Pi (π) is the ratio of a circle’s circumference to its diameter. Pi is a constant number, meaning that for all circles of any size, Pi will be the same. (It’s also a great day to deliver pie to Gordon Fischer Law Firm…any kind will do!)
Like geometry, in estate planning there are many variables, and some constants, too. Ironically, one of the constants in estate planning is change. And as your life and circumstances changes, your estate plan needs to change too.
Change & Your Estate Plan
Let’s assume you’ve gone to an estate planning lawyer, and you have (at the very least) the six “must have” estate planning documents. That’s great, well done. (You can read all about these six documents here.).
But remember you also need to keep these documents updated and current.
Major Life Events
If you undergo a major life event, you may well want to (re)visit with your estate planning lawyer, to see if this life event requires changing your estate plan through different provisions, tools, and strategies.
What do I mean by a major life event? Some common such events include:
The birth or adoption of a child or grandchild
Marriage or divorce
Illness or disability of a spouse or beneficiary
Purchasing a home or other large asset
Moving to another state
Large increases or decreases in the value of assets, such as investments
If you or your spouse receives a large inheritance or gift
If any family member or other heir dies, becomes ill, or becomes disabled
Launch or closure of a business
This is just a short list of life events that should cause you to reconsider your estate plan; there are many others.
Changes in goals
It’s not just life changes, though. It may be that your overall goals for your estate plan have changed over time. You may want to change the amounts of inheritances. As your financial situation changes, you may want to increase or decrease, your charitable bequests.
And, it’s not just changes in your own life you need to think about, either. Congress, the Iowa legislature, and the courts are constantly changing the laws. When the rules change, so too must your estate plan.
To illustrate when estate plans should be updated, let’s look at the Donor Family. Jill and Dave have been married for 25 years and have four grown children. They executed a common-sense estate plan a few years ago.
Since that time, the Donors have gone through many changes, as you would expect, and as all families have. Should Jill and Dave update their estate plan to reflect changes in their family’s circumstance? Consider the following:
Divorce
One of the Donor kids filed for a divorce from his wife. Jim and Carol need to update their estate plan since they decided they now want to exclude the ex-spouse as a beneficiary.
Jill’s uncle passed away and left her a great deal of money. The Donors need to determine how this inheritance will affect their current plan and future estate tax liability. The Donors may want to be more generous to their favorite charities. They may want to talk to their estate planning lawyer about charitable giving through a planned gift, such as a charitable gift annuity or charitable remainder trust.
Our example couple’s youngest child recently announced that she and her spouse are expecting their first child. Jill and Dave must update their estate plan to provide for the new grandchild.
Major changes in health
The Donor’s youngest child was in a serious car accident, which resulted in severe disability. He can no longer work and is receiving government disability benefits. The Donors will want to seriously consider setting up a special needs trust. This type of trust will allow a beneficiary to receive inheritances, without it being considered income by the government for qualification purposes.
Jill and Dave recently bought a vacation home in Arizona. The vacation home may well be affected by Arizona laws. In any case, the Donors’ estate plan should reflect this new asset.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2017/03/toa-heftiba-239004-unsplash.jpg34565184Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2020-03-14 18:30:022020-05-18 11:28:34Happy Pi Day: The One Constant in Estate Planning is Change
When forming a nonprofit organization, at some point founder have to weigh the merits of the public charity versus the private foundation. Both are classified by the IRS as 501(c)(3)s. There are indeed benefits and challenges to the structure of both nonprofits, but private foundations can be subject to stricter oversight and need to meet different requirements to retain compliance. Because all the different aspects of a private foundation can be difficult to parse out together, it’s helpful to break it down. We’ve covered self-dealing and now it’s time to explore the payout requirement for private foundations.
Qualifying Distributions
Unlike public charities, private foundations are required to spend a minimum amount—called a qualifying distribution—for grants, administration, and other charitable distributions every year, or pay a penalty. The amount of the qualifying distribution is equal to 5% of the fair market value of the foundation’s assets during that year.
The following are considered permissible for qualifying distribution payments:
Grants
Costs of all direct charitable activities
Program-related investments and loans
Administrative expenses necessary for the conduct of its charitable activities
Asset purchases for carrying out charitable activities (such as furniture or computers)
Program-related investments and loans
If a private foundation fails to make a qualifying distribution, the IRS imposes a hefty penalty (a 30% excise tax) on the funds a private foundation fails to distribute.
An important caveat to the qualifying distribution requirements is that a foundation may elect to set aside funds for up to 5 years for certain major projects. Furthermore, excess qualifying distributions may be carried forward for a period of five tax years immediately following the tax year in which the excess was created.
