Taxes, Charitable Giving, and Legislative Impacts

Explore the intersection of taxes, charitable giving, and pivotal legislative acts such as the Tax Cuts and Jobs Act of 2017. Learn about key considerations, planning tools, and changes in federal income taxes under the Biden Tax Plan. Discover how estate taxes, donor-advised funds, and retirement asset donations fit into the new tax landscape.

• Taxes
• Charitable Giving
• Legislation
• Tax Planning
• Estate Taxes

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1. Taxes, Charitable Giving and The New Normal

2. Todays Discussion With 7 Takeaway Statements Recent Federal Income Taxes Donor Advised Funds as Planning Tool Estate Taxes and Charitable Giving Donating Retirement Assets Biden Tax Plan Changes

3. Timeline of Important Legislation December 2020 March 2020 Consolidated Appropriations Act of 2021 (COVID Relief) July 2019 Coronavirus Aid, Relief, and Economic Security (CARES) Act December 2017 Setting Every Community Up for Retirement (SECURE) Act Tax Cuts and Jobs Act of 2017 (TCJA)

4. Important Planning Consideration Many of the provisions enacted in TCJA 2017 expire December 31, 2025, including Reduction Of Individual Income Rates Increased Standard Deduction Increased Estate Tax Exemption

5. Tax Cut and Jobs Act of 2017

6. Takeaway #1 You Don t Have to Be Warren Buffet to Itemize your Taxes . But It Helps

7. New Standard Deduction Married, Joint Return 2017 - $12,700, with personal exemptions of $4,050 2018 - $24,000, with no personal exemptions 2019 - $24,400 2020 $24,800 2021 - $25,100

8. Returns with Itemized Deductions 45,000,000 39,918,905 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 13,659,740 15,000,000 10,000,000 5,000,000 0 2017 2018

9. Returns with Itemized Deductions 35.0% 29.8% 30.0% 25.0% 20.0% 15.0% 10.1% 10.0% 5.0% 0.0% 2017 2018

10. Returns with Itemized Deductions 94.0% 100.0% 93.0% 90.0% 75.6% 80.0% 67.0% 70.0% 60.0% 46.4% 44.5% 50.0% 40.0% 24.8% 30.0% 15.4% 20.0% 13.1% 3.7% 10.0% 0.0% Under $50,000 $50,000 - $100,000 $100,000 - $200,000 2017 $200,000 - $500,000 Above $500,000 2018

11. Percentage of Returns that Itemize 40% 35% 30% 25% 20% 15% 10% 5% 0% 2012 2018 1994 2006 2000 1988

12. Takeaway #2 Take Advantage of the Charitable Giving Options Recently Created 12

13. CARES Act Incentives Universal Charitable Deduction For Those Who Do Not Itemize $300 per return in 2020 $300 single/$600 joint in 2021 Higher Adjusted Gross Income Limitations in 2020 and 2021 Gifts of Cash Limitation is 100% of AGI Neither Can Be Used for Gifts to Donor Advised Funds

14. Takeaway #3 A Donor Advised Fund is a Great Planning Tool to Minimize your Taxes 14

15. What is a Donor Advised Fund? A Fund Held by a Charitable Organization Such as a Community Foundation Deposits into Donor Advised Fund are Charitable Gifts Any Earnings Within Fund are Tax Free Can Be Endowed or Non-Permanent 15

16. Pension Protection Act Of 2006 Defined donor advised fund as a fund: which is separately identified through reference to the contributions of a donor or donors; which is owned and controlled by a sponsoring organization; and in which a donor or person appointed by the donor has or reasonably expects to have advisory rights with respect to investments or distributions. 16 10/8/2024

17. Donor Advised Fund vs Private Foundations Donor Advised Fund Easy 60% 30% None None Private Foundation More Complicated 30% 20% 1-2% 5% Setup and Administration AGI Limit Cash AGI Limit Appreciated Assets Excise Tax Minimum Annual Payout 17

