Tax-Savvy Financial and Charitable Planning

Jun 22, 2021 20:00 · 9874 words · 47 minute read

Welcome to tech savvy, financial and charitable planning with Jeffrey freshmen. We will be starting our program shortly. Please make yourself comfortable.

02:23 - Thank you. Thank you for joining us for tech savvy financial and charitable planning with Jeffrey freshman. Please note. Today’s webinar is being recorded in a zoom webinar, you will only be able to see and hear the presenters and today’s event, your video and audio will not be available during the webinar. Before we begin our program, we would like to review some zoom housekeeping items with you throughout the program this evening, you will be able to chat with both the panelists, and other attendees.

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05:25 - At the end of today’s program, there will be a q&a session. You may ask questions at any time throughout the program, and they will be answered at the end of this program to ask a question, who will need to click on the q amp a icon located on the bottom of your zoom toolbar, as shown on the screen.

05:46 - Live transcript is available during tonight’s webinar. If you would like to turn on the closed captioning, please click on the live transcript icon on the bottom of your zoom toolbar here, you will have the option to show subtitles and view the whole, the full transcript.

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06:36 - At this time I would like to welcome was that miles to the virtual stage was that is the gift planner for CSU me, and she will be your MC for today’s event.

06:46 - Please give a warm welcome to visit. Thank you Susan. Good afternoon everyone and thank you for joining us. I see that we have wonderful participation with more than 30 attendees, and we’ve already received comments and greetings thank you for those.

07:04 - As a reminder, we will be emailing you the slide presentation and link to the webinar recording soon after this event, so there’s no need to take notes, but feel free to jot down questions and comments and submit them in the q amp a.

07:18 - I’d like to thank and recognize our co hosts from the OSHA Lifelong Learning Institute, Director Michelle Crompton, and from kZu General Manager MC Benedict and membership director, Noel afraid us for the past several years, we’ve been co hosting plan giving events, mainly on the topic of estate planning.

07:40 - This year we selected a slightly different topic, tech savvy financial and charitable planning.

07:46 - Here’s the agenda for our time together, we will hear from Jeffrey freshmen, followed by the q amp a throughout this webinar, Noel Michelle and I will be monitoring your questions and comments in the q amp a, and I will ask the questions to our presenter.

08:03 - Now I’m pleased to introduce to you our presenter.

08:06 - Jeffrey freshman is a Distinguished Lecture in the College of Business at Cal State Monterey Bay.

08:12 - The university officially gave him this designation in 1998, this past January, he became the first College of Business professor to receive a 25 year anniversary pin, his tax career began as an IRS revenue agent.

08:30 - After receiving his MBA in 2000, Jeff opened his second. He in taxation he became a CPA in 1981 and opened his own firm in 2000, Jeff open to second business and investment advisory firm in 2010 he ended that phase of his professional life and begin and other working with a major brokerage wire house as a financial consultant.

08:57 - Jeff is an active Certified Financial Planner, and a retired CPA.

09:03 - He is also a founding member, and former chairperson of the College of Business Dean’s Advisory Council. Please join me in welcoming Jeffrey freshmen.

09:17 - Well hello vast viewing audience, thank you so much for being here and joining us. There’s nothing I enjoy more personally been talking about tech savvy financial and charitable planning is the stuff that dreams are made of.

09:29 - It’s the stuff that dreams are made of. So what we’re going to do is kind of go through a few slides here. Do a little q amp a and hopefully entertain you. Have you learned something, and we’ll have a marvelous presentation, and I’m looking forward to giving it. So if we can jump to the our first official slide please.

09:56 - So there’s, there’s a couple of ways to talk about tax and financial planning topics, we could do a textbook approach where I would like lecture my students, and we would have a book and we’d have some PowerPoints and we’d have some notes, and it could get rather dry, but you know it’s part of the learning process we try to do interaction. But the way we’re going to do this presentation is I’m going to treat you as if I were the expert witness, and you are my judge and jury, which means that I’ve got to kind of start with some basic information, get everybody kind of acclimated to our topic.

10:38 - Then get a little bit more advanced, and as we get to our conclusion, go a little into a little complexity and I kind of refer to this as peeling the onion.

10:48 - So, I’m trying not to give you many tears as we get down and down deeper into the onion, but try to get you went to a position where everything’s kind of flowing really smoothly for you.

11:01 - So next slide please. Well, we’re going to start off with the basic information, and our basic information is that the cash donations are tax deductible and donations here can be made with cash with chapter with credit cards, but this will be the first of many different topics will discuss, where we have our basic role will have a general role, and if there’s a general rule, there’s going to be exceptions to the general rule.

11:37 - So what are these limitations well it depends if on your tax return, you take a standard deduction, or if you do an itemized deduction.

11:48 - But you can’t do both. So, if you take a standard deduction there’s no item as Asians, and I make that real clear to my students and I’m just emphasizing that to you a much more mature audience who might have some more experience filing tax returns.

12:04 - So what are the rules if it says cash donation. If you take a standard deduction it’s basically a $300 donation deduction, you can still have. So that means for married filing jointly up to $600.

12:17 - So $300 per person. So next slide please.

12:28 - So, what is this so called standard deduction well these are the amounts that pretty much every individual is allowed to have as a deduction against their gross income and it depends on their filing status.