Foundation managers should be aware that while the penalty is imposed on the foundation, individuals may also be charged penalties on the grounds s/he failed to exercise fiduciary duties.
Let a Lawyer Help
With all of that said, this is why it’s a smart (even essential) idea to enlist an attorney well-versed in the intricacies of nonprofit law to serve as a guide at different steps throughout the life cycle of a private foundation, from formation to board building, to continued compliance.
Questions? Want to learn more about how to make certain your private foundation is set up for success from the start? Don’t hesitate to contact me for a free consultation. You can also download my free, no-obligation nonprofit formation guide!
Any good attorney worth their weight will advise you on multiple aspects of any given important action or decision. Let’s say you’re considering forming a new 501(c)(3). You may have thoroughly considered all the prospective benefits of a tax-exempt entity, but what about the responsibilities? Indeed, there are serious obligations that come along with creating and running a nonprofit. These can’t be overstated and should certainly be taken into account. Let’s dive into a few of them.
Monetary cost
Establishing a nonprofit organization does require a monetary cost including the filing fees to governmental agencies, such as the Iowa Secretary of State’s Office and the IRS. (The Iowa Secretary of State has a $20 filing fee, and the IRS 1023 Form has a current user filing fee of $600.) If you elect to hire a qualified nonprofit attorney to guide you through the formation process and draft the required forms, then that will be an additional cost. (Although I would always argue a worthwhile one!)
Once the nonprofit is formed you’ll also want to invest in keeping your nonprofit organization on track, compliant, and successful. A major part of this is drafting and implementing quality internal and external policies and procedures. Again, a nonprofit lawyer can be a valuable asset and provide expertise here.
On top of the monetary costs, there are additional costs of time and effort. It typically takes a few months to pull all the paperwork together for the formational documents—especially the lengthy Form 1023. After all the paperwork is submitted for IRS review, actual 501(c)(3) approval can vary in the time it takes. A submitted Form 1023 can take anywhere from a month or two to a year to make its way through the review process; the 1023EZ‘s turnaround time depends on the backlog of review at the time.
Even after all of the required documentation is submitted for recognition of exemption, the IRS may request additional information through follow-up questions and supporting materials. And, of course, actually operating the nonprofit will take significant, continuous time and effort which can range in extent, but can include new employee hires,nonprofit board orientations and training, and compliance with state and federal laws (like Sarbanes-Oxley, for instance).
The flip side of this is that nonprofit work is often incredibly rewarding and important, making the effort and time even more worthwhile. But, again, it’s something good to just keep in mind as you weigh all inputs to your nonprofit formation decision.
Paperwork
A nonprofit is required to keep detailed records and also submit annual filings to the state and IRS by particular deadlines to keep its active and exempt status. (Reminder: having well-written policies and procedures will make the annual filings, like Form 990, an easier process!)
As an incorporator of a nonprofit, you will certainly have a say in the development of the organization. Although one who creates nonprofits may want to shape his/her creation, personal control is limited. A nonprofit organization is subject to laws and regulations, including its own foundational documents such as articles of incorporation and bylaws. An Iowa nonprofit is required to have a board of directors, who have certain legal and financial fiduciary duties to uphold. The board itself also has collective responsibilities, so no one person is held solely accountable. Board orientation, trainings, and materials—like a board handbook—organized in a specific way can go a long way toward ensuring the board is set-up for success in working toward the mission you as the founder envisioned.
Scrutiny by the public
In the eyes of the government and society alike, the nonprofit must be dedicated to the public interest in one area or another. This is where it derives its tax-exempt status. It’s also why its finances are open to public inspection. For these reasons, nonprofits must be steadfastly transparent in nearly all their actions and dealings.
Interested parties may obtain copies of a nonprofit organization’s state and federal annual information filings to learn about salaries, program expenditures, and other financial information. You should be able to view copies of exempt organizations’ forms for free on the IRS’ website, or you can request a copy from the organization and they must provide it. Additionally, to make it easy for the public, many nonprofits link to these documents on their website. The information can be useful to current and prospective donors, new board members and employees, and grant-making organizations.
I hate to sound like a broken record, but again, this is where superior policies like “public disclosure” and “Form 990 review” are paramount to the operation.
These responsibilities shouldn’t scare you off from forming your change-making organization, but rather important elements to be aware of from the beginning. Plus, if you know the big picture of what you’re getting into, you can plan by enlisting the appropriate professionals to help you with your endeavor!
Want to discuss how to move forward with your nonprofit? Don’t hesitate to take me up on my offer for a free consult and the 10 For 990 policy special! Contact me via email or by phone (515-371-6077).
