Klitzman Law Group, PLLC

Should You Consider Planned Giving?

Estate planning presents many opportunities for philanthropically minded people, and you don’t have to be a millionaire to be a philanthropist. One way to ensure that your assets are given to causes you care about is addressed in the article “What Is Planned Giving?” in Financial Advisor.

Planned giving means donating assets to a nonprofit in a structured way during your lifetime or as part of an estate plan. The assets can be cash, securities, real estate, life insurance proceeds, funds from retirement accounts, or assets held in trusts.

Why make a planned gift? Planned giving is a means to create a legacy, ensuring something you value continues after you are gone. This can be a large donation to fund building construction, a student scholarship, or an endowed program. It can also take the form of an annual gift to the organization.

The benefit of a planned gift is it allows you to structure assets to accomplish other things, like providing for beneficiaries. Certain charitable trusts can provide income to spouses, children, or grandchildren over decades or in a lump-sum payment.

Creating a planned giving program should align with your overall estate plan to achieve optimal results in growing wealth and minimizing tax liabilities. Doing so requires discussing your charitable intent with your estate planning attorney, determining the best way to do this and then drafting wills, trusts and any other instruments to work together.

The development office of any nonprofit organization will be familiar with planned giving and may even have someone on their team who focuses on planned gifts. They are usually happy to receive donations this way and will also know about different types of gifts and tax-efficient strategies.

Planned giving can also be used with a tax-advantaged vehicle like a donor-advised fund, which owns assets specifically for use by a charity.

Consider why you want to make a charitable gift and what you hope to accomplish. You and your estate planning attorney can then map out a strategy to benefit you, your loved ones and the nonprofits of your choice, demonstrating your priorities and creating a legacy.

Reference: Financial Advisor (June 1, 2024) “What Is Planned Giving?”

What Information Should Be in a Will?

While it’s clearly more fun to plan for a baby shower than to contemplate your own mortality, making arrangements for the eventualities of life as we age—including incapacity and, yes, our own passing—does bring peace of mind. It’s necessary for everyone 18 and older, says a recent article from BestLife, “The 10 Most Important Things to Include in Your Will, Experts Say.”

The reason is simple: if you are incapacitated and cannot speak for yourself regarding healthcare decisions or your financial life, you need someone to do so for you. This is as much a part of your estate plan as asset distribution.

Planning for incapacity includes having a Power of Attorney (POA) and possibly a lifetime or revocable trust. The POA assigns someone else to manage everyday financial matters. The Healthcare POA is used to designate someone else to make medical decisions on your behalf if you can’t do so. You’ll need to discuss these roles with the person or people being named to ensure that they are comfortable with the responsibilities. Be sure that your Healthcare POA knows your wishes regarding medical directives and will carry them out, even if they feel differently about your wishes.

Your Last Will and Testament is part of a group of documents, including the POAs mentioned above. A will is used to name an executor who administers your estate. The executor has a large task, including gathering information for all assets, filing final taxes and estate taxes, paying off debts, notifying family members and distributing assets. Your executor should be someone you trust and who has the financial acumen to take on all these tasks, as well as managing heirs who don’t always appreciate the executor’s responsibilities.

You’ll need backups for all the people in all roles. Let’s say you chose a respected friend of many years to be your executor. If they become ill or die themselves, who will oversee your estate? You need a second, or even a third, backup executor to be named in your will. The same goes for trusts. A successor trustee is necessary to be sure that your trust and its assets are in good hands.

Minor children or dependents are protected through a will that is used to name a guardian (and a backup guardian) for minor children. If no one is named, the court will decide who will raise your child(ren). Similar issues need to be addressed, such as when you would want your children to receive an inheritance—all at once or when they reach legal age. Could it be specific percentages based on age? Picking the right person and creating a plan will ensure that the children have a good life, even in your absence.

Keeping wills up to date is critical to ensuring that your wishes are followed at every stage of life.  Everyone involved should know where the original copy of the will is located. Some estate planning attorneys will safeguard your will, while others recommend keeping it at home in a fire and water-proof safe. Whichever route you take, tell your executor and family members where it can be found.

Discuss the use of trusts with your estate planning attorney. Using trusts can minimize the amount of your estate needing to go through probate, which can be time-consuming and costly.

Don’t neglect your furry or feathered friends. If your lifestyle includes companion animals who are dear to you, consider who would take care of them if you became incapacitated or died. You can use a pet trust to provide assets for their care and name a caretaker, so they don’t end up in a shelter.

Avoid family battles by including your wishes for personal possessions with special meaning in your will. Family heirlooms, artwork and jewelry are among the items families fight over. Spare your family this stress by naming them in your will or gifting them while you are still living.

Digital assets have become a part of our modern lives. Suppose you leave a list of accounts, usernames, passwords and specific directions for your wishes. In that case, your executor will need to be able to manage your digital assets, including financial accounts, photos, subscriptions, airline miles, email and social media accounts.

If you wish to leave assets to a charity, you can do so in your will or make gifts before you die. Speak with your estate planning attorney about how to bequeath assets to a charity, which should be done in alignment with your overall estate plan.

Reference: BestLife (May 3, 2024) “The 10 Most Important Things to Include in Your Will, Experts Say”

Are Charitable Remainder Trusts a Good Idea?

For many years, the Stretch IRA was used to leave assets to heirs very tax-efficiently. Then came the SECURE Act, according to the article “Charitable Remainder Trust: The Stretch IRA Alternative” from Kiplinger. The ability for IRA beneficiaries to take the smallest of RMDs (Required Minimum Distributions) annually and leave a large sum in the IRA to grow tax-deferred over their lifetimes was over.

The SECURE Act in 2019 brought significant changes, taking away a valuable tool from anyone who died after Dec. 31, 2019. The new rules require the entire amount in an inherited IRA to be withdrawn by the end of the tenth year of the original account owner’s death. These withdrawals are taxable, so instead of stretching the withdrawal out over an extended period, accounts must be emptied, and taxes paid within a relatively short period. Compared to the stretch, the Ten-Year Rule is, in a word, taxing. It's crucial to understand these changes and their implications.

There are exceptions to the rule for certain beneficiaries, including spouses and disabled individuals, non-spouse beneficiaries no more than ten years younger than the original account owner and a biological or adopted minor until they reach age 21. On their 21^st birthday, they have ten years to empty the account.

There are alternative strategies for IRA owners to consider to help heirs enjoy more of their legacy, which an experienced estate planning attorney will know. One is the Charitable Remainder Trust (CRT), which offers both tax benefits and charitable giving.

Start by designating a CRT as the beneficiary of your IRA. When you die, the assets will pass to the CRT. Since the CRT is a tax-exempt entity, the assets in the IRA continue to grow tax deferred. The CRT’s beneficiaries receive income distributions over a specified period. At the end of the CRT, any remaining funds go to a charitable beneficiary.

CRT beneficiaries may receive distributions over a much longer period than a direct inheritance or inherited IRA, which has a mandated 10-year distribution.

The CRT strategy is best for charitably minded people who would have donated to the charity regardless of the IRA restrictions. If this aligns with your values, it makes sense from an estate planning perspective. There are costs associated with setting up a CRT, which should be considered when considering the totality of your estate plan. Speak with your estate planning attorney to see if this makes sense for you and your family.

Reference: Kiplinger (April 19, 2024) “Charitable Remainder Trust: The Stretch IRA Alternative”