The title of this sounds pretty lacking in the “merry and bright” department…especially considering this is the 25 Days of Giving series! But, the name here describes a little-known deduction beneficial for volunteers…and nonprofits to stress to volunteers to indeed encourage more volunteering!

The IRS does NOT allow a charitable deduction for volunteering your services. However, out-of-pocket expenses relating to volunteering are deductible. Yes, seriously!

Any given charity should provide volunteers with a description of the contributed services and state whether there has been any transfer from the charity of goods or services back to the donor. In addition to other out-of-pocket expenses, mileage is deductible at the IRS rate. Also, expenses like tolls and parking can be deductible.

For example, if a volunteer travels to attend a meeting or conference sponsored by the charity, then there is a deduction only if there is “no significant amount of personal pleasure” in the meeting. This has become known as the “no smile” rule. To be deductible, the principal purpose of the meeting must be to further charitable goals (aka operative mission). Which, if you think about it, is something worth smiling about!

2 girls "no-smile rule"

Any questions as to what donors can and can’t deduct? If you’re a nonprofit organization you may have questions about the extent of information you’re required to provide. I welcome any questions on the topics and can be easily reached by phone at 515-371-6077; by email at gordon@gordonfischerlawfirm.com.

529 plan charitable giving

 For the majority of the 25 Days of Giving series, I’m going to focus on charitable gifts made to nonprofit organizations. But, investing in a student’s future and helping to make higher education more affordable and accessible is certainly a valid cause…and has tax benefits of its own. This brings to mind a different type of gift you can give to a loved one who is currently or planning on attending college: the 529 Plan. 

The 411 on the 529

Gordon Fischer Law Firm is dedicated to Iowans, so I’ll focus on the College Savings Iowa 529 plan, but know that all 50 states and D.C. sponsor at least one type of 529 plan. There are two types of 529 plans—prepaid tuition plans and college savings plans. The College Savings Iowa plan is a tax-advantaged program sponsored and administered by the Treasurer of the State of Iowa. The purpose? Just as the name “college savings” says, it is intended to “help an individual or a family pay for higher-education costs.”

girl in graduation robes

The account funds can be used by the beneficiary for any purpose, but for the withdrawals to be considered tax-free, the money must be used for qualified higher-education expenses at an eligible educational institution by the student. Eligible expenses include elements associated with higher education such as: tuition, mandatory fees, books, required supplies, computers (including related hardware and software), internet access, equipment required for enrollment/attendance, and even room and board during any academic period where the student is enrolled at least half-time.

If withdrawals are made and not used for a qualified expense, the deductions must be added back to Iowa taxable income and adjusted annually for inflation. Additionally, the earnings part of the non-qualified withdrawal may be subject to a 10% federal penalty tax on top of federal income tax. A great alternative to non-qualified withdrawals if the student doesn’t end up going to or paying for school is transferring the money to another eligible beneficiary’s 529 account.

Who Can be a 529 Plan Beneficiary?

Your school years may be far behind you, but you can set up a 529 for any beneficiary. The only requirements are that the prospective or current student must be a U.S. citizen or resident alien with a valid Social Security number or other taxpayer ID number. The student doesn’t have to reside in Iowa or be related to you in any way. So, you could set-up a 529 for your niece, but also your friend’s son whom you’ve known since he was little…even if he lives in another state!

woman opening gift on couch

Federal, State, & Estate Tax Benefits

The most obvious benefit of College Savings Iowa 529 accounts is that contributed assets grow deferred from federal and state income taxes. Plus, Iowa taxpayers can deduct up to $3,387 in contributions per beneficiary (student) account from adjusted gross income for 2019. These contributions can usually be made up through the tax-filing deadline. (For example, you could make a tax-deductible contribution for the 2017 tax year up until the end of April 2018.)

Beyond the $3,387 state tax deduction, you can contribute up to $75,000 in a single tax year for each beneficiary (or $150,000 as a married couple filing jointly) without incurring federal gift tax. This is provided you don’t make any other gifts to that student beneficiary over the course of five years. For the purpose of the contribution, it’s as if you made the $75,000 gift over the course of five years. Any additional gifts made to the beneficiary during that five-year period will incur a gift tax.

There’s another major benefit when it comes to the 529 and estate taxes. Money contributed to a 529 account is generally treated as a “completed gift” to the student beneficiary, but as the contributor/participant, you still have control over the money. If you were to die with money remaining in your account, it will not be included in your estate for federal estate tax purposes. In short, the 529 is a valid tool if your goal is to reduce the total of your estate to avoid the estate tax, but still, help a student you care about.

