First off, what the heck is Heckerling? The Heckerling Institute is the premier estate planning conference for all members of estate planning teams, including attorneys, advisors, CPAs, charitable giving advisors, etc. Hosted by the University of Miami School of Law, it takes place annually in Florida and covers updates, usage, and case law for advanced estate planning techniques. Some sessions take basic concepts and dive into more sophisticated applications; some teach replacements of older approaches; some offer insight on topics that are not well known to those that are not as current or on top of the industry; all of them add value for the attendees’ clients.
There were many interesting concepts that we could discuss in great depth, but this blog is intended to be a highlight of those that may be applicable to you. With this information you can either approach your professionals for personal guidance or reach out to us to help you navigate how these concepts may best fit your needs. Here are four of them, and I will touch on each of them enough to give you an idea of its importance. I warn you, I am not going into substantial detail because some of these are very case specific.
Guardianship for Adults
When we plan with clients, the conversation of guardianship usually comes up with children – and is usually the toughest decision for parents to make. However, an adult who may, or may not, become incapacitated, can sometimes be at the mercy of the court to designate a guardian. I say may not, because one may be seemingly “ok” to make decisions, but not 100% which leaves room for doubt. Having an appointed guardian is a means of protection. Consider the case of an untrustworthy family member who might take the opportunity to become your guardian. Creating a guardianship clause in your estate planning documents to specify who you would, or definitely would not, want to be your guardian would ensure your wishes are followed. This is different than Power of Attorney.
A Power of Attorney may only have limited rights associated with it and does not include guardianship. This is an important topic for discussion, especially if you have something to protect and someone to potentially protect it from. Make sure that you have the appropriate paperwork in place. Alternatively, we plan to not fail where a failure can occur. So, with that, even if you trust all those around you, and feel like you are 100% too young and/or nothing will take you down, remember to remain planning-minded to cover all your bases.
Charitable Giving
You are charitably inclined, and you want to give a donation. Remember, the amounts you give will require substantiation. Gifts under $25 need a receipt, $250-$5,000 you need a receipt along with an explanation from the non-profit of the benefit and how it helps the organization, and above $5,000 you will need tax forms. Remember, you can also gift non-cash items as donations. When would you gift non-cash items vs. sell to gift?
Questions: In the first instance, why don’t I just sell and then give the proceeds away?
Answer: If you are in a high tax bracket the amount will go against your AGI and you will end up giving less or taking a bigger tax hit than the organization to which you will be donating. This is why advice from a professional comes in handy, you don’t want to be hurting yourself when your intentions are good.
Question: Does this always work so simply?
Answer: No. There are guidelines. There are always guidelines.
Question: So, I can just give my IRA away and take the deduction?
Answer: See last answer - there are always guidelines. The benefit exists when you are over 70 1/2 years old. Then you can give away the RMD or distribution directly without it appearing on your tax returns as a distribution. This is especially important for your medical deductions and Medicare premiums, which are based on your AGI. The check needs to be written directly to the organization and it must be an IRA, not any other type of qualified account. There are also maximums that you can use to contribute to a CLAT or CRAT. What’s that? Read on…….
What other tax benefits can I enjoy when considering charitable giving?
You can also create Charitable Lead/Remainder Annuity Trusts called CLATs or CRAT’s. These allow you to take a deduction up front but allow for benefits and rights for you or your family. The “annuity” component will be either a payment annually to you (remainder) or to charity (lead). At the death of the grantor, or a term that is no longer than 20 years, the charity will get the remainder(remainder) or the non-charity beneficiary the remainder(lead) of what is left in the trust. This creates a good tax deduction, control and estate planning.
The way I look at it from complexity and flexibility to simplicity but stricter, is: Create a foundation, create a CLAT or CRAT, use a Donor Advised Fund (DAF), and take the deductions annually as they come. That is an extremely broad view, but as you can see, there are options based on your intentions and your benefits.
Divorce with Business/Passive Income
Divorces can be heated, emotional, and sometimes very damaging events. With that said, how do we lessen the blow and make it more about the kids than about the adults in a way that benefits everyone? We are talking bottom line, wants versus needs, tax benefits, and sound estate planning. I often see divorce attorneys create methods of distributing assets in a clear-cut manner; give up this to get that. Sometimes, clear and cut negotiations are easy for the process, but the outcome is terrible and less fortunate for the family. Why? Not to be disparaging to attorneys or their clients; but the planning is hard, attorneys are in the business of zealously advocating for their clients. The more involved planning can be harder for the client to understand, it is a lot of work and sometimes the client is short sighted or emotionally charged and does not want to pay to save. Further, emotions get in the way, attorneys have other clients they need to deal with, often simpler is just easier!
Let me explain, without getting into the details of re-titling assets, reorganizing entities, creating Spousal Limited Access Trusts, etc., let’s just think about the end game. There is a way to divide the assets - the income-generating assets - and separate out the tax burden, keep the structure of the business and/or real estate in place, divide out the assets or give the assets for the benefit of the kids, without giving up the things you don’t want to give up. It just takes work and planning. So, if you are planning on a divorce, before you go off and file paperwork and hire your attorney, discuss the sophisticated options with your advisor and get your ducks in a row. Do it either with your spouse, if you are on the same page, or before your spouse gets into FU mode.
Setting Up Your Business for Legacy
Just like with divorces, you can fail to plan or plan to not pay so much in taxes. It all comes down to your intentions, communication with the next generation, the team you have in place, and your ability to pull yourself out of the “control of my business” box and into the “control of my money” box. Depending on the family business (it can be operating or can be passive), there are a few structures you can look at when planning. There is a lot of customization, work and filing that must happen when we make these changes. I am not going to sugar coat it – if it costs you $100k to save $5M, it seems like a no brainer. Without going through the exercise, and especially if you are over the threshold, you cannot know what you can avoid. It comes down to a few things:
Right now, the limits for exemption are high at $27,220,000. If you are above that amount, there are ways to plan on minimizing or eliminating your tax burden. If you are below that amount, remember, this law sunsets in 2026 and is subject to change. Taking advantage of a limitation now is the smart move. If it goes up in the future, it is more you can pass without taxes. If it goes down, well, you are out of luck.
Let’s just say, there are favorable estate planning and taxation laws that are at your disposal if you work with the right people. The savings alone is worth a lifetime of earnings for the other 99% of Americans. Most people I know, even if they don’t want to give it to their kids or have anyone to give it to, would rather see it go to a charitable cause rather than the IRS.
If you want to learn more on how all of this can benefit your family, or know someone that may be facing these issues, please email our team at team@greenridgeweal.wpenginepowered.com. Green Ridge Wealth Planning has created the GRWP Wealth Counsel arm. We are the family office experience for families with a net worth of $25-$200M who need sophisticated advice on how to make, save and protect their net worth in a non-cookie cutter fashion. Where most of the bigger firms say they know how to do these things, few, if any, have the direct experience we have or the service model we use to run our firm. We hold your hand, hold all parties accountable, take the weight off your shoulders, and work with you and your team to become our team of professionals.
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