12:43 - So I’ve listed here same goals, married filing separately married filing jointly Head of Household standard deductions. And there’s an additional standard deduction, if you’re 65 or older, and are legally blind.

12:56 - But if your itemized deductions are greater than the standard deduction, then you would of course, itemize deductions.

13:06 - Next slide please. So if you do itemize deductions. Your itemized deductions might also be limited. So what is that limitation.

13:23 - Well, in general, the charitable contribution deduction cannot exceed 60% of your adjusted gross income, and in some cases that we’ll talk about shortly, lower limits may apply.

13:38 - But we have a very very nice exception, or cares act.

13:44 - And that is for the year, 2021. This year, the limit is 100% of AGI so whatever your adjusted gross income is, you may have an itemized deduction of charitable donations at 100% of AGI.

13:59 - So this is a one year rule, only that will expire at the end of this year. So there may be some incentive to accelerate itemized deductions, with with charities involved.

14:12 - Next slide. Well we talked about cash donations. But what about non cash donations or donations of property.

14:27 - So, if you donate property, typically property will either have decrease in value or increased in value from the time you purchase it.

14:37 - So let’s first talk about property that has decreased in value in this very commonly could be items that are given to Goodwill. This is what many many individuals are familiar with having some items that are, they’re taken to a place similar to Goodwill.

14:53 - And we have an example here that is clothing, and the clothing deduction is going to be the properties fair market value at the time that donation is made.

15:06 - So, please pay attention that the fair market value is not what you paid for it. If the property has decreased invaluable so it’s the lesser of the two amounts.

15:18 - Okay. Next slide. And we have now left the very basic rules and we’re going to step into the more advanced items, and where this begins his property has increased in value.

15:35 - So first, there’s a general rule, and the general rule is the amount of the deduction is the fair market value of the property at the time but the contribution.

15:48 - And that’s the same rule we solve for property that has decrease in value.

15:54 - So the amount of the deduction is the fair market value of the property the time of the contribution.

16:00 - But that’s the general role. So if there’s a general rule, there’s going to be an exception or two or three or 20 exceptions to the general rule. So how do we show you all this, we created more slides for you.

16:14 - So let’s go ahead to the next one, please. Alright, we have a major exception for what’s called capital gain property.

16:25 - So what does capital gain property. It’s appreciated property that if it’s sold at its fair market value.

16:33 - Instead of being a donation, that would yield a long term capital gain.

16:47 - Not one year, but more than one here. I can’t even begin to tell you how many people I picked up over the years, as new income tax clients when I had my CPA practice, because when they prepare their own tax return.

17:02 - At the time, perhaps, there wasn’t a smart program behind the scenes, prompting them on.

17:08 - They would sell property of exactly one year and think it was long term capital gain that get their nice notice from the IRS saying, I think you made a mistake here that short term gain which is ordinary income and taxed at a higher rate.

17:22 - So again, capital gain property is appreciated property that you have held more than one year, so ordinary income property is appreciated property that’s not capital gain property, which means you held it one year or less.

17:37 - Then the deductible amount is going to be what you paid for the property, not, it’s appreciated fair market value. So when you give to your favorite charities property that has appreciated.

17:51 - You want to make sure that you have held up more than one year.

17:57 - Next slide. Now we do have some special limitations on donations of capital gain property.

18:10 - So the main factor here is that the the production cannot exceed 30% of adjusted gross income.

18:22 - So let’s take a look at an example. Attacks taxpayer has a $100,000 adjusted gross income.

18:31 - And they were fortunate to buy some stock they’ve held the stock more than one year, and it is appreciated to $50,000 and they make the donation to their favorite charity, with this appreciated stock.

18:45 - Well, so $50,000 donation. But they’re limited to 30% of their adjusted gross income, which would be $30,000.

18:56 - So, what happens to the rest of this production.

19:01 - Is it last. And we have more slides so. Next slide please.

19:09 - No, it’s not lost. We have Carrie overs of contributions to future years.

19:17 - So, If you cannot deduct the amount in the current year due to the AGI limit. You may carry this over in time, and the carry over is going to be for the next five tax years until the deduction is used up, but not beyond five years so you have the current year, and you have five succeeding years to absorb the income tax write off. However, if that carry over cannot be used during that five year period. Any remaining unused deduction is indeed last.

19:57 - So I just want to point out again that for capital gain contributions. That is a 30% AGI limit, not the hundred percent, which is the general role for cash contributions.

20:13 - Next slide please. Boy, a lot of us like volunteering, our time Don’t wait. So we donate our time to our favorite charitable causes.

20:25 - So, what happens if you donate time, know your time is valuable, it’s valuable to you, your family, maybe your co workers, but there is no tax deduction for the value of time worked or services rendered probably most of you realize that if I said something different. I’d be getting all sorts of attention, but that is our rule, time, and services rendered are wonderful.

20:54 - I encourage it. I know a lot of you have done it as I have as well, but there is no tax write off for that.

21:02 - Next slide please. Well we have authorities out there that may want to audit tax returns.

21:15 - And if you’re audited by either the IRS, or the Franchise Tax Board or some other states equivalent of our Franchise Tax Board.