In terms of the estate tax, if you took the option for the $75,000 contribution ($150,000 for married couples) to a 529 plan account as if it was made over five years and then you die within the five-year window, a prorated portion of the contribution will be subject to estate tax. This can get a bit confusing, so please speak with your trusted estate planning attorney or tax advisor for more personalized information.

What’s your experience with 529 plans? Any questions in regards to how contributing to a 529 plan could impact your tax savings? Don’t hesitate to contact me by email (gordon@gordonfischerlawfirm.com) or phone (515-371-6077).

wreath on the door

Thanks for reading the 25 Days of Giving series. We’re “unwrapping” posts on various aspects (some well known, and some more obscure) of charitable giving each day through Christmas.

I know what you’re thinking…a bargain sale means discounts on stuff at the store. But, I’m talking about a different kind of sale—a useful charitable giving tool/technique.

Bargain sales defined

Bargain sales can be a useful charitable giving tool/technique. A bargain sale is a transaction in which a donor receives less than the full market value of property transferred to the charity. The transaction is treated as part sale, part gift, with the donor’s basis allocated proportionally between the gift amount and the sale amount.

Simple example of a bargain sale

Let’s take a simple example. Assume Jill Donor owns farmland worth $1 million, for which she paid $200,000 years ago. Jill sells the land to her local community foundation for $500,000 and starts her own donor-advised fund. Jill then makes a gift of the difference ($500,000) between the sale price and the fair market value of the farmland. Jill must pay tax on the gain element but may receive a charitable deduction on the gift element.

farmland bargain sale

The total basis of $200,000 is allocated between the gift and sale portions. Since Jill sold the land for half price of fair market value, the basis is allocated 50/50. Therefore, the allocated basis is $100,000. The gain, then, is $400,000; assuming the top capital gain tax rate of 20%, this would mean $80,000 of capital gains tax due. But Jill also avoided another $80,000 of capital gains tax by the bargain sale of the property.

The net result in this simple example is positive for Jill. Again, Jill received $500,000 in cash. But, she also may receive a charitable deduction for having gifted $500,000. The charitable deduction at, say, the top rate of income taxation, 37%, would be $185,000. One way to look at this entire transaction is that Jill received $500,000, paid $80,000 in capital gains taxes, but received a $185,000 deduction, meaning a net of positive cash flow of $605,000 to Jill.

Remember, all Iowans are unique and have individual legal and tax issues. Consult your own professional advisor for personal advice. Questions? Contact me at any time via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).

this week calendar

Believe it or not, National Estate Planning Awareness Week is a very real thing and we’re celebrating October 21-27! Let’s kick it off with a brief history on the Week and estate planning in general.

Background on National Estate Planning Awareness Week

National Estate Planning Awareness Week was an effort spearheaded by the National Association of Estate Planners & Councils (NAEPC) and Rep. Mike Thompson (D-CA) (with 49 other Representatives on board).  In September 2008, Congress passed H. Res. 1499 which designated the third week in October as a week for assisting the public in understanding the importance and benefits of estate planning, as well as how to assemble a qualified team of experts to assist in the process.

In general, it’s in the best interest of society when the transfer of wealth and property is as seamless and as close to the decedent’s intent as possible. That’s where estate planning comes in and why it’s so essential.

Sure, you won’t see decorations for sale for National Estate Planning Awareness Week…but you can still celebrate by discussing your estate planning needs and goals with a qualified, experienced estate planning attorney. This goes for your first (much needed) estate plan, but also revisions on existing estate plans. (Remember, estate plans never expire!)

Time Warp: A Brief History of Estate Planning

For as long as people have had property, that property has been distributed or passed along in some manner or another. In early cultures property was considered to be owned collectively by a family or tribe and when a leader of the group perished the assets were divided in accordance with family/tribal customs.

Estate planning was apparent in ancient Rome under the Code of Justinian which recognized oral and written wills that were approved by a public official. In the Anglo-Saxon period of England, royalty had to approve land transfers. That changed in the 12th century when property would automatically pass to the eldest son. Under English law, the Statute of Wills was established in the 16th century which allowed a landowner to pass along their land as they wished, whether that was to the eldest or not.

