Estate Planning Tips and Your Rotary Legacy
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View the recording: https://vimeo.com/143924224 This webinar is for anyone approaching or in your retirement years in the U.S., no matter how comfortable you are with a personal estate plan. Join a Rotarian financial planner to review best practices that you can discuss with your advisers to help ensure your legacy.
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Estate Planning Tips and Your Rotary Legacy
- 1. Estate Planning Tips and Your Rotary Legacy Presenter: Michael Mattie, Rotary Club of Warrington, PA Facilitators: Nancy Hoffman, Sr. Supervisor Gift Administration
- 2. 2 AGENDA • Overview of Estate Planning Basics • Rotary Foundation tools that can complement your Estate Plan • Your Rotary Legacy and naming opportunities • Next Steps
- 3. 3 AS A REMINDER The purpose of this webinar is to provide general gift, estate and financial planning information. It is not intended as legal, accounting or other professional advice. We encourage you to consult your tax, legal or financial advisor to assist you with your planning.
- 4. 4 KEEP IN MIND Everyone Should Have: – Will – Durable Power of Attorney – Living Will Beneficiary Designations Need to Be Kept Up to Date – Life Insurance – 401k, IRA or other retirement account – Annuity
- 5. 5 HOW THE FEDERAL ESTATE TAX WORKS Gross Estate/Valuation Adjusted Gross Estate Net Estate Tax Due Estate Tax Base LESS DEDUCTION FOR FUNERAL AND ADMINISTRATION EXPENSES, DEBTS, STATE DEATH TAXES, CERTAIN LOSSES LESS MARITAL AND CHARITABLE DEDUCTIONS ADJUSTABLE TAXABLE GIFTSTaxable Estate TAX RATES ARE APPLIED TO CALCULATE A “TENTATIVE ESTATE TAX” LESS: APPLICABLE CREDIT AMOUNT, UNUSED SPOUSAL APPLICABLE CREDIT, AND OTHER TAX CREDITS
- 6. 6 HOW A WILL WORKS DESIRES FOR DISTRIBUTION OF PROPERTY RESIDUAL ESTATE PROPERTYSPECIFIC BEQUESTS Estate BeneficiariesIndividuals or Charities
- 7. 7 HOW A LIVING WILL WORKS Patient Third Party Physician
- 8. 8 HOW A DURABLE POWER OF ATTORNEY WORKS DURABLE POWER OF ATTORNEY ACTIONS ON BEHALF OF PRINCIPAL Attorney-In-Fact Agent Third Parties
- 9. 9 HOW THE FEDERAL GIFT TAX WORKS WITH AN ANNUAL EXCLUSION Gift GIFT-SPLITTING Spouse 1 Spouse 2 $25,000 $25,000 LESS ANNUAL EXCLUSION $14,000 LESS ANNUAL EXCLUSION $14,000
- 10. 10 HOW THE MARITAL DEDUCTION WORKS ESTATE ASSETS PROPERTY PASSING TO SPOUSE AT SURVIVING SPOUSE’S DEATH Deceased Spouse Spouse’s EstateSurviving SpouseEstate UNLIMITED MARITAL DEDUCTION NO MARITAL DEDUCTION (UNLESS THE SURVIVING SPOUSE HAD REMARRIED)
- 11. 11 HOW THE BYPASS TRUST WORKS APPLICABLE EXCLUSION AMOUNT REMAINDER OF ESTATE INCOME AND PRINCIPAL NOT INCLUDED IN SURVIVING SPOUSE’S ESTATE INCLUDED IN SURVIVING SPOUSE’S ESTATE Surviving Spouse Deceased Spouse Children
- 12. 12 HOW THE IRREVOCABLE LIFE INSURANCE TRUST WORKS TRANSFERS OR PURCHASES A LIFE INSURANCE POLICY Beneficiaries Beneficiary TRUSTEE MAY MAKE LOANS OR BUY ESTATE ASSETS CRUMMEY POWER TRUST PAYMENTS DEATH BENEFIT TRUST PAYS PREMIUMS TRANSFERS CASH ANNUALLY, UP TO THE GIFT TAX ANNUAL EXCLUSION AMOUNT
- 13. 13 HOW THE QTIP TRUST WORKS PROPERTY Beneficiaries Named by First Spouse Surviving Spouse Decedent/ Deceased Spouse REMAINING PRINCIPAL AT SURVIVING SPOUSE’S DEATH INCOME AND (POSSIBLY) PRINCIPAL FOR LIFE
- 14. 14 LET ROTARY HELP YOU ACHIEVE YOUR GOALS
- 15. 15 Will you? Legacy giving ensures that the good you do in the world will live on.
