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Gratia Schoemakers

Year End

5 Easy Tips to Simplify Your Year End Charitable Giving

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Are you planning on making charitable donations before the end of the year?  The IRS reminds us that you must itemize deductions on your tax return to claim a deduction for these gifts.  In addition, the following five tips can help make those year-end charitable gifts count.

Tip #1 – Give to a Qualified Charity.  Only gifts to a “qualified charity” are deductible on your income tax return.   The IRS offers a handy website, the Select Check tool, to determine whether your favorite organizations are qualified.  You can also deduct donations made to churches, synagogues, temples, mosques, and government agencies even if they are not listed in the Select Check database.

Tip #2 – Give Some Cash.  Gifts of money can be made by check, electronic funds transfer, credit card, or payroll deduction.  In order to be able to deduct a monetary gift on your tax return, you must have a bank record (cancelled check, bank statement, credit card statement) or written document from the charity (listing the organization’s name and date and amount given), regardless of the dollar amount donated.  For payroll deductions, keep your pay stub(s), W-2, or other document from your employer which shows the total amount withheld along with the pledge card showing the name of the charity.

Tip#3 – Give Some Stuff.  You can take a tax deduction by giving away your gently used stuff, including household items (furniture, furnishings, electronics, appliances, linens) and clothing (shirts, blouses, pants, skirts, shorts, shoes).  If possible, get a receipt from the charity which includes the organization’s name, date of the contribution, and a detailed description of your donated items.  If you leave your stuff at an unattended drop site, make a written record of the donation.

Tip #4 – Give Before the End of the Year.  Donations are deductible on your tax return in the year they are made.  Gift checks count on your 2015 income tax return as long as they are postmarked in 2015 and credit card donations charged before the end of 2015 still count this year even if you do not pay the bill until 2016.

Tip #5 – Keep Good Records.  Always keep accurate records of charitable gifts you make – list the date of the contribution, a detailed description of the donation, the name and address of the organization, the fair market value of the property at the time of the donation, and the method used to determine the value.  You must obtain an acknowledgment from the organization if a donation (either cash or stuff) is valued at $250 or more.  If the donation consists of an automobile, boat or airplane, special rules apply which can be found on the IRS website.

Have Questions About Deducting Charitable Gifts?

If you have questions about making deductible charitable donations, please call our office to arrange for a convenient time for us to speak.

Don’t Miss Out on These Year-End Tax Planning Strategies

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Now is the ideal time to start year-end tax planning.  Below you will find a variety of tax-saving strategies you should consider using immediately so that you can get your 2015 tax house in order well in advance of the fast-approaching holiday season.

Plan Now for a Bountiful Fall Harvest

The last thing you want to worry about during the holiday season is tax planning.  Now is the perfect time to discuss the following tax-saving opportunities with your financial team so that you can implement them in the next few weeks:

  • Check your portfolio to determine which dud stocks can be sold to harvest losses and offset gains.
  • If you’re in the 25% or higher marginal federal income tax bracket and own mutual funds in taxable accounts, check your mutual fund company’s website for projected capital gains distributions during November or December. Given six strong years for many funds, coupled with any 2015 investor defections, the distributions could be surprisingly large for some funds. You should consider selling before the ex-dividend date and moving to a similarly allocated but more tax-efficient vehicle like an exchange-traded fund (ETF).
  • Analyze your 2015 vs. 2016 projected tax liabilities and accelerate or decelerate income and capital gains accordingly.
  • Maximize contributions to your 401(k) and IRAs – if you are age 50 and over you should take advantage of the extra $1,000 (for an IRA) or $6,000 (for a 401(k)) you can contribute to your accounts in 2015.
  • Wipe out that Flexible Spending Account by incurring medical expenses.
  • Purchase an electric car.
  • Install a renewable energy source in your home such as a solar-powered water heater.
  • Refinance your mortgage.
  • Make an extra mortgage payment or two.
  • Pay estimated state and local taxes and property taxes.
  • Review and adjust your withholding and estimated tax payments to insure that you avoid underpayment penalties.
  • If you are the Trustee of an irrevocable trust, you should consider whether it is appropriate under the discretionary terms of the trust agreement to disperse distributable net income (DNI) to beneficiaries in lower tax brackets.