Current state intestacy laws are a modern iteration of British common law in which property inheritance passed to the spouse and children in pre-defined percentages.

Unfortunately, women were often excluded entirely from estate planning; assets were only distributed amongst male heirs at law and women were disinherited. At certain points throughout history, women (such as a wife or daughter) could be provided for through a trust upon the death of the husband/father, but often that trust was dissolved if/when the woman married/remarried. Thankfully policy and society progressed, and now women and men have an equal right to inheritance and ability to convey assets.

To that point, the individual American citizen of today has the freedom to plan for the distribution of property as wished without approval needed or mandate defining who can and cannot be a beneficiary.

Estate Planning in the United States

Statue of Liberty

In U.S. history, estate planning has been intricately linked with estate taxes because estate planning techniques are tools to reduce or even eliminate the Federal estate tax. To understand that in full you could go all the way back to the Stamp Act of 1797, where a tax was passed to fund the Navy in an “undeclared war with France.” The estate tax was subsequently abolished and then reinstated with corresponding wars including the Civil War and Spanish American War.

The estate tax, more or less as we think of it today, was instituted in association with World War I in 1916. To bypass this, people would gift parts of their estates to their families to which the lawmakers responded to by passing a gift tax in 1924. It was briefly repealed and then re-enacted in 1932 and remained that way until 1976 when the gift and estate tax were consolidated.

In modern political history, the estate tax has seen a few major changes; it was entirely revoked in the 2010 calendar year after 2001 legislation phased out the tax. However, that didn’t last long. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 meant a return of the estate tax but raised the exclusion to $5 million for 2011 and 2012. Then came the American Taxpayer Relief Act of 2012 which kept the $5 million inflation-adjusted exclusion figure, but increased the maximum rate of the tax to 40 percent from 35 percent. In 2018, the exclusion rate sits at $11.18 million per individual. This means an individual can leave $11.18 million to heirs and pay no federal estate or gift tax. Married couples get an exclusion for each spouse, so a couple can leave up to $22.36 to their heirs and IRS won’t collect estate tax on it.

Final Footnote

All of this history is to say that estate planning, in some form or another, has been an important aspect of societies in the world for a long time. Regardless of the size of your estate, and just like the ancient Romans or Americans of the early 1900s, you want to pass along your assets to the people you care about and want to provide for. Claim your right to distribute your property in accordance with your wishes by ensuring you have an up-to-date, quality estate plan. The best way to get started is with my free (and no obligation) Estate Plan Questionnaire. It’s a great tool for organizing all the important information you and your estate planner need to know when creating your custom estate plan.


This is the first of a week’s worth of articles all dedicated to the topic of estate planning as a part of National Estate Planning Awareness Week. Want to discuss your estate plan or talk about the history of the estate tax? Don’t hesitate to contact me.

hand filling out tax form

In June 2018, the U.S. Supreme Court handed down a decision in South Dakota v. Wayfair that changed the way remote sellers (like internet companies) do business in states where they don’t have a physical presence, like a brick and mortar store or a headquarters. Essentially it means these companies will start collecting sales tax in certain states with economic nexus laws already on the books to enforce collection against said remote retailers. Iowa is one such state.

What does this mean for you and your nonprofit? Most nonprofits may start seeing sales tax tacked on to certain receipts for digital accounts/services. (The rate of sales tax is based on your Iowa primary contact address.) But, some nonprofits are exempt from sales tax and therefore will need to remit an exemption certificate to the remote seller.

writing tax on a check

Taxes and Nonprofits

The interplay between taxes and nonprofits can be confusing. Even if a nonprofit is exempt from state and federal income taxes, it does not mean that entity is auto exempt from paying sales tax for goods and (taxable) services. Generally, sales taxes must be paid unless the nonprofit falls under the umbrella of some other applicable general sales tax exemption. (Local option sales taxes must also be paid on purchases made in existing areas.)

However, the Iowa Code does exempt certain nonprofits from paying sales tax on purchases. The Iowa Department of Revenue’s guide to “Iowa Tax Issues for Nonprofits” provides a (non-exclusive) list of entities that are specifically exempt from sales/use taxes under Iowa law. I’ve included the pretty lengthy list here for your convenience!