- 16. 16 Retirement Fund Assets Make Tax-Wise Gifts The value of an inherited IRA, 401k or other tax-deferred retirement accounts will be reduced by the income taxes your loved ones have to pay. Consider using these funds first for legacy gifts and leave other less tax-burdened assets to your family.
- 17. 17 Increase Retirement Income and Leave a Legacy Life Income Agreements offer: - tax benefits - lifetime payments - Major Donor and Arch C. Klumph Society recognition - the ability to maximize appreciated assets Charitable Remainder Trusts Charitable Gift Annuities
- 18. 18 Giving Appreciated Securities Type of gift Cash Stock Value of gift $10,000 $10,000 Cost basis n/a $4,000 Long-term capital gain if sold n/a $6,000 Long-term capital gains tax eliminated ($6,000 x 20% rate) n/a $1,200 Income tax savings ($10,000 x 39.6% rate) $3,960 $3,960 Total tax savings (cap gains tax eliminated + income tax savings) $3,960 $5,160 Net cost of gift (value of gift - total tax savings) $6,040 $4,840
- 19. 19 Support Your Favorite Charities with Rotary’s Donor Advised Fund Contribution Deduction Rotary Invests Reports, Administers DAF Account Your Favorite Charities $ $ $ $
- 20. 20 Create Lasting Change with Rotary “You are not going to solve the world’s problems in one step. You have to keep at it. The Endowment Fund allows that to happen.” - Perry Berkowitz, Rotary Club of Vestal, NY
- 21. 21 The Power of Endowment Giving
- 22. 22 Thank You! If you have included a gift to Rotary in your plans, please let us know! We would like to express our gratitude and learn more about how you would like your gift to be used.
- 23. 23 NEXT STEPS • Review your will, Power of Attorney and Advanced Directive/Living will • Consider your Rotary legacy • Talk with a local Rotarian or Rotary Gift Officer to discuss your goals • Request a Life Income Agreement illustration • Visit www.rotary.org/plannedgiving
- 24. 24 DISCUSSION
- 25. 25 For more information Contact Rotary’s Planned Giving Department 847-866-3100 plannedgiving@rotary.org
Notes de l'éditeur
- Certain amounts can be given by an individual, before and/or upon their death, without incurring federal gift or estate taxes. $5,340,000 for estates of persons dying in 2014, $5,430,000 for estates of persons dying in 2015. The top federal estate tax rate in 2015 is 40%. “Adjusted Taxable Gifts” are taxable gifts in excess of the $14,000 annual gift exclusion amount need to be added back into the taxable estate to determine the tax base. The “Unused Spousal Applicable Credit” allows your estate more flexibility at your death. You could transfer everything to your spouse at your death, and your estate can elect to transfer your unused applicable exclusion amount (up to $5,430,000 ) to your surviving spouse. Your spouse will then have an applicable exclusion amount equal to the sum of his or her own basic exclusion amount and your unused applicable exclusion amount, which your spouse can use for gift or estate tax purposes.
- An individual executes a will directing how his or her property will be distributed. When the person dies, an executor is appointed, the will is probated, and the property becomes part of the probate estate. The property in the probate estate is distributed to the estate beneficiaries, by order of the probate court and in accordance with the desires of the deceased as expressed in the will, subject to certain restrictions of state law.
