Bettering Your Stewardship
by Tim Midura, C.P.A., J.D., L.L. M.
As an attorney who specializes in estate planning and estate/trust administration matters, I have observed a number of things with respect to a typical person’s estate plan:
- It is often not done.
- If done, it is often not kept up-to-date.
- If lifetime charitable giving is a priority, it is often overlooked in the estate plan.
- If charitable giving is included in the estate plan, there is often a better way to provide for it.
The most important goal of estate planning is to provide order and security for yourself and your loved ones. A better legacy to those left is the memory of a well planned, orderly, and secure estate passing. Sometimes, the mere passing of time requires an estate plan to be revisited. This is commonly done every five years. Significant life events can also require an estate plan to be revisited, including factors such as:
- changes in existing tax or applicable laws,
- birth in the family,
- death of a family member,
- divorce or separation,
- change of residence,
- substantial increase or decrease in business holdings,
- significant new business venture,
- sale of a business interest or merger of an existing business,
- retirement,
- marked increase or decrease in the asset values you hold,
- change in insurance coverage,
- retirement or death of a business associate who is a party to a buy-sell agreement applicable to your business, if any,
- termination of a trust,
- you are contemplating making significant gifts,
- receipt of new gifts or implementation of a new gift program by another for the benefit of yourself or a family member,
- material change in the health of a family member,
- change in the financial position of a potential beneficiary of the trust,
- receipt of a bequest under a will or a gift under a trust,
- change in your competence or the competence of or your faith in a successor trustee.
The most common reason a charitably-minded person fails to include his or her favored charities in their estate plan is simply they just didn’t think about it. Favored charities are often such an important part of a person’s life that they take on a sort of family status that I call “charitable children.” So, are you unintentionally disinheriting one or more of your charitable children?
Adding a charity as an estate beneficiary can be as simple as doing a codicil (amendment) to your will or an amendment to your trust. Even simpler is making a change to a beneficiary designation on an IRA, 401(k) account or other such asset that permits transfer on death by a beneficiary designation.
The most commonly overlooked strategy in testamentary charitable giving is to make a gift of all or part of an IRA, 401(k) account, or other such asset that is taxable for income tax purposes. You may think about the estate tax charitable deduction, but have you also considered the fact that an IRA continues to be taxed for income tax purposes? An IRA, or other such asset, is subject to two taxes: estate tax and income tax that can together exceed 60%. If you make a gift to grandchildren, then there could be yet another (third) tax called generation-skipping tax (GST). If an IRA is given to charity, no taxes apply. So, making a testamentary gift of an IRA or other such asset is: (1) simple, using the beneficiary designation and (2) tax-smart by means of the double tax avoidance.
You can be a better steward of your financial resources if you (1) make sure your estate plan is up-to-date, (2) don’t inadvertently disinherit a loved one (including a charitable child), and (3) use the double taxed assets to fund charitable gifts.
