four faces covered by health masks

Consequences from COVID-19 including skyrocketing unemployment, mental health concerns, and general basic supply scarcity has meant an increased demand for services from nonprofits in a multitude of sectors. I’ve seen a number of successful efforts to help out local businesses, such as restaurants and shops, that are hurting from lack of foot traffic. These campaigns have focused on alternative revenue streams such as delivery deals and gift cards. The same concept can and should go be applied to your favorite nonprofit organizations as well.

Here are three ways you can help nonprofits while continuing to practice safe social distancing.

Donate cash under the CARES Act

The federal “Coronavirus Aid, Relief, and Economic Security” (CARES) Act was recently passed and among other policy goals, aims to incentivize charitable giving. The CARES Act creates a new federal income tax charitable deduction for total charitable contributions of up to $300. The incentive applies to cash contributions made in 2020 and can be claimed on tax forms next year. This deduction is an “above-the-line” deduction. This means it’s a deduction that applies to all taxpayers, regardless if they elect to itemize.

For those taxpayers who do itemize, the law lifts the existing cap on annual contributions from 60 to 100 percent of adjusted gross income. For corporations, the law raises the annual contributions limit from 10 to 25 percent. Likewise, the cap on corporate food donations has increased from 15 to 25 percent.

Protect yourself from coronavirus

Photo by Obi Onyeador on Unsplash

Gift retirement benefit plans

If you have a retirement benefit plan, like an IRA or 401(k), you may gift the entire plan, or just a percentage, to your favorite charity or charities upon your death. Retirement plans can be an ideal asset donation to a nonprofit organization because of the tax burden the plans may carry if paid to non-charitable beneficiaries, such as family members.

This can be accomplished by fully completing a beneficiary designation form from the account holder and name the intended nonprofit organization(s) as a beneficiary of your qualified plan. The funds you designate to charitable organizations will be distributed directly to the organizations tax-free and will pass outside of your estate, Individuals who elect this type of charitable giving can continue to make withdrawals from retirement plans during their lifetime.

Write in bequests to your estate plan

Execute an estate plan, or update an existing one, to include bequests (gifts) to the nonprofit organizations you care about. There are multiple different types of bequests which means testators have flexibility with the structure of their estate plans. An experienced estate planner will be able to advise you on all of your options, but here is a brief overview.

Pecuniary bequest

A gift of a fixed or stated sum of money designated in a donor’s will or trust.

Demonstrative bequest

A gift that comes from an explicit source such as a particular bank account.

Percentage bequest

A percentage bequest devises a set percentage—for example 5 percent of the value of the estate. A percentage bequest may be the best format for charitable bequest since it lets the charity benefit from any estate growth during the donor’s lifetime.

Specific bequest

A gift of a designated or specific item (like real estate, a vehicle, or artwork) in the will or trust. The item will very likely be sold by the nonprofit and the proceeds would benefit that nonprofit.

Residuary bequest

A gift of all or a portion of the remainder of the donor’s assets after all other bequests have been made as well as debts and taxes paid.

Contingent bequest

A gift 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 of a charitable contingent bequest might be if a certain person predeceases you,

This is just a small list, as there are many ways to efficiently and effectively make charitable donations in a tax-wise manner that benefits both parties involved. Because each individual’s financial situation is unique it’s highly recommended to consult with the appropriate professional advisors.

I’d be happy to discuss any questions, concerns, or ideas you may have. Contact me via email at gordon@gordonfischerlawfirm.com or by phone at 515-371-6077.

Attorney reading The Iowa Lawyer COVID-19

The Iowa State Bar Association recently published a special edition of The Iowa Lawyer, dedicated to legal situations and considerations related to the global pandemic of COVID-19.

Gordon Fischer Law Firm wrote two pieces for this volume. The first article provides tips for supporting nonprofits providing critical aid. The second piece covers best practices for estate planning during coronavirus and how getting even the basic documents in place can provide some peace of mind. The hope is that these pieces provide useful information for all Iowans, not just attorneys. Scroll to pages 15–18 on this PDF version of the publication to start reading!