Happy Pi Day: The One Constant in Estate Planning is Change
Estates & Estate Planning, EventsPi (π) is the ratio of a circle’s circumference to its diameter. Pi is a constant number, meaning that for all circles of any size, Pi will be the same. (It’s also a great day to deliver pie to Gordon Fischer Law Firm…any kind will do!)
Like geometry, in estate planning there are many variables, and some constants, too. Ironically, one of the constants in estate planning is change. And as your life and circumstances changes, your estate plan needs to change too.
Change & Your Estate Plan
Let’s assume you’ve gone to an estate planning lawyer, and you have (at the very least) the six “must have” estate planning documents. That’s great, well done. (You can read all about these six documents here.).
But remember you also need to keep these documents updated and current.
Major Life Events
If you undergo a major life event, you may well want to (re)visit with your estate planning lawyer, to see if this life event requires changing your estate plan through different provisions, tools, and strategies.
What do I mean by a major life event? Some common such events include:
This is just a short list of life events that should cause you to reconsider your estate plan; there are many others.
Changes in goals
It’s not just life changes, though. It may be that your overall goals for your estate plan have changed over time. You may want to change the amounts of inheritances. As your financial situation changes, you may want to increase or decrease, your charitable bequests.
Laws are dynamic and changing
And, it’s not just changes in your own life you need to think about, either. Congress, the Iowa legislature, and the courts are constantly changing the laws. When the rules change, so too must your estate plan.
Meet the Donor Family
To illustrate when estate plans should be updated, let’s look at the Donor Family. Jill and Dave have been married for 25 years and have four grown children. They executed a common-sense estate plan a few years ago.
Since that time, the Donors have gone through many changes, as you would expect, and as all families have. Should Jill and Dave update their estate plan to reflect changes in their family’s circumstance? Consider the following:
Divorce
One of the Donor kids filed for a divorce from his wife. Jim and Carol need to update their estate plan since they decided they now want to exclude the ex-spouse as a beneficiary.
Changes in financial status
Jill’s uncle passed away and left her a great deal of money. The Donors need to determine how this inheritance will affect their current plan and future estate tax liability. The Donors may want to be more generous to their favorite charities. They may want to talk to their estate planning lawyer about charitable giving through a planned gift, such as a charitable gift annuity or charitable remainder trust.
Birth
Our example couple’s youngest child recently announced that she and her spouse are expecting their first child. Jill and Dave must update their estate plan to provide for the new grandchild.
Major changes in health
The Donor’s youngest child was in a serious car accident, which resulted in severe disability. He can no longer work and is receiving government disability benefits. The Donors will want to seriously consider setting up a special needs trust. This type of trust will allow a beneficiary to receive inheritances, without it being considered income by the government for qualification purposes.
New real estate outside Iowa
Jill and Dave recently bought a vacation home in Arizona. The vacation home may well be affected by Arizona laws. In any case, the Donors’ estate plan should reflect this new asset.
As you can see the Donor Family has many reasons to revisit their estate plan, and more than likely, so do you! In between bites of your favorite pie, review your current estate plan to make sure its current. (If you still need an estate plan, the best place to start is with my Estate Plan Questionnaire.) Additionally, I can always be found at gordon@gordonfischerlawfirm.com and 515-371-6077.
Payout Requirements for Private Foundations
NonprofitsWhen forming a nonprofit organization, at some point founder have to weigh the merits of the public charity versus the private foundation. Both are classified by the IRS as 501(c)(3)s. There are indeed benefits and challenges to the structure of both nonprofits, but private foundations can be subject to stricter oversight and need to meet different requirements to retain compliance. Because all the different aspects of a private foundation can be difficult to parse out together, it’s helpful to break it down. We’ve covered self-dealing and now it’s time to explore the payout requirement for private foundations.
Qualifying Distributions
Unlike public charities, private foundations are required to spend a minimum amount—called a qualifying distribution—for grants, administration, and other charitable distributions every year, or pay a penalty. The amount of the qualifying distribution is equal to 5% of the fair market value of the foundation’s assets during that year.
The following are considered permissible for qualifying distribution payments:
If a private foundation fails to make a qualifying distribution, the IRS imposes a hefty penalty (a 30% excise tax) on the funds a private foundation fails to distribute.
The More You Know
An important caveat to the qualifying distribution requirements is that a foundation may elect to set aside funds for up to 5 years for certain major projects. Furthermore, excess qualifying distributions may be carried forward for a period of five tax years immediately following the tax year in which the excess was created.
Leader Liability
Foundation managers should be aware that while the penalty is imposed on the foundation, individuals may also be charged penalties on the grounds s/he failed to exercise fiduciary duties.
