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cash and checkbook

When estate planning you’re answering many of the unknowns for the future by deciding to whom you want your stuff—your cash assets, real estate, personal property, physical body, to name just a few—to pass to and when. You also have to consider some tough topics about your own mortality and imagine a future for your loved ones that doesn’t involve you in it. Estate planning also has a little bit of a learning curve—figuring out what strategies and documents you may need to help you meet your tax, financial, charitable giving, and estate goals and why. (Just one of the many reasons a qualified estate planner is a must.)

The one thing that shouldn’t be a mystery or an unknown cost is the cost of an estate plan. If you’re going to invest in a quality set of legal documents that never expire, tailored to your personal situation and intentions, you should know what you’re getting yourself into. Rate Sheet Checklist

That’s why Gordon Fischer Law Firm is always transparent with estate planning package rates. You can find them at the end of my Estate Plan Questionnaire (the first of many important documents a part of your plan) and you can also find them on this (super shareable!) estate plan package rate sheet.

Don’t have an estate plan? Don’t let any questions about costs hold you back. Get in touch with Gordon at gordon@gordonfischerlawfirm.com or by phone at (515) 371-6077.

 

green beer

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

four leaf clover

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 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.

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.

https://www.gordonfischerlawfirm.com/4-benefits-charitable-gifts-stock/

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 (which goes into effect for the 2018 tax year), this is still a valuable consideration give the value of  charitable donation would exceed the standard deduction. (It would be especially beneficially 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 20%.

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 even more potential tax benefit.

Saints Preserve Us: 25% Iowa Tax Credit

Under the Endow Iowa Tax Credit program, gifts made during 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.

https://www.gordonfischerlawfirm.com/some-things-bear-repeating-the-endow-iowa-tax-credit-program/

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.

Endow Iowa: For Good For Iowa For Ever

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.

https://www.gordonfischerlawfirm.com/noncash-gifts-5000-requirements/

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 wait list for 2019 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 consult to all, so don’t hesitate to contact me.

red ornaments Endow Iowa Tax Credit

Merry Christmas Eve and thank you for reading the 25 Days of Giving series! In the spirit of the holiday season I’m covering different aspects of charitable giving…perfect to get you thinking about your end-of-year giving.

There are many, many reasons Iowa is great place to live and work. One reason is the Endow Iowa Tax Credit Program—a smart way to stretch your charitable dollars. Iowa community foundations provide exclusive access to the Endow Iowa Tax Credit program. Giving through the Endow Iowa program allows Iowa taxpayers to receive a 25% Iowa tax credit, in addition to the federal charitable income tax deduction, for qualifying charitable gifts.

gift with glitter ribbon

The Endow Iowa Tax Credit Program provides unique opportunities to meet philanthropic goals while receiving maximum tax benefits. Highlights of this program include:

  • A variety of gifts qualify for Endow Iowa Tax Credits including cash, real estate, grain, appreciated securities, and outright gifts of retirement assets. In fact, appreciated assets, like stocks or real estate, can provide even better value because the donor may avoid capital gains taxes.
  • To be eligible, gifts must benefit an Iowa charity.
  • 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, assuming both are Iowa taxpayers.
  • Eligible gifts will qualify for credits on a first-come/first-serve basis until the yearly appropriated limit is reached. If the current available Endow Iowa Tax Credits have been awarded, qualified donors will be eligible for the next year’s Endow Iowa Tax Credits. Donors should be encouraged to to act as early in the year as possible to ensure receipt of credits as soon as possible.
  • All qualified donors can carry forward the tax credit for up to five years after the year the donation was made.

There is one “catch.” Funds can only be granted at a spend rate of 5% per year. It should also be noted that the Endow Iowa Tax Credits are capped. The Iowa Legislature sets aside a pool of money for Endow Iowa, 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 wait list for 2018 tax credits.

In exchange for 25% Iowa tax credit and the opportunity to have an even greater impact on their philanthropic interests in the state of Iowa, now and into the future, the Endow Iowa Tax Credit Program should be seriously considered by all. Any questions or thoughts on how the Endow Iowa Tax Credit Program could mean big benefits for your finances and your state? Don’t hesitate to contact me.

old and young hand touching a rose

If you have a living trust (sometimes referred to as an inter vivos trust) in your estate plan, you need to know how to administer it. That sounds like common sense, but there are some unique elements to consider that otherwise you probably wouldn’t think about. The following definitions and directions should help you with that process.

In the following descriptions I also include details of what role I play as a lawyer in assisting the process of funding and administering my clients’ living trusts.