21:25 - There’s going to be substantiation requirements. So what are these requirements.

21:32 - So if the donation is less than $250 for cash, a council chapter receipt will be just fine.

21:40 - But if your donation is $250 or more, you do need a receipt, or letter from the qualified charitable organization that describes date amount, and that famous verbiage that says no other goods or services were provided in exchange for the donation.

22:01 - Once again, these are cash donations and how things are substantiated.

22:07 - Next slide please. Well, what happens if you donate property you donate a vehicle or you donate any type of non cash items.

22:20 - Well the substantiation the requirement for non cash donations will vary, and it varies depending upon the amount of the donation.

22:30 - So if the donation is less than $250. Get them keep a receipt.

22:36 - If it’s $250 but not more than $500. Get a written acknowledgement fine line there between the two over $500 but not more than $5,000. Get the written acknowledgement and file a special IRS Form.

22:55 - That will have the items listed and proof from the IRS standpoint, that this is a valid donation between $505,000 and if it’s over $5,000.

23:14 - You need a written acknowledgement. You need the special IRS Form, and you need to obtain the qualified written appraisal.

23:22 - Alright so that qualified written appraisal is very important for these larger defined by 5000 over $5,000 of donations.

23:35 - Next slide please. So we’ve worked our way through some of the basic rules.

23:45 - We’ve worked our way through some of the more advanced roles.

23:50 - Now let’s kind of look at some of the more complex areas here.

23:55 - And so what we’re going to go into are qualified charitable distributions, which some of you, you’re experienced with.

24:05 - And we’re going to talk about some charitable trusts.

24:10 - So next slide. The qualified charitable distribution QCD.

24:22 - This was a fabulous new law that took effect a couple of years ago.

24:28 - So this was targeted for individuals were over 70 and a half years old.

24:36 - And they have to take a required minimum distribution from their IRA account. So we have two CDs are MDS IRAs, so it’s the whole initial vocabulary that all of you are familiar with, whether it be your line of work or whether it be any kind of jargon that that might be up in your lifetime, that we all just thoroughly enjoy, but here we have q CDs qualifying or individuals over 70 and a half years old.

25:07 - They may donate, up to $100,000 from their IRA assets to charity annually.

25:15 - And if they do this, they do not have to report that distribution as taxable income.

25:24 - And the whole idea of the QCD was to meet those required minimum distributions that were an effect for people 70 and a half years old that were required to take money from their traditional individual retirement account.

25:43 - Now we did have a change of rule fairly recently on the secure act of a secure act was assigned on the 20th of December, 2019, and purpose secure act, if you’re 70 birthday is July 1 of 2019 or later.

26:02 - You need not take r amp D withdrawals until you reach age 72.

26:07 - But the QCD rules were not changed. You can still do q CD, as long as you’re over 70 and a half years old.

26:18 - But the new RMB rules are for 72. In fact in committee right now. There’s talk about raising that I read about maybe up to 875 but all that of course is just reading and leaks that come out of different committee reports and until we have a Act passed by Congress signed by the President. What you’re seeing on the screen is what the law is now QC these are wonderful planning tools, especially for individuals that do not itemize there deductions, especially for individuals that take the standard deduction.

26:57 - So here you can meet your required minimum distribution by donating to your favorite charity.

27:05 - And you don’t have to report that income as taxable.

27:12 - And you get to make the donation to your favorite charity and still take a maximum standard deduction that you’re entitled to. So it’s really a win win win win situation with the two CDs.

27:27 - Next slide please. So now I’m going to talk a little bit about charitable trusts.

27:38 - And there is a charitable lead trust charitable annuity trust charitable remainder trust, all different acronyms involved there. But what I want to talk about now is what is a charitable remainder trust.

27:54 - And please keep in mind this is a little bit more on the complex side, but hopefully it’ll flow very nicely for you on slides here.

28:04 - All right, let’s go to the next slide please share the Word manger trusts RC or car keys.

28:15 - And they are used to avoid paying tax on the sale of highly appreciated property.

28:23 - So I wanted to put an example together to kind of illustrate how this would work. And, of course, be around to answer any questions. Somebody might have on car tease.

28:35 - So let’s say that many years ago in a galaxy for well okay on planet Earth, a taxpayer purchases a ranch for $600,000.

28:45 - That ranch now has the fair market value of $6 million.

28:50 - So if sold the federal and California taxes on the $5. 4 million gain would be a little bit more than $1,400,000.

29:06 - And, FYI, Congress is thinking about increasing capital gains taxes. So, this amount, could be much higher and it couldn’t be much higher fairly soon.

29:21 - What to do, what do we do here. And the answer is we consider using a charitable remainder trust.

29:30 - Next slide please. So how does ACRT work.

29:38 - So let’s use our example of a $6 million property with a cost basis of $600,000, how this would work is as follows.

29:49 - Before the property is sold we transfer the property into the charitable remainder trust the car T cells the property. but since this is a charitable trust.

30:02 - There’s no income tax, do on the sale. So after some selling expenses.

30:11 - The car T is now has about 5. 6 million in cash.

30:18 - And I’m assuming in my example here that there is no mortgage or liability attached to the property.

30:25 - So with that cash the CRT then invest in a diversified portfolio of equities and fixed income.

