.
This is based on the year the participant reaches age 70.5, not the day he or she reaches that age.
IRAs only. These gifts can only be made from traditional IRAs or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are not eligible for the tax-free treatment.
Annual cap. A donor’s total combined charitable IRA rollover contributions cannot exceed $100,000 in any one year. The limit is per IRA owner, not per IRA. Also, this amount is not portable (i.e., sharable) between spouses.
The IRA charitable rollover is permanent law. Donations made pursuant to the IRA charitable rollover can be made at any time during the year.”
What charities/nonprofits are eligible to receive the donation(s)?
Charitable contributions from an IRA must go directly to a public charity. Contributions to donor-advised funds and private foundations, except in certain (narrow) circumstances, do not qualify for tax-free IRA rollover contributions.
Allow me to emphasize the gift (QCD) must go directly to the charity. A donor cannot withdraw the money, and then give it to charity. Rather, the IRA administrator must send QCD straight to the charity.
IRA Charitable Rollover FAQs
1. What about gifts to a donor from a charity, in return for QCD?
Donors cannot receive any goods or services in return for QCD in order to qualify for tax-free treatment. As one philanthropist exclaimed, “Why would you want to (potentially) mess up a $100,000 tax-free donation by getting a $25 coffee table book?”
2. What substantiation does the IRS require?
In order to benefit from the tax-free treatment, donors must obtain written receipt of each IRA rollover contribution from each recipient charity.
3. What are the specific tax advantages of QCD?
For Iowans who don’t itemize deductions, and therefore don’t get to deduct their charitable contribution, the IRA charitable rollover obviously helps.
For Iowans who do itemize, there may still be tax advantages. Although it’s a few years old, Ashlea Ebeling in Forbes breaks down the math really well.
4. Could QCD fund a split interest gift, like a charitable remainder trust?
No. 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, pooled income fund, or charitable gift annuity.
5. Can I still get a charitable deduction along with the IRA charitable rollover?
No. Funds related to the IRA charitable rollover are excluded from the individual’s gross income for all purposes. Of course, there is no charitable deduction for any IRA charitable rollover funds.
6. It’s been said, “You should be giving while you’re living so you’re knowing where it’s going.” But, are there are potential challenges to charitable giving during lifetime? And how does the IRA charitable rollover affect these challenges?
There are three notable challenges to lifetime giving:
- 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.
- Adjusted gross income percentage limit. The federal income tax charitable deduction is limited to a certain percentage of adjusted gross income. The percentage is either 30 or 50 percent, depending on the type of property given and the type of recipient charity. There is a five-year carry forward.
- Pease limitation. The Limitation on Itemized Deductions (known as the Pease limitation) reduces most itemized deductions by three 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.
One can readily see these three potential obstacles are simply not at issue with the IRA charitable rollover. Again, simply put, a QCD does not increase AGI.
7. Can the IRA charitable rollover fulfill required minimum distributions?
Yes. The IRA charitable rollover can fulfill required minimum distributions (RMDs). So, it’s an excellent way for Iowans over age 70.5 to both fulfill RMDs and help their favorite charities.