Food for Thought: Year-End Charitable Gifts

Charitable Gifting

Charitable giving is a great way to close out the year, and there are so many creative and impactful ways to do so. Whether you send a check to an organization that you value or you collect and distribute gifts to those less fortunate, charitable giving is what makes the holidays meaningful and connects us to others in ways we would not be able to otherwise.

I would like to take this time to remind you of some tax rules for gift-giving to charities. The basic rule is that a charitable gift is considered made on the “date of delivery.”  This will determine (A) the tax year in which the gift is deductible; and (B) the value of the gift for assets that have appreciating and depreciating value.

The method for establishing the date of delivery depends on the type of gift contributed and how it is given to a charity. Here are a few of the most common types of gifts given to a charity:

  1. Gifts by check: Under the “mailbox rule,” the date of mailing to the charity is deemed the date of delivery if there are no restrictions on the time or manner of payment and the check is honored when presented. Thus, a donor will get a deduction on a 2017 income tax return for a check mailed via US postal services on December 31, even though it is not received by the charity until January 2018. When it is important to establish the delivery date, the donor should not rely on the postage meter; rather, the donor should mail the gift through the post office via certified or registered mail with a return receipt requested.
  2. Credit card gifts: Charitable contributions made using a credit card are deductible when the bank pays the charity. The gift is deemed made as of the date the bank mails, transfers, or delivers the funds to the charity. That date is shown on the bank’s monthly statement, but it might not be the date (or, more significantly, the year) that the donor directed the transfer. However, contributions made by text message are deductible in the year the text message is sent. A telephone bill showing the name of the charity, the date of the contribution, and the amount of the contribution will be proof of the date of the gift.
  3. Gifts of tangible personal property: The date the property is received by the charity is the delivery date. The title must also be transferred, if applicable.
  4. Real estate: The date the charity receives a properly executed deed is the delivery date.
  5. Pledges: For income tax purposes, pledges are deductible in the year they are fulfilled, not in the year they are made.

Don’t forget: You can also make gifts of up to $14,000.00 to an unlimited number of people before December 31, 2017, free from any federal gift tax consequences.

Happy Year-End Giving!

The Estate Plan: An Impactful Gift for Your Family

Estate Plan Gift

Are you already thinking about Christmas gifts for your family? You may be considering gifts like sweaters and electronics, gift cards and cookies. Consider, though, what impact it might have to give your family the gift of peace-of-mind.

An estate plan is a gift that will continue to give peace-of-mind, even after your death. There are typically four reasons why individuals want to use an estate plan document, such as a trust, to establish how they want to make gifts after their death:

  1. It allows you to choose who will receive what, and how much.
  2. It reduces income and estate taxes, where possible.
  3. It allows you to direct ownership of your assets to specific people, rather than letting the courts send your assets to outside parties, such as creditors.
  4. It allows you to make charitable gifts upon your death if that is a goal of yours.

So, what exactly is a trust? A trust is a written relationship where a person or entity is designated to act as the “trustee” to receive and hold legal title to property and, upon your death, administer the property for the “beneficiary” in accordance with the instructions of you, the “grantor.” Each trust relationship involves these three parties: the trustee, the beneficiary, and the grantor.

So, as you may begin to gather, a trust is very important in granting that piece-of-mind to your family. There are two types of trusts to consider: a Testamentary Trust and a Living Trust.

  • A testamentary trust (sometimes referred to as a will trust or trust under will) is a trust which arises upon the death of the testator, and which is specified in his or her will. A will may contain more than one testamentary trust, and may address all or any portion of the estate. In addition to the three parties in a basic trust relationship, the probate court becomes a necessary component of the relationship because it oversees the trustee’s management of the trust.
  • A living trust (sometimes referred to as a grantor trust or inter vivos trust), is a trust created during the lifetime of the grantor and is revocable and amendable, until the death of the grantor. The primary difference between a testamentary trust and a living trust is that the assets held in a living trust do not have to go through the probate process. Probate estates usually remain undistributed for at least six months after the probate process has started to allow creditors an opportunity to make claims against the estate with some flexibility for families that can show the probate court they are in need.

