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Estate planning: One of the best ways to show you care

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Estate planning: One of the best ways to show you care 

Money, mortality, and family relationships. Each of those topics alone can be tough for anyone to address head on, and when you combine them, it’s no wonder so many people put off setting up or updating their estate plans. Establishing a will, trust, and beneficiary designations forces a person to confront decisions about the ultimate division of their assets, and many people think estate planning is more expensive or more of a hassle than it really is.

But, getting your affairs in order–well before you need to due to age or illness–is truly a gift to your heirs. It’s extremely stressful for surviving spouses, children, and other loved ones to be faced with the emotional stress and workload of financial disorganization and uncertainty, on top of dealing with grief. Updating your estate plan also allows you to make arrangements for gifts upon your death to your favorite charities.

Many people choose to support their favorite charities in an estate plan through a beneficiary designation. As you work with your attorney and other advisors, be sure to review the beneficiary designations on your insurance policies and retirement plans. Pay close attention to tax-deferred retirement plans such as 401(k)s and IRAs. Typically, you’ll name your spouse as the primary beneficiary of these accounts to provide income following your death and to comply with legal requirements. But as you and your advisors evaluate whom to name as a secondary beneficiary of these tax-deferred accounts, don’t automatically default to naming your children or your revocable trust. You and your advisors may determine that naming a charity, such as your fund at The Community Foundation, is by far the most tax-efficient, streamlined way to make gifts to your favorite causes upon your death and establish a philanthropic legacy. A bequest like this avoids not only estate tax, but also income tax on the retirement plan distributions.

Please reach out to the team at The Community Foundation as you work with your advisors on your estate plan. We can:

–Review the many tax benefits of naming your fund at The Community Foundation as a beneficiary of your IRA or other tax-deferred retirement account

  • Provide bequest language for your will or trust, properly describing your fund using the correct legal terms
  • Provide language for a beneficiary designation, again properly describing your fund using the correct legal terms
  • Work with you to update the terms of your donor-advised fund so that your wishes are carried out following your death, whether that is naming specific charities to receive distributions or naming your children as successor advisors to your fund

We’ve all heard stories about the sad consequences of someone not having an estate plan, or even having out-of-date beneficiary designations. Estate planning documents, including wills, trusts, and beneficiary designations, often turn out to represent generous acts of clear distribution and conflict avoidance. An estate plan allows you to demonstrate how much you care about the people in your life as well as your charitable passions.

 

This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

Ring in the new year with new charitable giving tax laws

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Ring in the new year with new charitable giving tax laws

If you’ve been tracking federal legislation, you’re likely aware that on December 29, 2022, President Biden signed a $1.65 trillion-dollar omnibus spending bill known as the Consolidated Appropriations Act of 2023 (“CAA”).

A component of this legislation, known as “SECURE 2.0,” includes many provisions that make it easier for people to build retirement savings, ranging from required enrollment in employer-sponsored 401(k) plans to larger “catch up” contributions to enable workers nearing retirement to add more to their retirement accounts each year.

Three of the new law’s provisions are particularly interesting to people who give to charities, especially related to a planning tool called the Qualified Charitable Distribution (QCD). Many charitable individuals who are 70½ or older have already been taking advantage of the QCD. This technique allows a taxpayer to make an annual transfer of up to $100,000 from an IRA to a qualifying public charity such as a field-of-interest fund, scholarship fund, or unrestricted fund at The Community Foundation. The taxpayer does not need to pay income tax on the distribution and, for taxpayers who must take RMDs from their retirement plans, the QCD counts toward that year’s RMD.

Here’s what’s new, thanks to SECURE 2.0:

More time to accumulate retirement assets

Under the new law, the required minimum distribution (RMD) age (previously 72) increased to 73 on January 1, 2023. RMDs are the IRS-mandated distributions from qualified retirement plans. The RMD age will further increase to 75 beginning on January 1, 2033. This provision is a boost to retirees’ financial plans and may mean more dollars available for charitable giving, especially in the form of a tax-savvy beneficiary designation of retirement plans to charity.

