Charitable Planning

Charitable Planning

Happy Holiday Gift, for Gift-Givers!
Spoiler alert: Charitable IRA Rollover Provisions Made Permanent

The end of the year is, probably more often than we would like, an exciting time for professional advisors, as Congress plays Santa and makes last-minute gifts, with the occasional lump of coal for good measure. It is a tall order to advocate sympathy for the IRS, at any time, but I can only imagine how frustrated they must feel each year around this time. This year, thankfully, Congress passed a tax bill that mostly contained gifts. In fact, the best kind of gifts — the kind that makes it easier to give more gifts! First, some background:

Charitable planning is one of our favorite topics to engage with our estate planning clients, not only because it is an opportunity to enable really good to be done in a win-win situation for both clients and the charities they support, but also because there are a broad array of fun (to us) tools available to accomplish our clients’ charitable goals. Most of these discussions start with charitable planning with qualified retirement assets, because virtually everyone has them, and they are the easiest tax-advantaged charitable vehicle.

Conventional qualified retirement accounts (non-Roth) are income tax-deferred, where the owner contributes pre-tax dollars, deferring the tax to retirement when they will, in most cases, be in a lower tax bracket, while enjoying all those years of tax-deferred growth of the IRA. As any retiree knows, the reckoning comes at age seventy and a half, when the required minimum distributions, and corresponding income tax, start. The IRA assets are taxed as income to the retired owner, but also to any individual designated beneficiary of the account after the owner’s passing unless that beneficiary is a charity. Qualified charitable organizations do not pay income tax, and so they receive one-hundred-cent-dollars from an IRA. Wonderful charitable option after you die, but what about the retiree taking RMDs each year from their IRA?

For the last several years, around this time of year, the IRS has authorized, for the taxable year just about to end, a direct charitable IRA rollover whereby the IRA owner directs a distribution directly to a charity and satisfies their RMD in the process — meaning the RMD does not get included as taxable income first. You are probably thinking, that is great, why would it not be a permanent feature of our tax regime? Great question!

The great news is that, with the PATH act passed by Congress last week, the charitable IRA rollover is now a permanent feature. Any IRA owner who is at least seventy and a half can now, on an annual basis, make a direct distribution from her IRA to a qualified charity in an amount up to $100,000, and such distribution can satisfy part or all of the RMD, and is not included in taxable income! There are some limits — the recipient charity cannot be a donor-advised fund, a charitable gift annuity, or a charitable trust. Be sure to consult with your tax advisor before giving your IRA plan administrator any directions for charitable distributions.

The PATH act included a few select other changes and extenders on the charitable giving front, including an expansion of the conservation gift deductions and clarification of S Corp gifts of appreciated property. All in all, a great start to tax season. Thanks, Santa!

Adam S. Russell, Estate Planning & Administration Attorney, Tuesley Hall Konopa, LLP

Author: Adam S. Russell is an estate planning attorney at Tuesley Hall Konopa, LLP. Practice areas include trust and estate planning, estate administration, tax planning, charitable planning, and charitable trusts, trust funding, special needs trusts and supplemental needs trusts, prenuptial agreements, and probate. Additionally, Adam is licensed to practice in both Indiana and Michigan and regularly meets with clients in our South Bend, Elkhart and Cassopolis offices.

You can contact Adam by calling 574.232.3538 or by email arussell@thklaw.com.

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.
Estate and Tax Planning for Same-Sex Married Couples

Estate and Tax Planning for Same-Sex Married Couples

As we near the end of the year and look back on significant events that have affected the estate planning arena, we would be remiss if we did not mention the new opportunities which are available to same-sex married couples.

Every American knows that last summer, the U.S. Supreme Court issued a landmark decision in the Obergefell v. Hodges case which held that a fundamental right to marry is guaranteed to same-sex couples by the Fourteenth Amendment to the Constitution. Comparatively few Americans know that the Court’s landmark 2013 decision in United States v. Windsor, which held that key sections of the Defense of Marriage Act were unconstitutional, a decision that contributed to the accelerating pace of judicial decisions that culminated in the Obergefell case this summer, was an estate tax case.

This little-known fact is all the more relevant now that the legal landscape for treatment of same-sex married couples has stabilized nationwide, and it is worth pointing out why. The Windsor case involved a same-sex couple, legally married in Canada, but residents of New York when one of them, Thea Spyer, passed away. Her surviving spouse, Edith Windsor, claimed the marital deduction for federal estate tax purposes but was denied the application of that deduction by the IRS based on the provisions of DOMA then in effect. Edith appealed and won – Section 3 of DOMA was ruled unconstitutional, and she got back the tax she had paid, plus interest.

Why does it matter that this decision involved the estate tax? First, because it both brought into contrast the disconnect between the then-evolving definition of marriage and the systems of laws that rely on that definition but were created without anticipating the evolution. Second, because it highlighted the important considerations facing same-sex married couples as those systems of laws, over time, fell into step with that evolution.

Post-Windsor, same-sex married couples were faced with considerations they may not have countenanced previously – do we file income taxes jointly or separately? How does the marital deduction apply to us in estate and gift taxes? What the heck is portability and why should we care? If we create a joint trust as a married couple, will it be respected with regards to property, held in trust, but located in states that do not recognize our marriage?

All important, and at that point, relatively novel questions same-sex couples were asking. Some of them could not be answered with certainty until this summer. But now, same-sex couples who are married or who are considering marriage face a wide array of estate and tax planning considerations that will be new, and in some cases, altogether foreign concepts. From topics such as spousal rights in the medical context to asset titling decisions to all manner of income, gift, estate, and other tax considerations, it is more important than ever before for same-sex couples to educate themselves on the implications of these landmark decisions in their own lives and planning.

Adam S. Russell, Estate Planning & Administration Attorney, Tuesley Hall Konopa, LLP

Author: Adam S. Russell is an estate planning attorney at Tuesley Hall Konopa, LLP. Practice areas include trust and estate planning, estate administration, tax planning, charitable planning, and charitable trusts, trust funding, special needs trusts and supplemental needs trusts, prenuptial agreements, and probate. Additionally, Adam is licensed to practice in both Indiana and Michigan and regularly meets with clients in our South Bend, Elkhart and Cassopolis offices.

You can contact Adam by calling 574.232.3538 or by email arussell@thklaw.com.

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.