  • American Red Cross
  • Navy Relief Society
  • U.S.O. (United Service Organizations)
  • Community health centers (as defined in 42 U.S.C.A. subsection 254c)
  • Migrant health centers (as defined in 42 U.S.C.A. subsection 254b)
  • Residential care facilities and intermediate care facilities for the intellectually disabled and residential care facilities for the mentally ill (licensed by the Department of Inspections and Appeals under Iowa Code chapter 135C)
  • Residential facilities for intellectually disabled children (licensed by the Department of Human Services under Iowa Code chapter 237)
  • Residential facilities for child foster care [licensed by the Department of Human Services under Iowa Code chapter 237, except those maintained by “individuals” as defined in Iowa Code subsection 237.1(7)]
  • Rehabilitation facilities which provide accredited rehabilitation services to persons with disabilities and which are accredited by the Commission on Accreditation of Rehabilitation Facilities or the Accreditation Council for Services for intellectually disabled and other developmentally disabled persons and adult day care services approved for reimbursement by the Iowa Department of Human Services
  • Community mental health centers (accredited by the Department of Human Services under Iowa Code chapter 225C)
  • Home and community-based services providers certified to offer Medicaid waiver services by the Department of Human Services that are any of the following:
      • Health and disability waiver service providers, described in 441 IAC 77.30.
      • Hospice providers, described in 441 IAC 77.32.
      • Elderly waiver service providers, described in 441 IAC 77.33.
      • AIDS/HIV waiver service providers, described in 441 IAC 77.34.
      • Federally qualified health centers, described in 441 IAC 77.35.
      • Intellectual disabilities waiver service providers, described in 441 IAC 77.37.
      • Brain injury waiver service providers, described in 441 IAC 77.39.
  • Sales of tangible personal property and services made to nonprofit hospitals and nonprofit hospices (licensed under Iowa Code chapter 135B)
  • Statewide nonprofit organ procurement organizations
  • Nonprofit legal aid organizations
  • Nonprofit organizations organized solely for the purpose of lending property to the general public for nonprofit purposes
  • Nonprofit private museums*
  • Governmental units, subdivisions, or instrumentalities of the federal government or of the state of Iowa (This includes state, county, and local subdivisions of the government of the State of Iowa and those of any other state which provide a similar sales tax exemption to Iowa and its political subdivisions.) *
  • Recreational lake and water quality districts*
  • Federal corporations created by the federal government which are exempt under federal law *
  • Private nonprofit educational institutions located in Iowa *
  • Private nonprofit art centers located in Iowa
  • Habitat for Humanity in Iowa when purchasing building materials *
  • Toys for Tots when purchasing toys
  • Community action agencies as defined in Iowa Code section 216A.93
  • Substance abuse treatment or prevention facilities that receive block grant funding from the Iowa Department of Public Health

Sales Tax Exemption in Action

So, let’s say you’re an Iowa private nonprofit grade school that subscribes to an online newsletter service (which is based in California) so that administrators can design, write, and send a weekly email update to parents of students. Your organization would likely be exempt from the new sales tax charges imposed by the remote seller on your subscription rate.

Down to the Details

Exempt nonprofits must pay for their purchases from the entity’s account and should complete and submit an Iowa Sales Tax Exemption Certificate 31-014 to the remote seller.

Questions? Not sure if your nonprofit qualifies for this exemption? Don’t hesitate to contact me at any time to speak about your situation.

Did anyone sit in the very back row of their high school calculus class, slumped over, the brim of their baseball cap lowered, hoping to become invisible? I’m asking for a friend, of course. The chalk marks on the board—a series of numbers—may as well have been Mandarin Chinese to me. The teacher was no help, he spit numbers faster than a rapper and made less sense than the chalk marks. My “friend” understood nothing but somehow passed by the skin of his teeth. Law school was suddenly a sure destination (or, really, any school without math).

Back to school

Even Worse: College Math!

However, you needed an undergraduate degree before law school. (Ok…we’re talking about me, not my friend.) Thanks to the aforementioned miracle of passing calculus, my major at Iowa only required one math for graduation, at least at the time. That class was 22M-One, which was literally known on campus as 22M-Dumb. Still, I had to take the class twice. During the first try, halfway through the final exam, my friend got up, left his paper, and simply walked out. He knew he would flunk, so why torture himself or waste anyone else’s time? He barely passed the second time, and only did so after extensive tutoring.

Just curious, anyone have “math phobia” as bad as young me? This school daze story has a happy ending though. Eventually, I got past my major fear of math and was able to master the rules of math, especially as they relate to estate planning.