Let a Lawyer Help
With all of that said, this is why it’s a smart (even essential) idea to enlist an attorney well-versed in the intricacies of nonprofit law to serve as a guide at different steps throughout the life cycle of a private foundation, from formation to board building, to continued compliance.
Questions? Want to learn more about how to make certain your private foundation is set up for success from the start? Don’t hesitate to contact me for a free consultation. You can also download my free, no-obligation nonprofit formation guide!
Nonprofit Formation: Responsibilities to Consider
NonprofitsAny good attorney worth their weight will advise you on multiple aspects of any given important action or decision. Let’s say you’re considering forming a new 501(c)(3). You may have thoroughly considered all the prospective benefits of a tax-exempt entity, but what about the responsibilities? Indeed, there are serious obligations that come along with creating and running a nonprofit. These can’t be overstated and should certainly be taken into account. Let’s dive into a few of them.
Monetary cost
Establishing a nonprofit organization does require a monetary cost including the filing fees to governmental agencies, such as the Iowa Secretary of State’s Office and the IRS. (The Iowa Secretary of State has a $20 filing fee, and the IRS 1023 Form has a current user filing fee of $600.) If you elect to hire a qualified nonprofit attorney to guide you through the formation process and draft the required forms, then that will be an additional cost. (Although I would always argue a worthwhile one!)
Once the nonprofit is formed you’ll also want to invest in keeping your nonprofit organization on track, compliant, and successful. A major part of this is drafting and implementing quality internal and external policies and procedures. Again, a nonprofit lawyer can be a valuable asset and provide expertise here.
Cost of time & effort
On top of the monetary costs, there are additional costs of time and effort. It typically takes a few months to pull all the paperwork together for the formational documents—especially the lengthy Form 1023. After all the paperwork is submitted for IRS review, actual 501(c)(3) approval can vary in the time it takes. A submitted Form 1023 can take anywhere from a month or two to a year to make its way through the review process; the 1023EZ‘s turnaround time depends on the backlog of review at the time.
Even after all of the required documentation is submitted for recognition of exemption, the IRS may request additional information through follow-up questions and supporting materials. And, of course, actually operating the nonprofit will take significant, continuous time and effort which can range in extent, but can include new employee hires, nonprofit board orientations and training, and compliance with state and federal laws (like Sarbanes-Oxley, for instance).
The flip side of this is that nonprofit work is often incredibly rewarding and important, making the effort and time even more worthwhile. But, again, it’s something good to just keep in mind as you weigh all inputs to your nonprofit formation decision.
Paperwork
A nonprofit is required to keep detailed records and also submit annual filings to the state and IRS by particular deadlines to keep its active and exempt status. (Reminder: having well-written policies and procedures will make the annual filings, like Form 990, an easier process!)
Shared control
As an incorporator of a nonprofit, you will certainly have a say in the development of the organization. Although one who creates nonprofits may want to shape his/her creation, personal control is limited. A nonprofit organization is subject to laws and regulations, including its own foundational documents such as articles of incorporation and bylaws. An Iowa nonprofit is required to have a board of directors, who have certain legal and financial fiduciary duties to uphold. The board itself also has collective responsibilities, so no one person is held solely accountable. Board orientation, trainings, and materials—like a board handbook—organized in a specific way can go a long way toward ensuring the board is set-up for success in working toward the mission you as the founder envisioned.
Scrutiny by the public
In the eyes of the government and society alike, the nonprofit must be dedicated to the public interest in one area or another. This is where it derives its tax-exempt status. It’s also why its finances are open to public inspection. For these reasons, nonprofits must be steadfastly transparent in nearly all their actions and dealings.
Interested parties may obtain copies of a nonprofit organization’s state and federal annual information filings to learn about salaries, program expenditures, and other financial information. You should be able to view copies of exempt organizations’ forms for free on the IRS’ website, or you can request a copy from the organization and they must provide it. Additionally, to make it easy for the public, many nonprofits link to these documents on their website. The information can be useful to current and prospective donors, new board members and employees, and grant-making organizations.
I hate to sound like a broken record, but again, this is where superior policies like “public disclosure” and “Form 990 review” are paramount to the operation.
These responsibilities shouldn’t scare you off from forming your change-making organization, but rather important elements to be aware of from the beginning. Plus, if you know the big picture of what you’re getting into, you can plan by enlisting the appropriate professionals to help you with your endeavor!
Want to discuss how to move forward with your nonprofit? Don’t hesitate to take me up on my offer for a free consult and the 10 For 990 policy special! Contact me via email or by phone (515-371-6077).