Note that the age for QCD eligibility is still 70½, and, still, donor-advised funds are not eligible recipients of a QCD.

“Legacy IRA” opportunity

SECURE 2.0 makes QCDs even more attractive because taxpayers may now make a one-time $50,000 QCD transfer to a charitable remainder trust (CRT) or other split-interest gift such as a charitable gift annuity (CGA). These components of the new law are called the “Legacy IRA” provisions.

Bigger QCDs

The annual per-taxpayer $100,000 QCD cap is now slated to be indexed for inflation, which will allow taxpayers to give even more from their IRAs directly to charity.

The team at TCFHR would be happy to talk with you about how the new laws can enhance your charitable giving plans. Reach out anytime!

Call us at 540-432-3863 or email Kristin Coleman at [email protected].

 

Five of 2022’s most-asked questions about Qualified Charitable Distributions

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Five of 2022’s most-asked questions about Qualified Charitable Distributions

 

Qualified Charitable Distributions, or “QCDs,” are becoming a very popular financial and charitable planning tool. At the same time, QCDs are growing as the source of more and more confusion.

Here are answers to the questions most frequently asked this year by both advisors and donors. Be on the lookout for these and other client questions, and please do not hesitate to reach out to The Community Foundation for assistance.

“Is an IRA (Individual Retirement Account) the only eligible source for Qualified Charitable Distributions?”

Short answer: Almost.

Long answer: An individual can make a Qualified Charitable Distribution directly to an eligible charity from a traditional IRA or an inherited IRA. If the individual’s employer is no longer contributing to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, the individual may use those accounts as well. In theory, a Roth IRA could be used to make a QCD, but it is rarely advantageous to do that because Roth IRA distributions are already tax-free.

“What is the difference between a QCD and an RMD?”

Short answer: Quite a bit! But a QCD can count toward an RMD.

Long answer: Everyone must start taking Required Minimum Distributions (“RMDs”) from their qualified retirement plans, including IRAs, when they reach the age of 72. RMDs are taxable income. The Qualified Charitable Distribution, by contrast, is a distribution directly from certain types of qualified retirement plans (such as IRAs) to certain types of charities. When a taxpayer follows the rules, a QCD can count toward the taxpayer’s RMD for that year. And because the QCD goes directly to charity, the taxpayer is not taxed on that distribution.

“Can I make a Qualified Charitable Distribution even if I am not yet required to take Required Minimum Distributions?” 

Short answer: Yes–within a very narrow age window.

Long answer: RMDs and QCDs are both distributions that impact retirement-age taxpayers, and it would seem logical that the age thresholds would be the same. Under the SECURE Act, though, the required date for starting RMDs was shifted from 70 ½ to 72 (which is better for taxpayers who want to delay taxable income). A corresponding shift was not made to the eligible age for executing QCDs; that age is still 70 ½ (which benefits taxpayers who wish to access IRA funds to make charitable gifts even before they are required to take RMDs).

The IRS’s rules for QCDs are captured in Internal Revenue Code Section 408 and summarized on pages 14 and 15 in Publication 590-B in its FAQs publication.

“Can I direct a QCD to my fund at The Community Foundation?”

Short answer: Yes, if it’s a qualifying fund.

Long answer: While donor-advised funds are not eligible recipients of Qualified Charitable Distributions, other types of funds at The Community Foundation can receive QCDs. These funds include designated funds, unrestricted funds, field-of-interest funds, and scholarship funds.

“How much can I give through a QCD?” 

Short answer: $100,000 per year.

Long answer: A Qualified Charitable Distribution permits you (and your spouse from your spouse’s own IRA or IRAs) to transfer up to $100,000 each year from an IRA (or multiple IRAs) to a qualified charity. So, as a married couple, you and your spouse may be eligible to direct up to a total of $200,000 per year to charity from your IRAs and avoid significant income tax liability.

Questions? Call us at 540-432-3863 or email Kristin Coleman at [email protected].