This Math Makes Sense

I know someone in your life (probably an engineer or actuary) has undoubtedly told you that math is fun and easy. But, when it comes to the IRA Charitable Rollover (AKA qualified charitable distribution (QCD)), this small bit of math really is!

You only need to remember six numbers:

  • 70.5 (years)
  • $100,000
  • 1 (as in one plan)
  • Zero (as in taxes owed if you do this right)
  • Zero again (as in, zero gifts in return);
  • 100% (every time I write about the IRA Charitable Rollover, I always get a certain response).

70.5 years of age

There are two threshold requirements to take advantage of a special provision known as the IRA Charitable Rollover. The first is that to be eligible you must be 70.5 years of age or older. An important nuance to note is the required annual distribution is based on the year the participant reaches age 70.5, not the day they reach that age.

The second threshold requirement is the IRA Charitable Rollover applies to IRAs only. Under the law, charitable gifts can only be made from traditional IRAs or Roth IRAs. The IRA Charitable Rollover does not apply to 403(b) plans, 401(k) plans, pension plans, and other retirement benefit plans. (I’ll discuss another great option, however, for these other retirement benefit plans, so be sure to read to the end of this blog post).

equation on a chalkboard

$100,000

Sure, living to 70.5 is great in itself, but it’s also the age where IRA Charitable Rollover allows individuals to donate up to $100,000 from their IRAs directly to a charity, without having to count the distributions as taxable income.

One Plan

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 individual IRA account. Also, this amount is not portable (i.e., sharable) between spouses.

Zero (as in Zero Taxes)

The IRA Charitable Rollover permits taxpayers to make donations directly to charitable organizations from their IRAs without counting this money as part of their adjusted gross income (AGI). Consequently, this means not paying any taxes on them. You read that correctly: folks who are 70.5 years or older are able to transfer donations from their IRA directly to charity, up to $100,000, with ZERO taxes on that money!

What charities/nonprofits are eligible to receive the donation(s)?

Charitable contributions from an IRA must go directly to a qualified 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 must go directly to the charity. A donor cannot withdraw the money, and then give it to charity. Rather, the IRA administrator must send the donation straight to the charity.

Zero (as in gifts/services back from charity)

Donors cannot receive any goods or services in return for IRA Charitable Rollover amounts in order to qualify for tax-free treatment. As one philanthropist explained, “Why would you want to (potentially) mess up a $100,000 tax-free donation by getting a $25 tote bag?” No matter how good the bag looks, it’s not worth that!

70.5 years of age and IRAs only

Once again, to be eligible you must be 70.5 years or older. Also, qualifying 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 covered by the IRA Charitable Rollover law.

100%

Every time I write about the IRA Charitable Rollover, I receive communication from someone saying that life sucks because they don’t qualify for the Rollover. They aren’t 70.5 years old, or they have a different retirement benefit plan than an IRA, or both.

But, here’s the thing, anyone can still use their retirement benefit plan(s) to help their favorite charities.

Magic of Beneficiary Designations

No matter what your age, or what your type of retirement benefit plan (IRA, 401(k), 403(b), etc.), there is a super-easy way for you to help your favorite charity. Simply contact the account holder and name your favorite nonprofit as a beneficiary! This is so simple. No lawyer or drafting of legal documents is required—the owner of the retirement benefit plan simply has to direct the account holder to change the beneficiary. There are also no taxes with this charitable giving approach because, frankly, when the donation passes to the charity it’s because you’re dead. No taxes for the nonprofit either; as a qualified nonprofit, they don’t pay taxes on donations.

Note that if the account owner is married, the spouse should be informed and may need to consent to the designation. And, please follow up with the account holder to make sure the account holder received your request and made the beneficiary changes properly in full.

Want to work through how the IRA Charitable Rollover math fits in with your planned giving goals and current/future tax strategy? Reach out to me anytime. I offer a free, no-obligation one-hour consultation. You can contact me by email (gordon@gordonfischerlawfirm.com) or on my cell (515-371-6077).

iowa state football

Happy National Tailgating Day! As we fire up the grill and hang up the pendants in prep for some college football, I figured today was the perfect day to explain where college sports ticket rights fall under the tax code. Why? Because the Tax Cuts and Jobs Act (TCJA), passed in 2017, made some major changes to the deduction for charitable contributions.