For trusts that arise or continue after the death of the grantor, it is important to understand that you as the grantor will not have any influence over the trustee’s exercise of discretion. The trustee owes certain duties and responsibilities to the beneficiaries (i.e. safeguarding the trust assets, investing assets in a prudent manner that will result in reasonable growth with minimal risk, etc.). Likewise, the beneficiaries have certain rights inherent in the trust relationship (true and complete copy of the trust, right to be reasonably informed, right to be treated fairly, etc.).

So, with an official estate plan through a trust, you will give a gift that keeps on giving. You will ensure that your desires for your family and your assets are carried out in a timely manner, and in a way that you would personally carry it out during your lifetime.

10 Things Everyone Should Do Before the End of the Year: Part Two

10 Things End of Year Pt 2

Read Part One Here.

6. Give gifts to your family. You can give up to $14,000 per person to as many people as you’d like without incurring any federal gift tax liability. If you’re married, you and your spouse can give up to $28,000 per recipient. You can even gift your spouse any amount of money tax free, provided that your spouse is a U.S. citizen.

7. Open or fund an existing 529 College Savings Plan(s). A 529 College Savings Plan, such as the Bright Directions College Savings Program, is a “Qualified Tuition Program” and withdrawals used to pay for Qualified Higher Education Costs are free from federal and Illinois state income tax. These expenses include tuition, fees, books, supplies, and equipment required for enrollment at a qualified institution of higher education. Room and board is considered a qualified education-related expense if the student is enrolled on at least a half-time basis. Note: These college savings funds qualify toward the $14,000 annual gift tax exclusion. One advantage of gifting to a 529 plan is that five years’ worth of gifts can be made in one year. With the annual gift exclusion of $14,000 for 2017, you can gift up to $70,000 at one time, and even double that amount if the gift comes from a couple.

8. Review beneficiaries on financial accounts and life insurance policies. The end of the year is always a great time to confirm that your named beneficiaries of your accounts are accurate. If any named beneficiary is your estate, then you need to meet with an estate planning attorney to verify the accuracy of your existing estate plan. Of course, if you have not created an estate plan yet, then you will want to take that important step as soon as possible in order to move into the new year with peace-of-mind.

9. If you are 70 ½ years or older, take your minimum required distributions. When you turn 70 ½ years of age, you are required to withdraw a minimum amount of money each year from your tax-deferred retirement accounts (i.e. traditional IRA, 401k). If you do not take this step, you may be subject to a penalty of up to 50 percent of the minimum required distribution. You can wait until April 15th of 2019 year to take your required distribution, but you should consult with your CPA to determine if waiting will push you into a higher tax bracket for next year.

10. Set your 2019 financial budget. Financial experts recommend that no more than 50 percent of your net pay should go to essential expenses, 15 percent of your gross pay to retirement, and 5 percent of your net pay to short-term savings. If you have not kept good financial records this year, make a New Year’s resolution to be better at record keeping in 2019.

10 Things Everyone Should Do Before the End of the Year: Part One

10 Things End of Year Pt 1

Read Part Two Here.

  1. Take time for tax planning. After you have identified your taxable income and expenses, you may want to consult your CPA and ask these questions: (1) Would it be better to defer income or expenses into 2019, and (2) would you be better to accelerate income or expenses into 2018? Normally, it is better to defer income and accelerate expenses, but each situation is different. Take note of the following:
    1. Businesses have a greater ability to defer income and accelerate expenses than most individuals.
    2. Do you owe estimated payments for income that has exceeded your withholding? The last quarter estimated payment is due on Thursday, January 31, 2019.
    3. As of July 1, 2017, the Illinois Income Tax rate increased from 3.75 percent to 4.95 percent. If you are an employer (even if you are self-employed) you will want to make the proper adjustments now to protect yourself from major penalties.
  2. Manage your investment portfolio. Make sure your financial advisor is strategically managing capital losses in your investment portfolio to potentially reduce taxable gains by year-end. This is an important aspect of implementing a tax-smart investment strategy. Now is a good time to analyze your investment portfolio to make sure the diversification is appropriate for you going into 2019.
  3. Use any remaining funds in your flexible spending accounts. There are several types of flexible spending accounts (or FSA’s), namely a Health FSA and Dependent Care FSA. These accounts allow you to use your own money, pre-tax, for health care and child care.
    1. Did you know that you cannot transfer money between different FSA’s? Check with your employer to confirm how much, if any, of your unused funds can carry over into 2019. If your FSA funds do not carry over, spend them by December 31st.
  4. Make a contribution to your retirement account. Review and adjust your 401(k), 403(b), TSA, or other retirement account contributions. For 2018, individual participants in defined contribution plans like 401(k)s can defer up to $18,500. The catch-up contribution provision allows those over the age of 50 to contribute an additional $6,500 for the year.
    1. Important deadlines to know – All employee contributions to a 401k must be made by December 31st. If you have an IRA, you have until April 15th to make a contribution for the 2018 year.
  5. Give charitable gifts. You can reduce your taxable income by your charitable gifts when you itemize on your tax returns. Be sure to make your charitable gifts by December 31st. You can also make donations of clothing and household goods.  Remember to ask for a receipt for non-cash donations.

