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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

In basketball, a player is known to be in a “triple threat” position when he or she is holding the basketball and in an athletic position with the ball, ready to (i) pass to a teammate, (ii) dribble drive to the basket to score, or (iii) immediately shoot a jump shot.  In my past years of playing basketball, I possessed neither a good jump shot nor the quickness necessary to dribble drive to the basket.  In my case, the triple threat position was simply the means to pass the ball to a more capable teammate.

In tax planning, a charitable gift of assets might pose a “triple threat” to the tax code through one or more of three separate benefits.  These three tax-related benefits are as follows:

  • An immediate income tax charitable deduction;
  • Avoidance of future capital gains or future ordinary income tax liability; and
  • Avoidance of future estate tax liability.

In this month’s update, I briefly summarize how a donor can implement a charitable strategy to make use of one or more of these three benefits.

Lifetime Gifts of Cash or Appreciated Assets to Charitable Organizations

The donor can make a lifetime gift of cash or appreciated assets directly to a tax-exempt charity or a donor advised fund.  This allows for an immediate charitable income tax deduction. For gifts of appreciated assets, the donor’s “in-kind” gift of the appreciate asset avoids future capital gains tax liability.  For donors who would otherwise have an estate tax liability at death, the gift avoids any future estate taxes to surviving family members.

Testamentary Designation of Charity as Beneficiary of IRA

The donor can make a testamentary gift of retirement account assets to a charity or donor advised fund through a beneficiary designation.  The donor’s surviving family avoids future income or estate tax liability on the retirement account assets being distributed to the donor’s chosen charities.

The Legacy IRA Act and Charitable Remainder Trusts

Finally, a donor can make a lifetime charitable gift from a tax-deferred retirement account to avoid income and estate taxes for an account owner’s surviving family members.   Many of our clients have taken advantage of the opportunity to make annual gifts of up to $100,000 per year as “qualified charitable distributions,” or “QCDs.”  While a QCD is not a charitable deduction, the QCD amount counts towards the account owner’s annual required minimum distribution (“RMD”) in the year of the gift.

Earlier this summer, the Senate Finance Committee passed the Enhancing American Retirement Now Act, a portion of which has been referred to as the Legacy IRA Act.  The Legacy IRA Act would allow an IRA account owner older than 70.5 years old to make a one-time QCD of up to $50,000 to either purchase a charitable gift annuity, or else fund a charitable remainder trust.  Note that while a QCD is not an income tax deduction, it is a tax-free distribution that is considered part of the account owner’s RMD.   As of today, the Senate has not yet officially passed the act, although it appears that the bill has bipartisan support.

These days, I enjoy helping my kids and their teammates learn the triple threat position in basketball.  I also enjoy helping our clients pose a triple threat to the tax code by implementing these types of charitable strategies.  Whether you have questions about charitable planning, about charitable trusts, or general estate planning questions, we would be glad to assist.