Beware:  What may be tax-advantageous for one taxpayer may be tax-detrimental for another.  For example, the Alternative Minimum Tax (AMT) is snagging more and more taxpayers and reducing regular tax liability may increase AMT exposure.  Thus, before making any year-end tax moves, you must consult with your financial team to insure that the moves you make are the right ones.

Plan Now for an Early Gift-Giving Season

Below are some gifting ideas you can use now to benefit family, friends, your church, your alma mater or those in need:

  • Make cash gifts to family and friends – in 2015 the maximum amount an individual can give without incurring a gift tax is $14,000, married couples can give $28,000.
  • Make cash gifts to non-profit organizations.
  • Donate appreciated assets, such as stock or real estate, to non-profit organizations.
  • Set up a donor-advised fund.
  • Supercharge a 529 plan for your children or grandchildren –individuals can contribute $70,000 and couples can contribute $140,000 to a plan without incurring any gift tax; in addition, some states offer tax deductions or credits against 529 contributions.
  • In this low interest rate environment, inter-family loans are worth considering and can be a powerful tool to transfer wealth without incurring any gift or estate tax.
  • If you are considering any advanced gift planning, such as gifting through a grantor retained annuity trust (GRAT), family limited liability company or private foundation, then time is of the essence to get the trust or entity created, funded and initial gifts made before December 31.
  • If you have used up your entire lifetime gift tax exemption in prior years, note that you have gained an extra $90,000 (or $180,000 per married couple) to gift in 2015.
  • If you have an IRA and are over age 70½, need deductions and are charitably inclined, stay alert for year-end legislation that allows individuals to donate up to $100,000 from an IRA and exclude the donation from taxable income.

Begin Year-End Tax Planning Right Now

Ideally tax planning should be done throughout the year, but unfortunately most people do not even start thinking about their tax situation until late into the fall.  Doing nothing at all will leave less in your pocket and planning done at the eleventh hour may end up sloppy and incomplete.  We encourage you to consult with your financial team now so you can insure that you are taking full advantage of all appropriate year-end tax saving opportunities.

Make an Achievable 2015 New Year’s Resolution – Get an Estate Plan Checkup!

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With 2015 right around the corner, it’s time to start thinking about your new year’s resolutions.

It doesn’t matter whether you have an estate plan or don’t, one important item to add to your list is getting an estate plan checkup.

Don’t Have an Estate Plan?

If you don’t already have an estate plan, then getting one in place should be at the top of your 2015 new year’s resolutions.

Why?  Because without an estate plan, you and your property may end up in a court-supervised guardianship if you become incapacitated, and your property and your loved ones may end up in probate court after you die.

Worse yet, if you don’t take the time to make your own will, then the state where you live at the time of your death will essentially write one for you, and it most likely won’t divvy up your property the way you would have.

A common misconception is that estate planning is only necessary for wealthy people.  But this simply isn’t true – anyone with a bank or a retirement account, a home, or a family needs to make a plan for what happens if they become incapacitated or when they die.  Of course the complexity of a plan will vary depending on your circumstances, but all estate plans should be put together with the help of an attorney who is experienced with the legal formalities required to create a valid will, trust, health care directive, and power of attorney in your state.

How Old is Your Estate Plan?

Do you already have an estate plan?

If you do, then please pull your documents out of the drawer, dust them off, and look at the date you signed them.

Were your documents signed in the 80s or 90s, or, worse yet, before 1980?  Then please run, don’t walk, to an estate planning attorney, because your documents are terribly out of date and need to be brought into the new millennium as soon as possible.

Did you sign your documents between 2000 and 2009?  Aside from the federal estate tax exemption jumping from $675,000 to $3,500,000 during that time period, state estate taxes disappeared in many states.  Because of the significant changes in federal and state estate taxes, documents from this time period can be out of date and need to be tweaked in some shape or form.

Did you sign your documents during 2010, 2011, or 2012?  Federal estate taxes, gift taxes, and generation-skipping transfer taxes went through major changes during these years, and “portability” of the federal estate tax exemption between married couples was introduced.  Unfortunately, while your estate planning documents may only be a few years old, they very likely do not take advantage of the opportunities made available from recent changes in federal tax laws.  And, it’s not just tax laws that are changing – modifications to state laws governing wills, trusts, health care directives, and powers of attorney may warrant some revisions to your estate planning documents as well.

And last but not least, regardless of what year you signed your estate planning documents, think about all of the changes in your life since you signed them.  Did you get married or divorced, have a child or two or a grandchild or two, or move to a new state?  Did you sell your business, retire, have a significant change in assets, or win the lottery?  Any major changes in your family or financial situation will certainly have an affect on your estate plan.