30:34 - And you, you lay folks might call equities and fixed income stocks and bonds. But in the profession, we refer to it as equities and fixed income.

30:46 - Alright so the trust agreement rule require that the car to distribute 5% of the trust and value to the original property owners each year. So what we’re trying to do here is create a tax free sale.

31:01 - We’re 100% of the cash is available to invest, and then per the terms of how charitable remainder trust work. The owner or owners of the CRT usually get and again there’s some complex roles here but they’ll usually get 5% of the trust value each year for distribution.

31:23 - Now, that annual distribution that comes from the trust assets which are liquid assets now is taxable income to the owners so that’s part of taxable income, potentially, and in most cases it’s part of retirement income for someone.

31:42 - When the owners pass away. The remaining principle does go to their favorite charities.

31:52 - And again, this is all in the trust agreement so you can list your favorite charities.

31:57 - And that’s remarkable so well as long as you’re alive. If for some reason you want to change out of a charity or add charities, you have the ability to do that.

32:10 - But wait, there’s more. So, Let us go to the next slide please.

32:21 - Well since the CRT principle which is the appreciative property, eventually will go to charity upon owner or owners final passings I mean everyone has to pass away, your original owner will get a charitable tax deduction, right now, For the present value of the future donation of the property that’s going to charity.

32:48 - So in our example here. Let’s just make an assumption that the present value of the CRT is 30%.

32:57 - So there’s $5. 6 million in the CRT multiply that by 30% and this again part of it’s all part of how old the people are when they do all this but let’s use 30%.

33:12 - And that means they have a potential tax deduction. Now, a $1,680,000.

33:22 - Now we have a couple things to remember here because this donation to the charitable remainder trust is a donation from the sale of capital gain property.

33:34 - This deduction is limited to 30% of AGI. And if the current year deduction is limited by 30% of AGI.

33:47 - The original owners of the property do have that five year carry over to take the unused portion against future income.

33:57 - So there is the current year, and five years, six total years to absorb that wonderful tax deduction.

34:05 - So in summary, what have we done. We’ve sold property that was highly appreciated paid no income tax on it, the money goes into a charitable trust. So the passing of both or one or both parties.

34:20 - There’s no estate tax involved no death tax involved. And we’ve created a full income stream to our owners of the trust, and they get a tax deduction for doing all this.

34:38 - You think anybody might be potentially unhappy. By having anything, everyone doing this wonderful tax savings and the answer is, yeah we may have some errors that are been disinherited going, what about me.

34:56 - What about me what happened. You just gave away, $6 million.

35:01 - Well, maybe that’s what the owners wanted to do, but if they want to preserve an inheritance. We all talk Island. Yes, you heard me work right island.

35:16 - Go ahead to the next slide please. The islet. The irrevocable insurance trust.

35:24 - And so it combines, an insurance policy with a charitable remainder trust. So the insurance policy, if married is a second to die policy of course if it’s a single person in the policies on there one life.

35:40 - And the insurance policy pays out to the quote disinherited unquote air or heirs after both owners have passed away.

35:49 - And in the remarkable life insurance trust the insurance proceeds are completely free above income taxes and estate taxes death taxes.

36:02 - So an island is pretty complex especially working with a charter or anger trust you know I’ve given you here a maybe 120 second snippet on something that’s going to be a little bit more complex to get to the bottom of how all this works.

36:19 - So, if these ideas are of interest to you. Do not attempt to try these things at home on your own.

36:28 - So you’ll need, and I have four points here, and you notice the common word on those four points is experienced. So, an experienced a state attorney, a life insurance agent or broker a CPA, a financial advisor, you need a team to make all this work, but when it works, it works just beautifully.

36:52 - Next slide please. Well, that’s the end of what I hope was a smooth presentation, of course you’re, you’re my judge and jury and you have to render the final verdict. But there’s one final item I have to do here, and when I was preparing all this.

37:12 - My retired librarians spouse said, Jeff, get that bibliography. So here it is, sort of, you can go to IRS Publication 526, and find some nice reading on this topic.

37:29 - I happen to know a lot because I’ve worked on these in my career, a number of times.

37:36 - And lastly, to my special consultant, my PowerPoint guru, Professor Gary Snyder, because when I started putting my slides together.

37:47 - And I said, I have a few simple questions I want to ask. He who knows me very well said. Just give it to me, I’ll do it, it will be faster than explaining it to you So Gary, I tip my hat to you if I was wearing it right now and thank you.

38:02 - Next slide please. And this is our moment so thank you for hearing me, listening to me, and I’ll turn it back over to our host and moderator and see if there’s any questions that you might have.

38:25 - Thank you, Jeffrey. What a wonderful presentation, I love the way that you talked about gifts going from simple to advance to more complex. Like many University CSU MB has a robust plan giving program and we have benefited greatly from these types of gifts.

38:45 - In fact, last year as we celebrated our 25th anniversary and the successful conclusion of our first ever comprehensive fundraising campaign plan gifts comprised a significant portion of the campaign.

38:59 - And now, we are opening the virtual floor to questions and comments.

39:15 - So the first question that I have and this one’s from me.

39:19 - And a lot of these concepts and a lot of these examples seem a little too good to be true, it is legal, and what, why does the government providing incentives for people to give.