Iowa Lawyer COVID-19 Cover April 2020

Also in the Iowa State Bar Association’s publication are some interesting stories on: managing anxiety and stress during this chaotic time; how to stay cybersecure while working from home; and what companies’ legal obligations are around the coronavirus, among many other worthwhile reads.

If you’re interested in reading GFLF’s previously published articles in past editions, click here to scan through the archives. Also, the articles got you thinking that it may be time to start on or revise your estate plan, check out GFLF’s free, no-obligation Estate Planning Questionnaire.

four leaf clover

In the spirit of St. Patrick’s Day, pour yourself a pint and read up on some simple, yet smart, charitable giving strategies. Whether you want to support the great work of an Oscar Wilde literary foundation or an Irish heritage association, tools and benefits that align with your charitable giving goals can help to stretch your green and make a difference in the causes you care about.

Top O’ the Morning Giving: Now Rather than Later

It’s been said, “you should be giving while you are living, so you’re knowing where it’s going,” so let’s explore a few options in the case of a hypothetical Irish Iowan, Sinead O’Sullivan.

Sinead O’Sullivan intends to donate to charity eventually, at death through her will and estate plan. But why not give now? Sinead can have more say about the use of gifts while she’s alive, and also feel the joy that comes with helping worthy causes. There are also positive tax benefits for Sinead to give now rather than later. Let’s look at these potential positive tax benefits.

green beer

Faith and Begorrah: Double Federal Tax Benefit!

Gifts of long-term capital assets, such as stock, real estate, and farmland (where leprechauns may live!), can receive a double federal tax benefit.

First, Sinead can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock, real estate, or farmland. Even with the increased standard deduction under the Tax Cuts and Jobs Act, this is still a valuable consideration give the value of charitable donation would exceed the standard deduction. (It would be especially beneficial if Sinead is considering “bunching” as a tax-saving strategy.)

Second, assuming Sinead owned the asset for more than one year when the asset is donated, Sinead can avoid the long-term capital gain taxes which would have been owed if the asset was sold.

Guinness door

Let’s look at a concrete example to make this clearer. Sinead owns shares of publicly-traded stock in Diageo (Guinness‘ parent producer and distributor company), with a fair market value of $100,000. She wants her stock to help her favorite causes. Which would be better for Sinead (a single taxpayer) to do—sell the stock and donate the cash, or give the stock directly to her favorite charities? Assume the stock was originally purchased at $20,000 (basis), Sinead’s federal income tax rate is 37%, and her capital gains tax rate is 16%.

Donating cash versus donating long-term capital gain assets  Donating cash proceeds after sale of stock Donating stock
Value of gift $100,000 $100,000
Federal income tax charitable deduction ($37,000) ($37,000)
Federal capital gains tax savings $0 ($16,000)
Out-of-pocket cost of gift $63,000 $47,000

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Again, a gift of long-term capital assets, such as stocks, real estate, or farmland, made during lifetime, can be doubly beneficial. Sinead can receive a federal income tax charitable deduction equal to the fair market value of the asset and also avoid capital gains tax.

In Iowa, however, there is an even more potential tax benefit.

Saints Preserve Us: 25% Iowa Tax Credit

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

  1. The gift must be given to, or receipted by, a qualified Iowa community foundation (there’s a local community foundation near you).
  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, your local community foundation.

Let’s look again at the case of Sinead, who is donating stock per the table above. If Sinead makes an Endow Iowa qualifying gift, the tax savings are very dramatic. There are potentially huge tax benefits of donating long-term capital gain assets, such as stocks, real estate, and farmland while claiming the Endow Iowa Tax Credit:

Value of gift $100,000
Federal income tax charitable deduction ($37,000)
Federal capital gains tax savings ($16,000)
Endow Iowa Tax Credit ($25,000)
Out-of-pocket cost of gift $22,000

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Put another way, Sinead made a gift of $100,000 to her favorite charity, but the out-of-pocket cost of the gift to her was less than $25,000.

This is a great deal for Sinead and a great deal for Sinead’s favorite tax-exempt organizations. But, to be a smart donor you must also, of course, consider the potential areas of caution as well as the benefits.

Cautionary Ballads

The federal income tax charitable deduction is capped. Generally, the federal charitable deduction for gifts of stock, real estate, and farmland is limited to 30% of adjusted gross income. A taxpayer may, however, carry forward any unused deduction amount for an additional five years.