A Bit of History

Before the tax code overhaul, donations made to nonprofit universities and colleges in exchange for the direct or indirect right to purchase seats at athletic events were 80% deductible as a charitable contribution on itemized taxes. Since the late 1980s (under the Technical Corrections Act of 1988), colleges used this tax code provision to incentivize donors’ gifts and modeled the practice after seat licenses in pro sports. However, this was a costly provision; this tax break was apparently costing the U.S. Treasury at least $100 million a year (at the time of estimation in 2012), and possibly as much as $1 billion, according to Bloomberg.

Federal Tax Change: Deduction Repealed

In the post-TCJA world, this deduction is now repealed. So, what do you need to know? If you make a donation to a university in exchange for a receipt that gives you the ability to purchase certain seats (think the 50-yard line at Kinnick Stadium!), this charitable gift is no longer tax-deductible at the 80% rate on your federal income taxes. Of course, you can still elect to make valuable, qualified charitable donations to your alma mater or another favorite higher education institution, but college sports fans can’t claim a tax break specifically made to secure college sports season tickets.

State of Iowa Taxes: Deduction Remains

However, Iowa sports fans cans still cheer, because Iowa did not parallel the federal repeal. Individuals can still deduct 80% of a qualifying contribution for those Cyclone, Panther, Bulldog, or Hawkeye seats to the extent it does not exceed the individual’s applicable adjusted gross income deduction limitation on state income taxes. Keep in mind, of course, you will need to itemize to claim the deduction.

Still have questions about how to maximize contributions to your favorite college or university (for athletic seats or otherwise)? We can work out a plan so that you can meet your charitable giving goals in a tax-wise manner. I offer a free, no-obligation consult, so don’t hesitate to contact me.

hands typing on computer

A cutting edge issue in traditional estate planning is cryptocurrency. “Cryptocurrency” (as defined by Investopedia) is “a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.”

The most common, and for now the unofficial standard for cryptocurrency (AKA altcoin) is Bitcoin. But the market is getting increasingly more crowded with others including Ripple, Dash, Litecoin, and Zcash to name just a few. (For the purposes of this article, we’ll focus on Bitcoin, but these points could be applied to cryptocurrencies in general.)

Many posts could be written about cryptocurrency, its benefits, and its challenges, but this post is focused on how to account for Bitcoin in your estate plan, as opposed to a standard currency, like the U.S. Dollar.

Acknowledge the IRS’ Perspective

The IRS has determined, at least for the time being, virtual currency is treated as personal property for federal tax purposes. So, virtual currency transactions are most definitely not the same as, say, online banking through your local community credit union. Instead, for general tax purposes, Bitcoin is treated like tangible property you own, like a painting or a car.

Establish the Existence of Bitcoin

Unlike a checking or saving account. there are no beneficiary designations on Bitcoin accounts. In fact, quite the opposite — Bitcoin is anonymous. Therefore, if you were to die without communicating that you have Bitcoin, it will die with you.

For security reasons, of course, you won’t want everyone to know about your ownership of Bitcoin. But you do need to develop a method for passing along the important details to a trusted representative such as your named trustee or executor. This is somewhat similar to accounting for digital assets in your estate plan and many of the same steps/tips apply.

Bitcoin falls into somewhat of a “grey” area outside the realm of a pure digital asset, but it also isn’t a pure financial asset. It might make sense to entrust the existence of Bitcoin to the person you assign to take care of your digital assets, especially if they have a better knowledge base of the what/why/how of cryptocurrency.

Make sure the Bitcoin is Accessible

Unlike a traditional bank account, your executor/trustee can’t just simply contact Bitcoin (as they would your community credit union or bank)  after your death. Your agent must have your private key (or username/password depending on the wallet host) in order to access and then distribute the coin as you’ve determined in your estate plan. Again, if you’re the only person who has access to your “wallet,” the Bitcoin will be forever lost in the network. If you’re comfortable with it, you could include your Bitcoin private key on a secure digital archive site like Everplans or, more traditionally, you could keep the key in a safety deposit box.

Plan for the Prudent Investor Act

Many states, including Iowa, have a version of the Prudent Investor Act. (The text of Iowa’s law can be found under the Iowa Uniform Prudent Investor Act.) Under the Act, if you die with a large reserve of Bitcoin, it could be considered an “investment” which the trusted agent could be required to sell and/or diversify. In the face of uncertainty, it’s always better to account for contingencies in your estate plan before your loved ones are faced with a bad scenario. If one of the goals of your estate plan is to grant your executor/trustee the ability to hold your Bitcoin long-term, then it’s wise to include specific language in your will or trust absolving the executor/trustee from liability if they “fail” to diversity your Bitcoin.