Estate Planning is Not a One Shot Deal

Estate planning is not a static event that you grudgingly do once and then forget about it.  On the contrary, estate planning is a continuing process, because life is a moving target that is full of constant change, so your estate plan needs to change as your life changes.

Year End Estate Planning Tip #5 – Make Gifts That Your Family Will Love but the IRS Won’t Tax

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Don’t let the chaos of the holiday season prevent you from avoiding federal gift tax by making “annual exclusion” gifts, medical payments gifts, and educational gifts.

Make Annual Exclusion Gifts

“Annual exclusion” gifts are transfers of money or property in an amount that does not exceed the annual gift tax exclusion.

In 2014, the annual gift tax exclusion is $14,000 per recipient, and it will remain at $14,000 per person in 2015.  Therefore, you can give up to $14,000 to as many individuals you choose on or before December 31, 2014, and then give another $14,000 to the same people on or after January 1, 2015, and you will not have to file a federal gift tax return (IRS Form 709).  In other words, the IRS doesn’t consider gifts that are equal to or less than the annual exclusion amount to be taxable gifts at all.

Married couples can take double advantage of the annual exclusion and gift $28,000 in 2014 and then another $28,000 in 2015.  But note that in some situations, a couple may still need to file a gift tax return to report any “split gifts” – they’ll need to consult with their estate planning attorney or accountant to be sure. Also, you may need to file a gift tax return if you make gifts that exceed the annual exclusion amount or if you make gifts that don’t qualify for the annual exclusion – your attorney or accountant can guide you through this.

Make Payments that Qualify for the Medical Exclusion

Another type of transfer that the IRS doesn’t consider to be a gift for gift tax purposes is a payment that qualifies for the medical exclusion.

Payments that qualify for this exclusion are ones that are made directly to an institution that provides medical care to an individual or to a company that provides medical insurance to an individual.  In general, medical expenses that qualify for this exclusion are the same as those that are deductible for federal income tax purposes.

Therefore, in 2014 you can pay for your grandchild’s emergency appendectomy in the amount of $20,000 and also give your grandchild an additional $14,000 by December 31, 2014, and then another $14,000 on or after January 1, 2015, and you will not have to file any gift tax returns.

One incredibly important detail – in order to qualify for the medical exclusion you must make payment directly to the institution providing the medical care or company providing the medical insurance. If you give the money to the individual receiving the medical care or insurance benefit, even with explicit instructions that it be used to pay for the medical care, your payment will be considered a gift.

Make Payments that Qualify for the Educational Exclusion

Another type of transfer that the IRS doesn’t consider to be a gift for gift tax purposes is a payment that qualifies for the educational exclusion.

Payments that qualify for this exclusion are ones that are made directly to a qualifying domestic or foreign institution as tuition for the education of an individual.

For example, in 2014 in addition to paying for your grandchild’s emergency appendectomy (see above), you can pay your grandchild’s college tuition in the amount of $25,000, give your grandchild an additional $14,000 by December 31, 2014, and then another $14,000 on or after January 1, 2015, and you will not have to file any gift tax returns or pay any gift tax.

Two incredibly important details – in order to qualify for the educational exclusion

(1) You must make payment directly to the institution providing the education, not to the individual receiving the education, and

(2) Your payment must be for tuition only, not for books, supplies, room and board, or other types of education-related expenses.

If you fail to follow either of these restrictions, the payment will be considered a gift.

If you have any questions about how to make the most out of gifts to your family, please contact our office.

Year End Estate Planning Tip #4 – Check the Privacy of Your Estate Plan

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With the end of the year fast approaching, now is the time to fine tune your estate plan before you get caught up in the chaos of the holiday season.  One area of planning that many people overlook is ensuring that their final wishes remain private.

Will Your Final Wishes Become a Public Court Record?

Let’s face it, planning for what happens if you become mentally incapacitated or die is an extremely personal matter.  Why?  Because this type of planning deals with all of the intimate details of your life, including any skeletons in the closet, who you consider to be your real family, what you own, and who you owe.

When you’re sitting across the table from your estate planning attorney, you’ll need to “spill the beans” and let your attorney know your true feelings and ultimate goals.  And then once you have done this, there it is – all of the intimate details of your life written down in black and white in your estate planning documents, quite possibly for the whole world to see.