Additionally, records are required to obtain a federal income tax charitable deduction. The more the charitable deduction, the more detailed the recording requirements. For example, to receive a charitable deduction for certain gifts of more than $5,000, you need a “qualified appraisal” by a “qualified appraiser,” two terms with very specific meanings to the IRS. It’s a wise idea to engage the right financial and legal professionals to be sure all requirements are met.

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’s available on a first-come, first-serve basis. Submitting an application at the beginning of the tax year is advised, as tax credits often run out toward year’s end. In fact, this year approximately $6 million in tax credits were awarded and there are no more available credits to be granted. However, you can submit your application to be placed on the waitlist for 2020 tax credits.

Endow Iowa also has a cap per individual. Tax credits of 25% 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.

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. Consult your own professional for personal advice.

Sláinte!

rainbow

Our case study subject, Sinead, found the pot o’ gold at the end of the charitable giving rainbow by working with a qualified attorney who specializes in complex donations. You may not be in the same tax bracket as Sinead or have stocks valued at the same rate, but regardless, I would recommend to all donors with large gifts (especially assets of the non-cash variety). Want to discuss your giving goals and options for long-term capital assets? I offer a free consultation to all, so don’t hesitate to contact me.

women talking about philanthropy

March is Women’s History Month and to celebrate, I’d like to highlight just a few of the many women who have made their mark on history by practicing smart, impactful charitable giving. Undoubtedly these women believe in advancing philanthropy through “walking the walk” and moving the needle forward on what the modern philanthropy looks like. No longer is philanthropy limited to signing a big check, today’s do-gooders are creative, dedicated, and using social entrepreneurship to draw attention to pressing concerns of the world.

Melinda Gates

Gates, who has received her MBA from Duke, co-founded the Bill & Melinda Gates Foundation in 2000 with her husband. The couple has donated more than $36 billion to different charitable initiatives! Gates has been integral in expanding the reach of the foundation to include areas of focus ranging from global education to developing preventive measures and treatments for life-threatening illnesses, like malaria, tuberculosis, and HIV/AIDS. At the helm of the Foundation, Gates has persistently worked to combat global poverty and has raised awareness about important issues that demand practical solutions like “time poverty.”

Oprah Winfrey

No surprises here! The benevolent media mogul has given hundreds of millions to educational causes (including establishing the Oprah Winfrey Leadership Academy for Girls), endowed her own charitable foundation, and has supported a wide range of other charities ranging in fields from environmental, to arts and culture, to humanitarian. Oprah also regularly uses her platform of fame to encourage her fans/viewers to support charities they care about.

Sara Blakely

Youngest self-made female billionaire and founder of Spanx, Blakely was an early signer of the Giving Pledge, a call to action by founders Bill Gates and Warren Buffett encouraging billionaires to donate at least half of their wealth to charity. Additionally, her company’s foundation supports programs designed to empower underserved women and girls through education, entrepreneurship, and the arts.

Dr. Marilyn Simmons

Simons is president of the Simons Foundation. With a Ph.D. in economics, Simmons was uniquely poised to grow the 1994-established private foundation into a leading funder for math and scientific research.

Dr. Priscilla Chan

As a pediatrician, Chan has incorporated her medical training into the charitable and 501(c)(4) arms of the Chan Zuckerberg Initiative, which operates with ambitious goals such as “to cure, prevent or manage all disease in the next generation’s lifetime.” Also, in 2016, Chan founded The Primary School, a private, nonprofit school in East Palo Alto, California that offers both a high-quality education and healthcare services.


Inspired yet to make your mark and leave a lasting legacy? Of course, this is just a short list. This blog post could go on for days if we let it, as so many women are power players when it comes to charitable collaboration and effective resource management.

Believe me, you don’t need to be wealthy to make a difference and maximize what you can/want to give to your favorite causes and nonprofit organizations. Contact me to discuss strategies that are unique/work for you.

woman in front of painting

If you’re growing an art collection it brings up an interesting situation: how do you incorporate your prized pieces into your estate plan? Sure, you likely don’t have an authentic da Vinci, Renoir, or Klimt just hanging in your living room, but maybe you have a couple of pieces you inherited or a burgeoning modern art collection.