Think About Taxes

If your executor/trustee retains your Bitcoin it would not be considered income (at least at the time of this post’s writing). However, if Bitcoin is converted to cash following your passing, it must be declared as income on an estate tax return. Additionally, if your executor were to retain Bitcoin, see it appreciate in value, and then sell it, there is the issue of the capital gains tax. (“The IRS requires American resident taxpayers to report Bitcoin trading income and losses worldwide on U.S. resident tax returns.”) Consider this in your directive of how you would like your Bitcoin to be managed in event of your death.

Fair Market Value: Step Up or Down

The fact that Bitcoin is currently considered personal property means evaluating for either a step-up or step-down in basis given the fair market value on the date of death. (I write more on this in regards to four different types of assets here.)

Let’s consider the hypothetical where Betty inherits 100 Bitcoins (BTC) from Amy. At the time of Amy’s death 1 BTC is worth $50 and when Betty goes to spend 1 BTC, it’s worth $60. That means Betty’s taxable gain on the use of the Bitcoin is $10. How much Amy initially paid for the 100 BTC is irrelevant. Again, the only relevant factor is the fair market value on the date of Amy’s death. It’s wise, as part of your estate planning, to consider your Bitcoin’s depreciation or appreciation to determine how this may affect your heirs. It’s even wiser to discuss your individual situation with professional tax and financial advisors, as well as your estate planning attorney.

Estate Planning is a Must, not an Option

It’s likely we’re going to only see more unique situations, such as that which cryptocurrency presents, in the future. While the future value of Bitcoin may be uncertain, for certain you need an estate plan, and you shouldn’t let your investment die with you. If you already have an estate plan, it’s probably a good time to revisit it to ensure it accounts for assets like Bitcoin. Email me or give me a call (515-371-6077) with questions or to discuss your digital estate planning needs.

hands in huddle

Did you know that April is National Volunteer Month? Celebrate and make an impact at the same time by donating your time, energy, and skills to the causes you care most about.

However, unlike the charitable contribution deduction on federal income tax for cash and non-cash assets, the IRS does not count volunteering time as a part of that deduction. However, out-of-pocket expenses relating to volunteering are deductible.

Out-of-pocket expenses are deductible if the expenses are:

  • unreimbursed;
  • directly connected with the services;
  • expenses you had only because of the services you gave; and
  • not personal, living, or family expenses.

Out-of-pocket charitable expenses which might be deductible include the cost of transportation (including parking fees); travel expenses while you are away from home performing services for a charitable organization; unreimbursed uniforms or other related clothing worn as part of your charitable service; and supplies used in the performance of your services.

As with other donations, keep good records…documentation is key!

love your neighbor hat

If you have any questions I would love to be of assistance. (After all, the mission at Gordon Fischer Law Firm is to maximize charitable giving, which certainly includes volunteer time!) Reach out to me at any time via email or by phone (515-371-6077)

hands of 2 grooms

Everyone needs an estate plan! This goes for if you’re a young professional or have minor children or are retired. And, it goes for all married couples

This year marks a decade since Iowa Supreme Court decision of Varnum v. Brien, which legalized same-sex marriage in the state. This case was a precursor and set a standard echoed subsequently in other states and eventually at the national level. The Supreme Court’s opinion in Obergefell v. Hodges, which legalized same-sex marriage was a major win for both LGBTQ and human rights. 

Love is love written on card

The 10-year marker of the Varnum decision reminded me that Obergefell had an enormous impact on estate planning. With same-sex marriage now recognized across the country, it opened a multitude of previously unattainable tools and tax-savings that come along with a legal and recognized marriage. Yet, same-sex couples still may have situations that require extra or special planning. You may be surprised to learn that It can’t be it covered by a single article, so I’ll hit the high points. Here are five considerations for same-sex spouses engaged in estate planning.

Unlimited Marital Deduction

The unlimited marital deduction is a money-saving must for all married couples. The unlimited marital deduction is an essential estate preservation tool because it means an unrestricted amount of assets can be transferred (at any time, including at death) from one spouse to the other spouse, free from taxes (including the estate tax and gift tax). Prior to Obergefell, same-sex couples had to depend on their individual applicable exclusion in order to provide for a surviving partner.