39:37 - Well, It’s a multi layer answer to that. Who writes the tax laws, Congress.

39:48 - This conference, Congress have any influencers outside.

39:52 - Yes, we have lobbyists we have large donors.

39:58 - We have friends of our people that are in Congress, and we just cut through with what a few days ago, doing a little bit of reading about maybe 2025 of our wealthiest Americans and what percentage of income tax.

40:14 - They pay in proportion to their wealth and their income.

40:19 - Of course as a professional, like any professional I read that and not only know how they do it, understand why they do it, and if it’s perfectly legal.

40:29 - Why wouldn’t you not do it. But all this wallet may be too good to be true and these are advanced estate planning and income tax planning techniques, and they are out there to where we help certain people individuals to keep wealth.

40:50 - And I’ll leave it at that. So, Whether it be accountants who can recognize this maybe first and foremost, financial advisors eventually the estate attorneys and the experienced life agents that work with life insurance trust.

41:08 - It’s all out there and free to be used and this is just one technique, out of several to kind of piggyback on your question, let’s set that individuals have a certain income and wealth category are free to use.

41:24 - Yes, so you had also mentioned the qualified charitable distribution. So that’s something that most people that are in their, their 70s would be able to take advantage of.

41:33 - So, I wanted to ask a little bit more about that because I’ve got several questions, and one is the source of the, the donation that needs to be a traditional IRA is that, well, to get the maximum tax advantage, out of this, you would want to use a traditional IRA because it’s only the traditional IRA, that’s subject to the required minimum distribution of it doesn’t come from a traditional IRA and must come from a Roth IRA which is a completely different type of investment and retirement plan.

42:15 - And if you meet the requirements of a Roth IRA you can take any distribution you want. it’s completely tax free.

42:23 - And then of course from there you can make your donation, or not, but to get the full benefit the Q CDs were meant specifically for traditional IRAs.

42:34 - So what if, like, I’m like I have a retirement account with my, my employer. So can I convert to in an IRA, a traditional IRA.

42:48 - You have a retirement account with your employer.

42:52 - So chances are, unless the plan allows you the chances are the plan is not going to allow you to take money from that while you’re still working with your employer, you need what’s called separation of service, which means I’m gone.

43:11 - I’m not there I quit you’re fired you know all those kinds of separation of service, then you have a choice that you can do what’s called a rollover or a transfer into an individual retirement account.

43:25 - to convert to a traditional traditional IRA. And then I’d be able to take advantage of the, the QC be yeah then you would have that choice to make. Yes.

43:34 - Alright, so the other question that has been coming up is about.

43:40 - The, the money can be distributed to a qualified charitable organization. What about Donor Advised funds, I’d heard that somebody was wondering if that they’re eligible.

43:55 - Well, going from a QCD to a donor advised fund. I actually haven’t heard that one before.

44:09 - It certainly can be done, because the donor advised fund is not a charitable type trust, so it can go into that Donor Advised fund, because you would be taking normally after tax dollars.

44:26 - Anyway, to put into a donor advised fund. And here, you’re just doing the same funding through the QCV distribution.

44:36 - Okay. I have another question about how have required minimum distributions changed.

44:48 - Well, to two part answer there. The first part, how they changed is that the age from 70 and a half, has been lifted to 72, you know, as was pointed out, but the second part that didn’t get into my PowerPoints that doesn’t get much to the public is that the mortality tables are now being changed. And those mortality tables mean that the power of the federal government, you’re actually going to live a little bit longer, which means the percentage that comes out of the IRA every year is a little bit smaller, by tuning fine tuning but that’s a two part answer to your question.

Okay. All right. We have a question about someone would like to talk a little bit more about islet using the ranch situation can be heirs of the ranch, use a charitable remainder trust to avoid estate tax, assuming the step up basis is eliminated.

45:50 - And or the estate limit is lowered under Biden administration.

45:57 - All right. All that the purpose, one of the purposes of the charitable remainder trust to be set up is to avoid the capital gains tax. So the property gets transferred into the trust.

46:16 - And once it gets transferred to the trust for the owner of the trust that is out of the estate now.

46:24 - Now the purpose of the turtle remainder trust is that the principal at the time of death of the owner goes to charity.

46:33 - And again, it’s not part of the estate. the era bankable life insurance trust comes in to attempt to replenish a potential last inheritance.

46:45 - And when the eyelid is put together correctly and trust me there’s a lot of rules involved to make all this happen.

46:54 - When the islands put together correctly, when the when the person eventually the owner of the policy, eventually dies or the insured eventually dies.

47:04 - That money that goes into the island is also income tax on the state tax free for the beneficiaries.

47:13 - So it’s not a meshing of the two it’s like each individual entity or Trust has those tax free components.

47:26 - All right, here’s another one. Can you use one of the charitable trusts, to create an income stream using a primary residence property, and also claim deductions, whereby no taxes would be owed.

47:43 - Yeah, Selva residents has its own very specific rules, but sale of a residence is capital gain property. It’s only because of those specific rules that we you know we look at the fact that there can be some exclusion from income depending on the marital status of the persons or person selling the residence, but there is no regulation or rule that prohibits putting a personal residence into the trust selling it because of the residents is very highly appreciated.