The good news is that because of the attorney-client privilege, no one can see your estate planning documents unless you give them permission.  But this will only work while you’re alive.  After you die and your will is filed for probate, it becomes a public court record that anyone can read (recent celebrity examples include actors James Gandolfini and Philip Seymour Hoffman).  It is also possible for your revocable trust to become a public court record that anyone can read (celebrity examples include Farrah Fawcett and Michael Jackson).

Or what happens if you don’t have any estate plan at all?  NFL quarterback Steve McNair’s public probate court proceedings are a prime example of how the public can learn the dirty little secrets about a deceased person – two illegitimate children and possibly others, multiple girlfriends – and all about the deceased person’s property and its value – cash, investments, businesses, and multiple homes valued near $20 million.  If you don’t have a personalized estate plan, your family could be stuck with the state’s default plan.  We’ve never had a client who wanted their personal plan to be exactly like the state’s default plan, so we strongly advise you to meet with an experienced estate planning attorney now to make sure that doesn’t happen to your family.

What Can You Do to Keep Your Estate Plan Private?

If privacy and discretion are important to you, then these goals should be, and certainly can be, carried over into your estate plan.

If you already have an estate plan, check with your estate planning attorney to determine how private your plan will be after you die and make any necessary adjustments.

On the other hand, if you’re currently working on your estate plan, make sure your estate planning attorney is aware of how important privacy and discretion are to you so that these goals can be incorporated into your estate plan from the beginning.

Call or contact to find out more about how to get your estate plan started today.

Year End Estate Planning Tip #3 – Check Your Mental Disability Plan

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With the end of the year fast approaching, now is the time to fine tune your estate plan before you get caught up in the chaos of the holiday season.  One area of planning that many people overlook is making sure their mental disability plan is up to date.

Three Areas of Your Mental Disability Plan That Are Likely Out of Date

If your estate plan is more than a few years old, then your mental disability plan is likely out of date for the following reasons:

  1. Are your health care directives compliant with HIPAA? While the federal Health Insurance Portability and Accountability Act (known as “HIPAA” for short) was enacted in 1996, the rules governing it were not effective until April 14, 2003.  Thus, if your estate plan was created before then and you have not updated it since, then you will definitely need to sign new health care directives (an Advance Medical Directive and a Living Will – insert the names of these documents in your state) so that they are in compliance with the HIPAA rules.  With that said, it’s possible that health care directives signed in later years lack HIPAA language, so check with your estate planning attorney just to make sure that your estate plan documents reference and take into consideration the HIPAA rules.
  1. Is your Power of Attorney stale? How old is your Power of Attorney?  Banks and other financial institutions are often wary of accepting Powers of Attorney that are more than a couple of years old.  This means that if you become incapacitated, your agent could have to jump through hoops to get your stale Power of Attorney honored, if it can be done at all. This could cost your family valuable time and money.  Aside from this, in the past few years several states (including Florida and Ohio) have enacted new laws governing Powers of Attorney.  If you want to increase the likelihood that your Power of Attorney will work without any hitches if you lose your mental capacity, update and redo your Power of Attorney every few years so that it doesn’t end up becoming a stale and useless piece of paper.
  1. Does your estate plan adequately address mental disability? A will is something that only becomes effective when you die.  With today’s longer life expectancies come increased probabilities that you will be mentally incapacitated before you die.  A fully funded Revocable Living Trust is the best way to provide adequately for mental incapacity, but some older trusts do not.  If you signed your Revocable Living Trust more than 8 to 10 years ago and haven’t updated it since or have assets that are outside your Revocable Living Trust, then it may well lack modern and appropriate provisions for what to do with you and your property if you become mentally incapacitated.  Have your estate plan checked to ensure that it will work effectively and efficiently if you lose your mental capacity.  Otherwise you and your loved ones may end up in front of a judge who will have to sort out your financial matters – at horrendous cost.

What Should You Do?

Estate planning is about much more than having a plan for who gets your stuff after you die – it should also include having a plan for what happens in case you lose your mental capacity.  If your plan is more than a few years old or does not include a fully funded Revocable Living Trust, then chances are it lacks a good mental disability plan.  Now is the time to meet with an experienced estate planning attorney to ensure that you have a mental disability plan that will work the way you expect it to work if it’s ever needed. Call or contact our office now to set up an estate planning consultation appointment. We make tough topics manageable to discuss and talk about.