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.