Author: Web Admin

Tax and Financial News for October 2015

Smarter Charitable Giving

Many donors who give substantial sums regularly or on occasion often make the same mistake – not having a plan. Donor-advised funds offer a great way to give with a plan.

Donor-advised funds are charitable giving vehicles administered by a public charity. They are created to manage charitable donations on behalf of organizations, families or individuals. In order to participate in a donor-advised fund, the donating individual or organization makes an irrevocable contribution of cash, securities or other financial instruments. While the donor surrenders ownership of whatever they place in the fund, they retain advisory privileges over how their account is invested and how it distributes money to charities. Further benefits of a donor-advised fund include flexibility in grant recommending and the ability to remain anonymous.

Some of the key characteristics of donor-advised funds are:

  • Upfront tax deductions for cash donations of 50 percent and 30 percent for appreciated assets
  • Eliminating capital gains on long-term appreciated stocks and other securities
  • The ability to accept a variety of assets, including nearly any type of financial instrument
  • Professional investment management services
  • The ability to name successors

An effective approach to donor advised fund giving involves the following four-part plan:

  1. Create A Mission Statement. Fewer than one in three donors who gift greater than $100,000 a year have a mission statement or written goals for giving. Those who give $25,000 or less per year plan even less often – only 16 percent of the time. Mission statements help provide a clear direction on what grants to make and what to decline. A mission statement does not need to be long or complicated. Even just a few sentences that encapsulate your giving philosophy can help keep plans on track and make sure your money goes to the type of causes you care about.
  2. Make An Action Plan. Research charities of interest, create a giving budget and explore ways to leverage giving by establishing legacy gifts.
  3. Test Potential Grantees. Learn more about the organization’s programs, goals and needs with questions such as, “What is your most successful program and why?” You can also assess their resourcing and opportunities by asking things like, “What do private donations allow you to do that other funding sources do not cover?” This will help you give effectively and efficiently.
  4.  Maximize Your Impact. Donors who learned about giving from their parents are more likely to pass it on and teach their own children the importance of giving. Ways to instill and cultivate the importance of giving in children can include things such as providing an allowance allocated to three parts: spending, saving and giving – or family traditions such as volunteer days.

Ultimately, having a plan, mission and purpose are what will drive your giving to maximize its potential impact. Donor-advised funds are not the only way to go for big or regular donors; however, they offer a flexible structure and many management and tax advantages over giving directly to charities on your own.

Tax and Financial News for September 2015

Tax, Estate Planning and Benefits Opportunities for Same-Sex Couples

On June 26, the Supreme Court made a historic ruling in the case of Obergefell v. Hodges, affirming a constitutional right to same-sex marriage in all 50 states. Prior to this decision, the following 13 states still did not recognize same-sex marriage:

  • Arkansas
  • Georgia
  • Kentucky
  • Louisiana
  • Michigan
  • Mississippi
  • Missouri
  • Nebraska
  • North Dakota
  • Ohio
  • South Dakota
  • Tennessee
  • Texas

Same-sex couples in these states were in an odd sort of limbo. They could go to another state and be legally married and have the marriage recognized federally, but it would not be recognized in their home state. As a result, they could file a joint return for their federal taxes but each spouse needed to file as single for their state returns. If one of the spouses died, their estate was subject to federal estate tax laws, but not at the state level. If their employer only operated within their home state, they could be denied certain benefits available to married couples. As a result of this Supreme Court decision, this limbo no longer exists and a number of tax, estate planning and benefit opportunities are now available to same-sex couples in these states. Here are the details on some of the changes.

Income taxes

Married same-sex couples are now allowed to file joint tax returns in all states. Usually, this results in a lower tax liability, but not always. Couples who were married in another state can retroactively amend all open past year tax returns. Going forward, these couples also can file 2014 returns that are currently on extension.

Gifting

Married spouses are allowed to make unlimited gifts to each other without any concern over federal or state gift taxes. One practical example of how this applies to same-sex couples is when they purchase a house together but contribute different amounts. Under the new ruling, they can enjoy the benefit of 50/50 joint ownership in the home without any gift tax consequences.

Estate planning

A basic estate planning principle allows one spouse to leave property to the other without paying estate taxes. The recent Supreme Court decision in Obergefell extends this spousal exclusion to the state level for everyone. Married same-sex couples also now have the right to inherit property, even in the absence of a will, under a state’s intestacy statute.

Divorce

Before, same-sex couples could only get divorced in certain states; but now that is no longer the case. Until this ruling, same-sex couples who wanted a divorce might not have had access in their own state. Now, every state must accept the fundamental right to divorce, which means spousal rights and benefits such as alimony apply to everyone in every state.

IRA rollovers

A spouse who inherits an Individual Retirement Account from a deceased spouse is allowed to defer taking distributions until age 70 ½ and stretch payments over his or her lifetime. Distributions over time allow the tax-deferred investment to grow and can save federal and state income taxes over taking a lump-sum distribution. This benefit is now available to all married same-sex couples at the state level. To ensure they receive these benefits, married same-sex couples should double check their IRA beneficiary designation forms.

Summary

The recent Supreme Court ruling opens up a variety of tax and benefit opportunities in states that previously did not recognize same-sex marriage. Couples in these states should assess their situation to ensure they are taking full advantage of everything the change in law offers.