Value of a Passion

For most collectors the art isn’t about monetary value, but more so about a passion for a certain period, artist, or medium. Collecting is often an act of genuine appreciation for the fine arts. Considering both the intrinsic and market value of your art collection it’s ESSENTIAL you include it as a part of your estate plan. The collection is, after all, a part of your total estate’s value and they way it’s handled in your estate plan could impact the value of your gross estate in regards to the federal estate tax. When it comes to the estate planning goal of avoiding such taxes and fees the appraised value of your art is paramount to consider. Naturally, you want your collection to be well-treated following your passing, as well as retain its value.

Let’s go through some important steps and elements to consider.

Assemble Documentation

The value of the collection will be important to the estate plan. If you haven’t done so already, you must correctly catalog, photograph, insure, and appraise the collection. You should also gather all documentation such as appraisals and bills of sale that will need to accompany the artwork as it changes hands upon your estate plan’s execution.

Weigh Your Options

With an art collection, there are three main options for disposition within your estate plan (or to be executed during your life).

Donate

Donating your art to a charitable organization or a museum is an excellent way to practice smart charitable giving. It can also be one of the more simple options. Donate through your estate plan following your death and the estate will receive a tax deduction based on the current valuation. Give while you’re living and you can take an income tax deduction, also based on the value of the piece or collection at the time of the donation.

With this option, you and the recipient organization should agree to signed terms and conditions BEFORE the artwork delivery. Details can include specifics as to where and how the art is to be displayed if you want your name on the signage next to the painting and similar details.

Bequest Artwork to your Loved Ones

Another common option is to keep the art within the family by passing along the art along to your estate’s heirs. Yes, you could gift each individual piece to each family member, but if you want to keep the collection intact you could transfer the collection to a trust you create while living that can be updated and changed during your lifetime. A trust is a solid estate planning tool that allows your named trust beneficiaries to avoid estate tax and probate complications and fees. In the formation of your trust, you can also define the terms for the care and condition of the artwork.

You could instead bequest the collection to an entity like an LLC you create. In this case, your heirs would own interest in the LLC instead of each owning a piece of art. In your estate plan and in the development of the entity you can appoint a manager (or multiple managers) who make sales or purchasing decisions for the collection.

Sell

It goes without saying that art is expensive—to buy and to sell. There are benefits (and detriments) to this option during life and after death, but waiting to sell until after death means the art’s value will be included in the estate. As such the capital gains tax could be lessened or entirely eliminated because the tax basis for the art collection is increased to fair market value at the time of death, instead of what you paid for the art/collection. If you instead would like to sell while alive you can likely expect to pay a capital gains tax on top of a sales commission fee and sales tax (among other potential fees).

Give, gift, sell—whatever option you choose, select a plan that allows you to feel at peace with where and to whom your collection is headed.

Enlist an Expert

Regardless of what option you want to pursue in the disposition of your art work, you need to work with an experienced estate planner who can help navigate the complexity of your estate. It’s your estate planning lawyer who can help you establish a framework for passing along your artwork to your chosen beneficiaries.

Discuss With Your Family

Depending on your family dynamic, discussing your estate plan with your loved ones can be difficult. It can bring up emotion and hard topics like mortality, however, to avoid litigation, mitigate in-fighting, and help determine what’s the best course of action forward for your property it’s necessary. When it comes to your art collection, your heirs may not feel the same way about the artwork that you do and knowing these opinions is critical in the decision of what to do with the collection.

When having the conversation, cultivate an environment in which your family can discuss openly and freely without judgment. You want their honest opinions as a part of your decision in what to do with your collection in the event of your passing.

art graffiti


Just as the art itself can be exceedingly complex, so can incorporating said art into an estate plan. You probably have questions; don’t hesitate to reach out at any time via email or phone (515-371-6077). I offer a free one-hour consultation and would love to help you protect your artistic assets through quality, individualized estate planning.