48:16 - We have the same situation again, completely avoids the income tax and it’s removed from the estate.

48:23 - Now does that answer the question or did I miss the part.

48:28 - I think so I think what they were wondering about is when they say sale, sell it and then that could then be deducted, so it would be a zero payment of taxes at least that’s the way that I interpreted it and i i think that you answered it.

48:44 - Well, the one thing that you mentioned that perks my professional ears up as deducted.

48:50 - And so the deduction is going to be whatever the CRT charitable donation would percentage would be, you know what that percentage is my example I used to 30% present value.

49:02 - It gets a little bit more precise than that again depending on the facts and circumstances, warm.

49:07 - I think that that was answered. So, these are a little bit different questions that my students ask.

49:17 - They want to know what’s on the test you know that’s that’s that’s a typical question.

49:23 - Here’s why I’m from somebody no but I won’t, I won’t let you know who it is, but maybe you will know by the question, and he says excellent presentation and great Slide, please explain a bit more about pilots.

49:36 - Are there any time limit. Does the beneficiary receive a lump lump sum.

49:43 - Okay. Well, that could be one of many people you know I’ve got a wide variety, a lot of people I pay money to to say nice things to me. So, you know, non tax deductible payments I might out.

49:56 - Okay so, um, if you set up an island. First of all you need all those professionals, sort of as your teammates to put it together. But what makes the island, really work is the life insurance.

50:12 - So you need to buy a policy that can be funded either through a lump sum payment or can be done through premium payments.

50:23 - And so premium payments would be the periodic payments typically annually, that fun day life insurance policy, or you can just do a lump sum, and do it that way and again it just depends on the individual or the couple’s financial circumstances.

50:39 - Okay. Here. Here’s a question. If we have no check risk be, How much true cash, can we say we gave to charities on our tax returns.

50:55 - Oh yeah, yeah, that’s one of the favorite questions that I saw when I looked at some of the attendees out there, we do have some professional CPA and tax preparers out there.

51:08 - In other words that you know the what that is called the set is how much can I get away with.

51:14 - And, I mean, right now we don’t have any receipts and stuff what what’s this limit before somebody checks Well, you’re right until proven wrong so let’s just say that there’s specific roles that I write quickly laid out, and less the IRS or the franchise Tax Board comes in and says, show me prove it to me. You’re right till proven wrong which means you can’t prove it right.

51:42 - Well, and I think a lot of charities, at least I know that here at CSU on be, we, we do a good job of receiving, so even if you don’t have a copy of your check, then you might have a copy of the documentation that we would provide that.

51:55 - Let me, let me add to that as well because you know, I’d like to say, I have been a recipient of many of the CSU and Bs fine letters as proof of a tax deduction so thank you for all that fine work barbers emphasis for you’re out there, your team does a fabulous job.

52:18 - You know what happens with the proof is that you have there can’t be any goods or services exchange for it. I mean, we know that I kind of pointed that out.

52:29 - And the council check for larger donations isn’t valid because there was a court case that came out a number of years ago and I’ll summarize it for you briefly this was a number of years ago, but an individual was audited.

52:46 - And they had a big canceled check, remember back in the days when there was canceled checks for this charitable donation.

52:57 - Well, what it happened when there was further investigation is this person was responsible for passing the hat around at the service, and collected all the cash, but all the cash in their pocket wrote a check out to make sure that the charitable institution wasn’t shorted. And of course there was all these 52 canceled checks that totaled up to be the tax deduction. And that’s when Congress caught wind of that court case and came up with the law that said, A canceled check on these larger donations will not work.

53:34 - All right. I answered that one. We have a question about the sale of a primary residence.

53:45 - The question is if you exceed the 500,000 cap gain exclusion. Can you do a partial sale as your primary residence and transfer the amount that exceeds the exclusion, to a CRT.

54:03 - I’ve not come across that before typically it’s a you know you’re going to put your residence in or you’re not going to put property in or you’re not going to put property and I’ve never seen it manipulated that you know the numbers work out in both cases.

54:18 - So in that respect. I’m going to say probably not but I don’t know what the official answer is to that.

54:27 - That one seems kind of tricky to me, need to research, and that’s that underscores the importance of talking with your various advisors on on. Yeah, absolutely.

54:40 - Okay, here’s a question for a single person who is leaving everything to charity upon death, what would be a good arrangement to maximize what goes to the charity.

54:56 - Yeah, single person leaving everything to charity, you would you would probably want to make sure that your final instructions and again I’ll let the attorneys out there decide whether that’s their will or their trust you know that’s that’s not my.

55:14 - That’s not my expertise, but it spells out, who gets what very specifically name of the organization. Typically the address of the organization, long as you’re alive that’s remarkable.

55:26 - So, and then if you want to let people know in the charitable division that you’re being in the last will or trust, and you want the recognition for that, that’s available to you.

55:40 - Technically haven’t given them anything other than a piece of paper of a current will or trust that says this, of which they could pull that plug anytime they wanted to and do something different, but it’s an expanded answer to your question, which is, as long as it’s laid out in a will or trust. That’s the final instructions.

56:00 - There’s no other special item if it’s all going to go to charity. Yeah, a lot of it will depend on what sort of assets they have, but because there can be some that can go be designated with outside of a will or twice by the treasure.