- A patient creates a living will to instruct a physician on what medical treatment should be extended to the patient in the event of a terminal illness or other disability. The patient gives a copy of the living will to a third party. Upon a terminal illness or other disability, the third party can offer the living will to the patient’s attending physician when determining the appropriate treatment. Cite Karen Ann Quinlan case in 1970’s – 1980’s. A physician may honor the requests documented in the living will upon certification of a terminal illness, with no reasonable expectation of improvement and expectation of imminent death.
- A durable power of attorney lets you give someone else "special" or "limited" powers or a general power to act on your behalf. The person you name is known as an “attorney-in-fact” or agent. The attorney-in-fact can act in the donor's behalf when dealing with third parties. The power is "durable" in that it remains in effect during a subsequent disability or incompetency of the donor. The power can also be designed to go into effect only in if the principal becomes disabled or incompetent.
- Each spouse would draw upon their respective applicable credit amounts to offset the gift tax otherwise due on their taxable gifts. The gift tax annual exclusion amount is set at $14,000 in 2015. A couple can gift $56,000 each year to another couple. If not, the $22,000 referenced above is added to the “Adjusted Taxable Gifts” previously referenced.
- Property passing to a surviving spouse qualifies for the estate tax marital deduction, if it is not a disqualified terminable interest (A Terminal Interest is an interest in property that will terminate on the lapse of time or on the occurrence of some event or contingency. An example is property given to a surviving spouse that would revert to the children if the surviving spouse remarries.) The deduction is unlimited at the first death and enables the surviving spouse to receive the property without any estate tax liability at the death of the first spouse. As referenced before, your estate can elect to transfer your unused applicable exclusion amount (up to $5,430,000 ) to your surviving spouse. At the second death, no marital deduction will be available (unless the surviving spouse remarries). So, the marital deduction essentially delays the estate tax until the second death (though the estate of the surviving spouse may be able to use the first-to-die spouse's unused applicable exclusion amount).
- The donor provides for a portion of his estate to be placed in a bypass trust, often equal to the applicable exclusion amount for the year of death. The remainder of the estate is given outright to the surviving spouse or placed in a marital trust. Income and principal from the bypass trust can be paid to the spouse during his or her lifetime. At the surviving spouse's death, the children receive the property from both trusts, but the property in the bypass trust is not included in the surviving spouse's gross estate.
- The donor transfers a life insurance policy to the trust (or preferably, the trustee applies for a new policy, thereby avoiding the possibility that the policy would be included in the donor's gross estate). The donor transfers cash annually to the trust which can be sheltered from the gift tax by the gift tax annual exclusion, through the beneficiary's Crummey power. The donor informs the beneficiary of their intention to use the Crummey power, so that the beneficiary declines to withdraw the gift when given the opportunity. The trustee makes premium payments. At the donor's death, the trust receives the death benefit from the policy. The trust gives the trustee the power to make loans to the donor's estate, or to purchase assets from the estate, to provide the estate with funds to help pay estate settlement costs.
- The first spouse to die directs by will that certain property be placed in a QTIP trust (Qualified Terminable Interest Property). A QTIP trust is often used in order to take advantage of the marital deduction and still control the ultimate distribution of the assets at the death of the surviving spouse. The executor must elect whether to qualify the property for the marital deduction in the deceased spouse's estate. All of the income from the trust must be paid to the surviving spouse no less frequently than annually. The surviving spouse may also receive principal distributions. The trust principal passes to beneficiaries designated by the first spouse after the death of the surviving spouse. Why use a QTIP? Sometimes it is inappropriate to leave property outright to a surviving spouse, perhaps because the spouse is aged, infirm or not sophisticated in financial affairs or property management. The QTIP trust allows property to be managed for the spouse's benefit without these burdens. Second marriage situation - The first spouse to die can be assured that the property will pass eventually to his or her children, rather than to the surviving spouse's children from a prior marriage, while still providing lifetime financial security to the surviving spouse. Eases remarriage fears - If property is left outright to a surviving spouse who later remarries, the property could wind up in the hands of the new spouse. The QTIP trust provides for a surviving spouse, but retains control over the ultimate disposition of the property.