Dr. Martin Luther King Jr memorial

Today we celebrate Dr. Martin Luther King, Jr. and his passion, constancy, and determination in making America live up to its professed ideals and fulfill “the promise that all men, yes, black men as well as white men, would be guaranteed the unalienable rights of life, liberty, and the pursuit of happiness.” His powerful impact belies the brevity of his life—a public career that lasted just a dozen years, from the Montgomery, Alabama, bus boycott in 1956 to the sanitation workers’ strike in the Memphis, Tennessee where he was assassinated in 1968 at the age of 39.

When we think of Dr. King, it’s often of his tireless campaign for racial justice, but that is shortchanging his all-encompassing vision for a better America involving poverty, health, and women’s rights. The social justice reforms he championed and his commitment to nonviolent direct action in order to achieve them led to his receiving the Nobel Peace Prize in 1964. Notably, he donated the entirety of his award — $54,123—to the civil rights movement.

I see Dr. King’s examples of generosity and commitment to the betterment of our world being practiced every day by Iowans who support the nonprofit organizations in their communities through charitable giving. Many ensure their support will continue after even after death, by creating estate plans that include legacies for their favorite charities.

Leaving a legacy is one of the most important things we can do in life because it enables us to carry our influence, our values, and our convictions into the future. Our lives may not have the kind of profound historical impact of Dr. King’s, but our individual legacies are no less consequential to the people we love and the organizations whose missions we care about. What will your legacy be?

What will your legacy be? Don’t hesitate to contact me for a free charitable giving consultation. As Dr. King said: “The time is always right to do what is right.”

Marting Luther King Jr. and American Flag

Martin Luther King Jr. Day is tomorrow (January 20) I think it’s important to pay tribute to a man who truly championed ideals of equity, freedom, peace, and justice. Among his many accomplishments, Dr. King tirelessly pushed for nonviolent activism and peaceful resolution to human rights issues. He reportedly wrote five books and gave hundreds of speeches in a single year…more than most of us could produce in a lifetime. And, there’s no doubt that he was a key player and influencer in the passage of the U.S. Civil Rights Act of 1964. Dr. King was subsequently was awarded one of the highest honors in the world in 1964—the Nobel Peace Prize—for “his dynamic leadership of the Civil Rights movement and steadfast commitment to achieving racial justice through nonviolent action.” (He donated the prize money, $54,123, back to the civil rights movement.)

Dr. King and his lasting legacy can undoubtedly serve as an inspiration to us all. I see his dream of a better world—a better future for all—exemplified in action by the hardworking Iowa-based nonprofit organizations. I also see his lessons being practiced by the wonderful donors who support these organizations and advance their missions.

So, yes, it’s nice to have a day off of work, but make certain the day doesn’t pass you by without setting a plan in place to perform some form of service for others.

Dr. King tirelessly pursued the advancement of human rights for the greater good and we can honor him by practicing forms of charitable giving as a way to advance our communities. Be it through volunteering time to an organization that speaks to your heart (remember, certain costs associated with volunteer can be tax deductible), setting up a donor-advised fund, or simply writing a list of the nonprofits you would like to include as beneficiaries in your will, you too can set out on an honorable service-oriented path and inspire your friends, family, and colleagues to follow suit.

MLK Jr. Day Quote

Dr. King’s lessons resonate with our hearts and heads because we too have dreams of making our corners of the world a better place to learn, live, and grow through service. Maybe Dr. King’s commitment to “practice what you preach” mentality has inspired you this year to give charitably more and more often. Maybe you considered his question, “What’s your life’s blueprint?” and decided to form the charity you’ve wanted to establish for a long time. Either way, don’t hesitate to contact me for a free consultation. As Dr. King said: “The time is always right to do what is right.”

man with fireworks - charitable giving

With ringing in the new year comes the inevitable resolutions to be happier, healthier, more productive…all good intentions. But, what if this year you make a different kind of resolution—an actionable goal that could make a difference in the causes you care about? How about a goal that goes beyond yourself and could also have a positive impact on your community? This year I implore you to make at least one charitable giving goal. A giving goal can be a “resolution” you actually keep after the snow melts. How? With the right plan in place!

woman looking at fireworks

Similarly, I encourage my clients to determine their estate planning goals. These goals help guide me in drafting a personalized estate plan and determining which documents and provisions are needed. After all, every Iowan, family, and business is unique. Charitable giving goals can work the same way as a guiding blueprint for the who, what, when, and why of giving.