56:15 - All comprehensive can be. So, yeah, that was that sounds good.

56:31 - Okay. I have some other ones. Um, I wanted, I had a question about appreciated stock.

56:43 - So say that you haven’t appreciated stock you want to be as charitable as possible you usually do a cash donation, but you want to keep your stock, even though you could, you know, sell your, you could donate you’re appreciated stock that you own for more than a year.

57:01 - So what, what are some of the investment or investment management advice that you would have for someone that wanted to be as charitable as possible, and possibly US stocks.

57:18 - That’s why you brilliantly named this topic tech savvy financial and charitable giving up.

57:24 - The first case I ever came across in my career was highly appreciated stock. This was back in the days that I can remember the case to, it was back in the days that Sun Microsystems was a fledgling company.

57:43 - And that’s Sun Microsystems by the way was subsequently taken over bought out by Oracle, but for a while it was a major, major player in Silicon Valley and Sun Microsystems became known to the world when an at amp t little company might have heard of, but a major share of the stock of Sun Microsystems, and all of a sudden, we had our first group of people who are in the startup that we’re now a multi millionaires holding Sun Microsystems stock.

58:16 - So my client was one of these, and it came in with a cost basis of like three cents a share and it’s now worth $20 a share and they had, you know, 10s of thousands of shares of stock and realize they had enough to do what they wanted to you know life planning.

58:35 - They were happy, but they also wanted to give back so they want to make some donations so their favorite charities.

58:42 - Now in this particular case, they had two choices I could say why don’t you sell the shares pay tax on it take the net amount and donate it which would be the cash.

58:53 - But if you’re going to give, give something to your favorite charity and you have this ability, just donate the stock, there’s no tax that you have to pay, and you get the full right off because you’ve held it more than a year the fair market value.

59:07 - So that was the first case I came across and I came across quite a number of my career evolved in Silicon Valley of these kind of donations.

59:17 - The second one that came across was some huge numbers, and that was my first experience with a charitable remainder trust. And at that point I was all theory and no practice.

59:28 - So, with an experienced team, the client brought in, I was able to, you know, learn on the spot meaning I knew what the rules were, but you always remember sort of your first time and the first time here was with a client who had very highly appreciated stock and a lot of it, and they wanted to have an income stream, because of their stage in their life they were in their late 50s and they wanted the income from the turtle grander trust that as time went on I have clients with a highly appreciated property of the ranch property that I gave was sort of a similar thing that I had in real life as far as people who started a business years ago.

Real Property land wanted to have an income stream, put it in the trust and the same example that I gave to all of you. During this presentation.

60:16 - Thank you. We’ve got another question that has come in, and that is, it might be a combination of a question comments, making nonprofits the beneficiaries of your retirement accounts, is a very easy, meaning no lawyer lawyer needed, and is tax free to the charity.

60:37 - I think this is also this also works with life insurance policies.

60:42 - i. Well, let’s see a couple of ways I can interpret that first of all any monies that pass from an IRA, that goes back to your earlier comment the set that goes outside of probate that’s a direct direct to the beneficiary so it does not to be does not need to be in your will or trust. It’s on the instructions of the retirement plan.

61:06 - Now life insurance is a different, different beast if the life insurance proceeds go to an individual it’s part, it’s potentially part of a taxable state, the proceeds themselves are not taxed to the beneficiary.

61:18 - But it is part of the taxable estate of the deceit. However, if the beneficiary of the policy. And remember that can be multiple beneficiaries, whatever amount goes directly to a charitable institution that is not part of the taxable state so that’ll pass tax free estate tax free.

61:40 - All right. Let’s see here. So I wanted to ask a little bit more about like income gifts.

62:06 - And specifically, if you didn’t want to go to the complexity of a charitable remainder trust Could you talk a little bit about a charitable gift annuity.

62:17 - Yeah charitable gift annuity These aren’t certainly not as complex as a charitable remainder trust. And here what happens is you make the donation, right to the qualified organization, whether it be your your your favorite x y z CSU MD, and a gift annuity that will do is depending on the age of the donor, they’ll get an income stream back a certain percentage for the rest of their lives. And so that’s how a gift annuity would work.

62:52 - Those have been very popular and at CSU on be. All right, so I have another question.

63:03 - They say I’m not sure if this falls under today’s topic, but can you explain ILIUL indexed universal life insurance policy is sometimes referred to as a rich man’s Roth IRA.

63:23 - Um, yeah, I, I can talk about that it is definitely outside the scope of this. So I think, I mean I I teach the the new risk management insurance course that’s going to be offered next semester, and this is a little bit, it, It is mainstream and the insurance world, but it’s not necessarily mainstream for our topic today so I think I’m going to pass on that and yeah, it’s just would not hold a lot of interest I think for folks right now.

63:59 - Right, let’s see here. question can you donate funds from Charitable Trusts to a nonprofit, where you work.

64:12 - Can I donate funds from a charitable trust to a nonprofit where I work. Now if it’s a charitable remainder trust those dollars won’t go to the nonprofit until after the individual has passed away, because again it’s a remainder trust.