Estate Planning Tools Beyond the Basics, Part Five: QTIP Trust


I hope you have learned new information through our “Beyond the Basics Series” for estate planning. Our final topic is the QTIP Trust.  QTIP is an acronym for “Qualified Terminable Interest Property.”  There are two main purposes for this type of marital trust:

  1. To allow you to provide for your spouse and your children, especially if you have a blended family, and
  2. To maximize estate tax savings in the event of one spouse’s death.

A QTIP Trust Protects Your Ability to Make Gifts for a Future Beneficiary

Each spouse (called the “Grantor”) creates his/her own Trust Agreement, which provides for the use and enjoyment of the trust assets during the lifetime of the Grantor and the Grantor’s surviving spouse.  Upon the Grantor’s death, the Grantor’s surviving spouse is entitled to all income that trust’s assets produces, the amount of principal from the trust’s assets that is necessary for the health or maintenance in reasonable comfort for the Grantor’s surviving spouse,  as well as the use of any real estate owned by the Trust. Here, the Trust, not the Grantor’s surviving spouse is the owner of the trust assets, and therefore, the surviving spouse cannot re-gift the trust assets contrary to the intentions of the Grantor.  This limit is in place so that upon the death of the Grantor’s surviving spouse, the trust assets are distributed to the future beneficiaries named by the Grantor.

In blended families, a QTIP Trust can serve as a way to relieve financial and emotional tension between the Grantor, the Grantor’s surviving spouse, and the Grantor’s children who are not the children of the Grantor’s surviving spouse.  Here, not only are you, as the Grantor, and your spouse gaining peace of mind, but so are your children and, possibly, grandchildren. This gives you, as the Grantor, ultimate control of your assets.  Without this type of protection, your assets would transfer to your spouse, and, if your spouse has children from a previous marriage, they would inherit the assets after your spouse’s death, and your children would receive nothing.

The future beneficiary of the QTIP Trust can be anyone named by the Grantor and is not limited to the Grantor’s surviving children.

A QTIP Trust will save your family money.

Let’s be clear: a QTIP trust does not eliminate your estate tax; it simply postpones it until the death of the second spouse. So, upon your death, a QTIP trust will eliminate the need for your spouse to pay taxes on the assets and property you leave to them. This is a result of the federal estate tax unlimited marital deduction, truly the key to a QTIP trust. Upon the second spouse’s death, then, estate tax is due on all of the assets, including those held in the QTIP trust.  If the trust assets have significantly increased in value, more estate tax could be due than if the assets had simply been included in the estate of the spouse who was first to die.

Important Note: You and your spouse can reap the benefits of a QTIP trust only if your spouse is a U.S. citizen.

A QTIP Trust will provide flexibility.

If at the time of your death, your family’s financial situation changes, or estate tax laws change, there is no requirement that the QTIP tax benefits be fully implemented.  Your fiduciary will make the “QTIP election” (either in whole or in part) on the estate tax return filed for your spouse’s estate. Your fiduciary will be encouraged to seek expert tax advice before making such elections on your tax returns.

A QTIP Trust may not be right for every family, but if anything in this article rings a bell for you, please contact your estate planning professionals to learn more. Don’t miss out on an opportunity to execute the most appropriate estate plan for your own family’s needs.

Estate Planning Concepts for Young Families

estate planning for young familiesLast month, I explained that I am often asked, “why do I need an estate plan?” To which I respond, “if you have minor children, then you need an estate plan.” The parent asks, next, “So, what kind of plan do I need?”