Use the following information to set your charitable giving goals for the new year!  

tips for setting charitable giving goals

Set a budget.

Of course, to begin, you’ll need to examine your entire budget including income, committed expenses (such as rent/mortgage payments, all bills, healthcare costs, etc.), to determine your discretionary income—this is the money you have left over after your committed expenses.

Along with your budget you should also consider whether larger one-time donations or recurring (perhaps monthly) donations work better for your budget, personality, and spending habits. A one-time donation may help prevent money from being spent on other discretionary choices. On the other hand, a repeated, monthly donation may help divide the total amount up into manageable sums. And, monthly donations can often be configured to automatically be made from your account which makes it easy to set the figure at the beginning of the year and make it a regular expenditure. Nonprofit organizations are grateful for all charitable contributions, but recurring, monthly gifts make their budgeting easier.

Look at the big picture.

big picture giving

Step back from the accounting weeds for a moment and sit down with a plain piece of paper. Write down the causes and organizations you care about. If you feel passionate about a certain issue, but don’t know of a specific charity off the top of your head that is addressing the issue, make a note of it. Your list doesn’t have to be long, just true to you.

Then, commit to research to determine which organizations are going to invest your money toward a mission that aligns with your own ethos. Some things to consider about a charity:

  • Financial health. Tax-exempt organizations have to file Form 990 (officially, the “Return of Organization Exempt From Income Tax”)  with the IRS. This form details the organization’s financial information and is available to the public. Do a search on a database such as the Foundation Center, for a charity you’re considering donating to, and review the financial data.
  • What’s the charity’s commitment to transparency? How about accountability?
  • What’s the organization’s Charity Navigator rating, if any? Charity Navigator’s rating system examines a charity’s performance in the areas of financial health and accountability/transparency, and presents it in an easily discernible way.
  • Is the organization a public charity or private foundation? This will have an impact on your federal income tax charitable deductions.
  • Is the organization based in the U.S. or is it a foreign charity? (Generally, if the donee is a foreign charitable organization, an income tax deduction is unavailable.)

Of course, if you’re personally involved with an organization through volunteering, fundraising, or the like, that’s a good way to “know” the charities as well. Research will empower and embolden your charitable goals if you know your donation is going to an upstanding, trustworthy operation.

Seek advice.

If you made a goal to increase muscle mass, you would likely seek the services of a personal trainer. If your goal is to eat healthier? Maybe a nutritionist. When the goal is to be committed to smart charitable donations, you’ll want to enlist the likes of your lawyer, accountant, and/or financial advisor. Seek out a professional who has experience working with nonprofits, the tax code, and strategies for intelligent giving. This pro can and should be able to help you put your plan into action.

(This tip also applies to practicing charitable giving through your estate plan—something you should definitely hire an estate planning lawyer to make sure the estate plan is properly, legally executed.)

Focus efforts / limit charitable targets.

Smart charitable giving means a vested commitment toward a cause or organization’s advancement, as well as financially beneficial tax deductions for you. Unlike investments where the general advice is to diversify to reduce risk, in the realm of charitable giving the opposite may well be true. You may well receive the greatest “return” by concentrating your giving on a fewer, rather than more, organizations. Consider giving to two or three nonprofits to magnify your impact.

If you’re ready to commit to charitable giving goals you can actually keep I’m happy to offer advice and strategy. Don’t hesitate to reach out via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).

We’re now well into the 25 Days of Giving Series and it’s my intent to provide different aspects and strategies of charitable giving. Given that it’s the season of joy, sharing, and love it’s a great time to be thinking about smart giving (the kind that doesn’t involve gift wrappings, stockings, or bows). Read on to learn how the charitable remainder trust could be a valuable giving tool. 

Charitable Remainder Trust, defined

A charitable remainder trust (CRT) is a split interest trust that pays out income to one or more non-charitable beneficiaries for life (or lives) or a term of years not to exceed twenty. The selected payout rate may not be less than 5%, and no more than 50%, of fair market value (FMV) of assets originally placed in trust. At the end of the trust term, the remaining trust assets (the remainder interest) is distributed to charity selected by the donor; the actuarial value of the charity’s remainder interest must be at least 10% at the time of the trust’s creation.