64:30 - So, I’m not sure what that that’s the right answer to the question that was just asked. I don’t know if that’s what the meaning of the person asking the questions about.

64:43 - Yeah. I think that they’re for charitable trusts and usually the there is a charity that’s benefits from it, either a lead trust in the beginning, or right to the charity and the death of the principal, then the that goes right back to the estate doesn’t go to the charity, but if you take the end will distribution from the chair remainder trust, which is income that you can take that as well as anything Man, you can take that as well as anything else and donate that to a nonprofit work.

Yeah. Again nonprofit would be a technical term, 501 c three organization that has to be not just any nonprofit has to be attacks approved, nonprofit or cherry.

65:42 - Okay. So you had talked about, and I think that this is so great that even if you do a standard deduction, then you can take a $300 right off.

65:54 - $600 if you do a joint tax return. So, can you take that $300 and spread it amongst different charities, or does it need to be $300 to one charity, oh nice question no thanks for asking that whoever asked that you can spread it over as many charities as you wish, does not have to go to And so some of these that are not the, you know, writing out the check or paying with a credit card. They might require a little bit more advanced planning, up front.

66:29 - But, so, what, what would you suggest as far as people to plan to make sure that they’d be able to get their donation in by the end of the year when they would need to get credit for it.

66:41 - Yeah, this has happened to me personally, you want to make sure that you do this, you do it well before December 31.

66:51 - Because tonight, that everything gets back the letter or what if it’s done by check or if it’s goes into a nonprofit or the charitable brokerage account.

67:01 - You may have a different tax year involved. So yeah, the golden rule is if you were planning on doing this and you have the capital to do it.

67:09 - Do it now please just just do it and make sure there’s plenty of time that you can get your proper documentation in order, and don’t wait till the last minute.

67:20 - So, I have one more question so if there’s anybody that would like to ask you another question then please go ahead and answer that, put that into question and answer, and the questions at all now ask is, where do I go to learn more, or Moodle I go to, to give me some advice.

67:41 - Okay. So when we say learning more.

67:46 - We can take that very broadly to what we just referred to here, each topic that I brought up has its own separate reading materials and lessons involved so it just depends on how deep you want to peel that onion.

68:07 - As I mentioned in my bibliography that IRS Publication will give you some nice general reading that will enhance what I’ve talked about here, but you can always go into.

68:24 - Just as an example you can go into some of these, you know dummies books on financial planning.

68:30 - There are many art and there are many different books of course on finances, you could go online to any of the, you know, just google the topic and you’ll have more than you know what to do with.

68:45 - Textbooks are really good but they’re also really expensive so that would probably be the last resort, and there’s just all sorts of articles professional journals.

68:57 - There’s just a whole treasure trove of places, one can go to read or watch a YouTube video on on all sorts of topics as well. So if you want to know about puts and calls and margins and all the fun stuff financial planners do go to YouTube and find one and you’ll get yourself a nice 20 minute dissertation so there’s lots of places to go to.

69:21 - But the more I learned about this, these topics, the more I understand why they’re we. It’s so wonderful that we can go to experts that have all this learning.

69:26 - There we. It’s so wonderful that we can go to experts that have all this learning. So, I really appreciate those, those types of people and you’ve worked in Texas, and then you’ve also done the investment management side. So for with taxes.

69:42 - Then, When is a good time for people to maybe talk with their tax advisor about their plans their financial plans and their tax plans for the year I mean is now a good time to start it or probably not waiting into the end of the year right before.

70:00 - Again, that’s, that’s a good, good question.

70:04 - You’re going to find a lot of professionals are extremely busy as we have to the fourth quarter of the year, because that all started punching and punching and punching to, what can I do, what can I do, so the best time to do tax planning is before the year ends, and that means that the best time to do what is left the accountants get through their busy season of April 15.

70:26 - During the latter spring during the summer months, or try to do it before they get busy again with extensions and all that so my, my first reaction would be late spring summer time.

70:41 - That would be a place where you can start getting those appointments booked. Get a projection for what’s going on for the current year plan ahead for what might be for next year the what else.

70:52 - Most people have actually some idea of what they may wish to do that, the professional can help them with, so it might be I want to increase my retirement contribution I might want to do some more investing with the financial advisor comes in and says all right you know let’s work on a financial or an investment plan for you that works in side by side with the accountant. The attorney comes in because you either you have all your estate planning items do you have, you know, the life continuation documents.

71:23 - Do Not Resuscitate the durable power of attorneys, all this. Some of this is done more once in a while but tax planning is something that should be done every year.

71:35 - All right, well we’ve come to the end of our questions. I want to thank you again for your wonderful presentation and for your expert explanation of all these concepts.

71:49 - So, and I’d like to thank everyone all the participants for their submissions and they’re the for the question.

71:56 - And thank you for all the great questions you submitted they’re very much appreciate it and makes doing this a lot of fun and hopefully you get some good information out of it.

72:14 - Good job for you. That’s awesome. So, in conclusion, We hope you’ve enjoyed this webinar and found it useful.

72:23 - We’d love to hear your feedback and your suggestions for future topics. Here is my contact information. If you have further questions, or if you’re considering a plan gift, please reach out to us, and on behalf of CSUMB Ali and kZu.

72:40 - Thank you for participating in today’s webinar. .