(If you’re considering whether or not you need a living trust, this blog post helps break down the basics. Of course, don’t hesitate to contact me to discuss your individual situation.)

Tax Identification Number

As long as you are the trustee of the trust, the trust’s tax identification number is your social security number. No separate tax return will need to be filed for the trust for as long as you are the trustee.

Initial Funding of Trust

One of the primary reasons to use a trust is to give your trustees and beneficiaries the ability to avoid probate proceedings at your death. This only works if all your assets are owned by the trust. Accordingly, I suggest you transfer your assets to the trust as soon as you have signed your estate planning documents. The transfer can be easy or difficult, depending on the nature and extent of your assets. The following is a brief description of the process you should complete. I am available to assist you in the process if you wish. Your assets and accounts should be held as follows: (Your name), Trustee of the (Your name) Living Trust.  

Bank Accounts

You should make an appointment with each of your bankers to transfer ownership of your bank account to the trust. When you go, take an updated list of your accounts with the bank or have the banker print one for you. Also take a copy of your trust agreement. If you open new accounts or certificates, please make sure that those new accounts are held in the name of the trust.

piggy bank with gold coins

Option: If your bank requires you to establish a new bank account for your trust and you do not desire to replace your current account for various reasons, you can establish a “Payable on Death” (POD) designation on your bank account to provide that upon your death the account is paid to the Trustee of the ________ Living Trust. This should be handled by your bank.

Brokerage Accounts

The procedure for changing brokerage accounts should be the same as the procedure for transferring your bank accounts.

Stocks and Bonds Held in Certificate Form

If you own stocks and bonds in certificate form, you will need to obtain directions from the transfer agent for each individual stock or bond owned. An alternative would be to have your broker, if you have one, assist you with the transfer. I am often asked to assist my clients in the transfer of these types of assets; please let me know if I can assist you.

Savings Bonds

Savings bonds can be transferred to your trust; you should take your bonds to the bank to be reregistered. Current regulations do not require title to be changed if the total amount of the U.S. Savings Bonds are less than $100,000.

Closely Held Business Interests

If I am the attorney for the business, I can assist you in transferring ownership from the business to the trust. If I am not, you should contact the attorney for the business or whoever is in charge of the ownership record books. If they are not familiar with the use of living trusts or are hesitant to change ownership, please contact me.

Real Estate

modern condos

As part of my service in preparing trusts, I prepare and record deeds transferring your Iowa real estate to your trust. For out-of-state property, you should contact an attorney in the state to complete the transaction. I can refer you to an out-of-state attorney if you do not know of one to assist you. It is particularly important to change ownership of out-of-state real estate. If you don’t, separate probate proceedings may be requited. You should also contact your liability insurance agent and ask them to add your trust as an additional insured on your household and liability policies.

Tangible Personal Property

Unless your household goods and personal effects are quite valuable, I would generally not prepare a bill of sale transferring those goods to your trust. Your will contains provisions regarding the distribution of personal property, and you can also write a list of memorandum specifically providing for the distribution of those goods. You do not need to retitle your automobiles, as your family will be able to sign an affidavit concerning the ownership of the automobile after your death.

Assets with Beneficiary Designations

Your trust will not control the disposition of assets you own with beneficiary designations, such as life insurance policies, annuities, IRAs, and other retirement plans. The beneficiary designation form controls the disposition of those assets. You should avoid listing your estate as the beneficiary of any of these types of assets unless we  have specifically advised you to do so. You may list your trust, individuals or charities as the beneficiary or beneficiaries. If you list beneficiaries other than your trust, please remember that on your death the beneficiary will receive those assets in addition to his or her share of the trust assets.

Changing Trust Provisions

You can amend or revoke your trust at any time. Simply call me and I will prepare the appropriate paperwork.

When you are no Longer the Trustee

two people discussing living trust

If you become unable to manage your financial affairs, or if you simply want to have the successor trustee act on your behalf, the successor trustee will need to obtain a separate tax identification number from the IRS and a short form information tax return will need to be filed each year.

Administration of Trust upon your Death

Upon your death, the successor trustee will administer and distribute the trust assets in accordance with the provisions of your trust. If you ever have any questions about the administration of the trust, please contact me.

 Questions?

You probably still have some questions on living trusts…which is why I’m here! Don’t hesitate to contact me by phone (515-371-6077) or email (gordon@gordonfischerlawfirm.com). I offer a free one-hour consultation at which point we can discuss your personal situation, see if a trust is right for you, and set up the steps to take for success.