Benefits of a CRT

  1. Note that a useful attribute of a CRT is flexibility. Although Donor’s transfer of property to the trust is irrevocable, a CRT provides for Donor the right to change charitable beneficiaries.
  2. Note also the tax benefits of a CRT. Donor may receive a federal income tax charitable deduction for the value of the remainder interest in the year of the transfer, Donor may transfer assets without recognition of capital gain tax, and there is no estate tax on the property passing to Charity.

Two forms: CRAT and CRUT

CRTs take one of two forms: a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT). There are important differences:

A CRAT pays an annuity to the income beneficiary at a selected payout rate that is a percentage of the assets valued at the time of the trust creation. Additional contributions to the trust are not permitted.

A CRUT pays a percentage of the annual value of the trust assets, a unitrust amount, to the income beneficiary. Additional contributions to the trust are permitted.

Variations of CRUTs

Several variations of the CRUT are permitted under the Internal Revenue Code:

  1. A Net-Income CRUT (NICRUT) permits the trustee to distribute an annual payment that is the lesser of the specified percentage of value in that year, or the net income actually earned by the trust in that year.
  2. A NIMCRUT is a CRUT with a net-income limitation subject to a make-up provision. Like a NICRUT, the terms of a NIMCRUT direct the Trustee to pay the lesser of the specified percentage of the value of the trust assets in that year or the net income actually earned by the trust in that year. However, if the payout is less than the specified percentage is paid out in one or more years, the accumulated “income deficits” will be made up in a subsequent year from the excess income above what is the specified percentage of the value of the trust assets in that year.
  3. A Flip CRUT permits the trust to begin its existence as a NICRUT or NIMCRUT, then “flip” into a standard CRUT on the occurrence of a specific triggering event, as provided in the trust document. The flip option is attractive when Donor wishes to donate to the CRUT illiquid or hard-to-market assets, such as real estate or closely held stock.

 

butterfly on finger

​Knowing if the CRT is a best choice for your charitable giving can be difficult, so I advise speaking with your trusted professional advisors to evaluate your situation. This concept can be confusing, so don’t hesitate to reach out for more information and explore how a charitable remainder trust could be beneficial to you. Feel free to contact me at any time at Gordon@gordonfischerlawfirm.com or by phone at 515-371-6077.

Santa with Heart

Thanks for reading the 25 Days of Giving series! Share with friends, family, & colleagues to inspire others to also make meaningful year end gifts this season…and plan ahead for 2020 charitable goals.

Under the current tax code, you may have changed the ways in which you give or the tax-beneficial strategies you employ with your charitable giving as compared to previous tax laws. What hasn’t changed, is that you may choose to deduct from your federal income tax any charitable contributions of money or property made to qualified organizations if you itemize your deductions. But, there are record keeping requirements you’ll want to stay on top of, so you’re not scrambling during tax time!

Payroll deduction substantiation

Making a charitable deduction directly from your paycheck is a great and steadfast way to be sure to meet your charitable giving goals. For charitable contributions made via payroll deductions, the donor needs two documents to substantiate the gift:

  1. a pay stub, W-2, or other document furnished by the employer that sets forth the amount withheld from the taxpayer during a taxable year by the employer for the purpose of contributing to a charity;
  2. a pledge card or other document prepared by or at the direction of the charity that shows the name of the charity.

Donors who give to a local United Way or other organizations that funnel contributions to other charities need to only obtain the pledge card or other document from the United Way and not from the affiliated charities which ultimately receive the money.

Payroll deductions of $250 or more

Tax law requires that for any contribution of $250 or more, the taxpayer must substantiate the contribution by a contemporaneous written acknowledgement of the contribution by the charity. For payroll deductions, the contribution amount withheld from each payment of wages to a taxpayer is treated as a separate contribution for purposes of the $250 threshold.

So, for example, a taxpayer who gave $300 over the course of a year through payroll deductions, $30 per paycheck over ten paychecks, would not trigger the $250 substantiation requirement. The substantiation requirement would only kick in if $250 or more is withheld from each paycheck.

If any of this is confusing, know you don’t have to navigate these requirements just by yourself. Contact me at any time to discuss your situation and charitable giving goals. We’ll figure out the best course of action together!