I recommend the use of a revocable living trust for families with young children. In this arrangement, the grantor (creator of the trust) names the trustee of the trust (person responsible for carrying out the terms of the trust) to hold trust assets for the beneficiary (person entitled to receive). The trustee will then manage the asset for the benefit of the beneficiary. Under this scenario, your revocable living trust can hold all of the your assets together. This is really powerful. In addition to the benefits explained above, it allows you the ease of controlling who received what and when under one document. This arrangement prevents minor children from receiving cash outright at too young of an age to properly manage and invest the asset.

As I have explained in last month’s article, one of the most difficult things the parent must do is select a guardian over their child and a fiduciary over the property held in trust for the child. It is important to note that the person who is named as guardian of your minor children does not have to be the same as the person who is named as Trustee or custodian of the assets.

Although it is easy to pick someone you like, I encourage individuals to select someone who is like-minded. You want to select someone who can handle your finances in a responsible manner. You do not want to select someone who will not be able to use your money for their own purposes or who may “loan” themselves your money, even for a short period of time. Professional fiduciaries are a good choice for people that don’t want to mix personal matters and business matters. Although a professional fiduciary charges for their services, they are held accountable as professionals and are required to make appropriate, timely decisions based on laws and regulations.

The second most difficult thing the parent must do is to decide how and when they want the property left to their child(ren) to be distributed. In a child’s trust (which can be created under the terms of a revocable trust or in the will itself), the chosen fiduciary (aka the trustee) is responsible for managing the property held in trust for the benefit of the child(ren). This trust may allow distributions for your children’s health, maintenances, education, comfort and reasonable support. The trust can be established to make periodic distributions at various ages (e.g., 1/3 of the trust can be distributed at age 25, then 1/3 at age 30, and the final 1/3 at age 35) or upon certain life events (i.e. college graduation, marriage, first home) or a combination of both.

Parents must also consider including the following documents that will accomplish a “complete estate plan”: a power of attorney for healthcare, and a power of attorney for property. It is also important to note that when children reach the age of 18, parents have no rights to their personal information, including medical information, without important documents, such as a HIPAA consent and power of attorney forms.

Considerations for Buying or Selling Your Home

When you are buying a home, you will be assembling a team of people to assist you in the process. These people include your real estate agent, real estate attorney, lender, property inspector and insurance agent. You do not have to find each team member on your own. Often by working with one part of the team, he or she will be able to introduce you to the other members of the team that s/he works with frequently in this type of transaction. A good team should work efficiently, economically, and in a manner that protects you as you journey on the purchase of your new home.

Things to consider when buying a home:
  1. Did you know that you can write in your real estate contract that the terms are contingent upon your attorney’s review? This may allow you some time to find an attorney if your real estate agent has not been able to introduce you to someone with whom you are comfortable working. This contingency is similar to the financial contingency.
  2. Did you know that you can start the house process by working with your lender first and obtaining a pre-approval letter? This may help to expedite the process involved with contract negotiation. It may also be the determining factor between you and another interested buyer.
  3. Did you know that if your lender requires escrow money for taxes and insurance, you may want to calculate an estimate of those amounts prior to house shopping? It may help you to develop a better price range or geographical area in which to begin your house hunt.
When you are ready to put together a contract on your future home, remember that both the real estate agent and the real estate attorney owe you a fiduciary duty of loyalty and of care to act in your best interest at all times. If you waive this right because your real estate agent duly represents both you and the seller, you need to make sure you hire a real estate attorney to review the contract terms prior to you signing them (or with a contingency as noted above).

When you are selling your home, you, too, have a few things to consider before you ever get the chance to put together a contract:
  1. First, you need to decide if you are working with a real estate agent. If so, you will be asked to sign an exclusive listing agreement, which establishes the compensation structure for anyone with whom you enter into contract during the listing period.
  2. Second, you need to decide the listing price. Your real estate agent is best suited to help you perform a market analysis and review the sale comparables to make sure that your home is sellable at your price point and estimate how long it may sit on the open market.
  3. Third, as part of your listing, you will need to make some required disclosures about your home. These disclosures become a part of the contract and must be true, accurate, and complete.
For both the buyer and the seller, remember that the better team you have, the better the process should be, aside from market fluctuations.