- The simplest way to make philanthropy a part of your plans is to include a gift to charity in your will or trust. In most states, a gift can be added to an existing plan through an amendment or a codicil. As highlighted earlier, your estate receives a federal deduction for these gifts, which could reduce or eliminate estate taxes if your estate is over the applicable exemption.
- If you are planning to leave a charitable gift, designating all or part of a tax-deferred retirement fund may be the most efficient way to go. Here’s why: your children or other heirs will have to pay income taxes on these funds. If they are in their peak earning years at the time, particularly if they are in a high tax bracket, the taxes could really cut into the value of their inheritance. To avoid this, you may want to consider using this asset for charitable gifts and leave other less tax-burdened assets to loved ones.
- Rotary offers life income agreements. These gifts provide payments for life to one or two beneficiaries. Charitable Remainder Unitrusts pay a percentage of the fair market value of the trust and Gift Annuities make guaranteed fixed payments based upon the age of the donor when the gift is made. It is important to note that Rotary gives Major Donor recognition for the full face value of the gift. The minimum amount to fund these types is $10,000 per annuity and $100,000 for trusts. The beneficiaries must both be at least 50 years old at the time the gift is made.
- Let’s say you want to make a gift of $10,000 and you could either make a cash gift or a gift of securities with a $4,000 cost basis. Either gift would result in a $10,000 charitable deduction, but by giving stock, you avoid paying capital gains tax on the appreciation. One way of looking at this is that giving stock reduces the effective cost of your gift by the amount of the capital gains tax savings. In this example, that would be $1,200.
- If you like to give appreciated stock, a donor advised fund may be a great option for you. You may be familiar with commercial donor advised fund programs; most major investment firms offer them. But did you know that Rotary has its own Donor Advised Fund? These “charitable checking accounts” let you support any number of different charities in a tax-efficient way. You make tax deductible contributions to the account, recommend how the funds are invested and then recommend grants to any charity recognized by the IRS. In the meantime the account is invested, potentially increasing the dollars available to give, tax-free. This is a particularly nice option if you give appreciated stock because a single stock gift may support multiple charities, including smaller charities that may not have the capability to accept gifts of stock.
- Gifts to Rotary’s endowment fund are never spent. A portion of the earnings are spent each year on Rotary’s programs, which creates a legacy of support that lasts for generations. The Named Funds in Rotary’s Endowment Fund are a way for donors to further customize and secure their legacies. When a person or couple contributes at least $25,000 designated for Rotary’s Endowment, they are offered the choice of Naming their fund, so that fund is tracked and the donor’s district and heirs know how much good is being done in the world through their loved one’s generosity.
- This chart shows the growth of a $25,000 endowed fund over the 20 years. In this real-life example, the value of the fund grew from $25,000, the minimum needed to establish a fund in your own name or in that of a loved one, to almost $44,000. In addition, the endowed fund provided approximately $36,000 in spendable earnings for the Foundation. When speaking of the endowment, we’re talking about making a difference today and the future.
- Please let Rotary know when you include a gift to the Foundation in your plans. That way we can say thank you, but more importantly, we have the opportunity to find out how you would like your gif to be used. When you give to the Endowment you can designate how these earnings will be used. Just like the Annual Fund, Endowment earnings may be designated SHARE, which means they will be split between Rotary’s World Fund and DDF for your district. They may also be designated to an Area of Focus or to the Rotary Peace Centers. (Peace and Conflict Resolution, Child and Maternal Health, Community and Economic Development, Basic Education and Literacy and Disease prevention and control)
- Hopefully, this presentation has given you a better understanding of the many ways Rotarians may make a gift to Rotary part of their own personal legacy. Many Rotarians would gladly give to Rotary’s Endowment, particularly if they knew that their gift would directly benefit their district, but they just don’t know enough about it. Thank you.