(Note that the marital deduction is available only to surviving spouses who are U.S. citizens. If your spouse is not a U.S. citizen, look at other tools, such as a qualified domestic trust (QDOT), which may act to minimize or eliminate taxes.)

marriage equality flags

Guardianship of Minor Children

A will is so critically important for several reasons, including the fact a parent can make a designation of guardianship for minor children should something happen to the parent while the child is still under age 18. Without a will, no guardianship can be established, and Iowa Courts must choose guardians. Unfortunately, with no clear evidence as to what the former caregivers would have preferred, the Court must make its “best guess” as to who the parents would have preferred and what would be in the best interest of the child. The Court may, or may not, choose who the caregivers would have named.

Child smiling on bridge

Establishing guardianship is SO important for all parents, but especially so for same-sex parents. The legal relationship between a minor child and a parent in a same-sex marriage should specifically be identified in the estate plan. Additionally, if only one spouse is currently the natural or adoptive parent of a minor child, the spouse of the said parent should consider adopting the child to legalize the relationship. Without this officially established relationship, the death of the adoptive/natural parent could open the door for a custody battle with the deceased’s family or the child’s birth parents. To avoid litigation (and avoiding litigation in estate planning is always a good idea), co-parent adoptions protect each parent’s rights regarding guardianship.

If adoption isn’t on the table, it’s smart to create a trust with specific provisions for the relationship between the non-legal parent and the minor child if someone else were to become the guardian.

(Expert advice: The adoption tax credit is not available for a spouse adopting a spouse’s child. If adoption is in the plans it may be financially advantageous for the adoption to take place prior to marriage.)

Give Your Assets to your Child(ren)

Adoption also plays an important role not just in guardianship but in the passage of assets. Typically, when parents die their assets are passed on to their child(ren). If this is indeed an estate planning goal for a same-sex couple, adoption should definitely be considered since it’s more common in same-sex marriages for only one parent to be biologically related to the child.

The term for adoption by a spouse (without the “first parent” losing any parental rights) varies from state-to-state and can be called second-parent adoption, co-parent adoption, stepparent adoption, or confirmation adoption.

mom daughter blowing kiss

Once an adoption is final, an adoptive parent has all the permanent legal rights and responsibilities of a parent-child relationship, exactly the same as that of a birth parent.

Without the legal determination and an estate plan the child(ren) may not get anything as the couple’s assets could flow instead to other family members.  

Professional Planner

For all the aforementioned considerations and more, it’s smart for all couples, but especially same-sex couples, to avoid the DIY online estate plan templates. Most of these services don’t include the specific provisions and important estate plan needs of LGBT couples. Seek out a lawyer with ample experience in estate planning who understands the potential legal challenges your estate could face so they can adequately protect your assets from potential peril. For instance, if you think the situation could arise where family members who disprove of the marriage or decisions regarding the estate could create future conflict, your lawyer should be able to advise on how a “no contest” clause to be incorporated into the estate plan.

Comprehensive Review

As stated before, given the tax-saving tools that marriage provides, it’s nothing but beneficial to review any and all existing estate plan documents of each spouse. (Married couples often seek joint representation in estate planning, but individual representation can help couples avoid conflicts of interest.)

In your estate plan review confirm that definitions accurately reflect relationships with verbiage such as “spouse,” “children,” “husband,” “wife,” and the like, so there’s no ambiguity when it comes to execution of the plan.

Following marriage, it’s also a good idea to take a look at re-titling property (such as a home) from sole ownership to joint tenancy. This means that if one spouse were to pass, the other would get the property without it passing through probate. (Depending on your situation, you could also consider “tenancy in common” as another option for holding property titles under multiple names.)

Additionally, don’t forget to check your beneficiary designations on accounts such as savings/checking, insurance, 401k, and retirement benefits, as these designations actually trump your will.

Ask your professional advisors—lawyer, financial advisor, insurance agent—to help you maximize your money-saving benefits when it comes to gift, income, and federal/state estate taxes.

two brides getting married

Get Started

You’ve worked hard for the assets you’ve built and the property you’ve acquired. Almost assuredly you want these assets to pass to the ones you love—the ones you’ve built a life with and around. Don’t let legal loopholes, family members that will never fully understand that love is love, or guardianship issues get in the way you crafting your legacy. It’s never too early to get started on your estate plan (with my free, no-obligation) estate plan questionnaire. I’m always happy to discuss the topic over the phone (515) 371-6077 or via email.