18. Gifts to Donor Advised Funds As % of All Individual Charitable Giving 14.0% 12.7% 12.7% 12.0% 10.2% 9.2% 10.0% 8.1% 7.9% 7.1% 8.0% 5.7% 6.0% 4.8% 4.4% 4.0% 2.0% 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: NPT Study

19. Why The Fuss Over Donor Advised Funds? Donors Tax Tax Deduction Now, Charities May Not See Dollars Until Well Into future Donors can remain anonymous DAF Assets Currently More Than $120 billion However, DAF grantmaking soared 31% in 2020 19

20. Donor Advised Funds and Bunching Assume Joint Return, $200,000 Taxable Income Annual Mortgage Interest = $10,000 State and Local Taxes = $3,000 Annual Charitable Gifts = $8,000 20

21. Level Charitable Gifts Each Year $25,000 $20,000 $15,000 $10,000 $5,000 $- Year 1 Year 2 Year 3 Year 4 Year 5 Mortgage SALT Charitable 21

22. What is Bunching Unlike many deductions, taxpayers have control over the timing and amount of a charitable gift A taxpayer can put a large amount into a donor advised fund, and therefore itemize deductions in the year of the large gift Assume this taxpayer, rather than making $8,000 in charitable gifts each year, puts $40,000, in year 1, into a donor advised fund 22

23. Example 1 With Bunching $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $- Year 1 Year 2 Year 3 Year 4 Year 5 Mortgage SALT Charitable 23

24. Special CARES Act Rule AGI Limitation for Gifts of Cash 100% of AGI in 2020 and 2021 This Higher Limitation Does Not Apply to Donor Advised Funds Be Careful of Income Limitations Private Foundations Supporting Organizations 24

25. Kansas City Royals Gift Owned by Ewing Marion Kauffman Gifted to donor advised fund at Kansas City Community Foundation in his estate Advisory committee evaluated buyer proposals and favored a buyer that kept the team in the city. Legal Questions Is this charitable? Stay Local Material Restriction? Lessening the burden of government PLR said no, it was not 25

26. Takeaway #4 You Don t Have to Be Warren Buffet to Worry About Paying Estate Taxes . But It Helps

27. Estate Tax Exemption $14,000,000 Current Exemption: $11.7 Million $12,000,000 $10,000,000 $8,000,000 $600,000 $275,000 $6,000,000 $4,000,000 $2,000,000 $0 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

28. Estate Tax Rates 45% 40% 39% 40% 37% 34% 35% 32% 30% 28% 30% 26% 24% 25% 22% 20% 18% 20% 15% 10% 5% 0% 0 - $10,000 - - - - - - - - - - Above $1 million

29. Estate Tax Summary Data Source: Tax Policy Center 109,600 120,000 100,000 80,000 50,500 60,000 40,000 20,000 4,000 1,900 0 2001 2018 Filed Tax Due

30. Adults with Wills and Bequests Age 55+ 60.0% Adults with a Will, 51.0% 50.0% 40.0% 30.0% Wills with a Charitable Bequest, 11.0% 20.0% Adults with a Charitable Bequest, 5.4% 10.0% 0.0% Adults with a Will Wills with a Charitable Bequest Adults with a Charitable Bequest

31. Who Leaves a Charitable Bequest? 50% 45.7% 45% 40% 35% 30% 25% 20% 12.8% 15% 7.4% 10% 5% 0% No Kids Have Kids Have Grandkids

32. Wording is Important! No Language 5.0% Would you like to leave a charitable gift? 10.4% Many of our clients like to leave money to charity in their will. Are there any causes that you are passionate about? 15.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

33. Takeaway #5 Long-range Estate Planning Is Still Important But Just Got A Bit Easier

34. Estate Tax Exemption $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

35. But, there is a catch . Higher exemption sunsets on Jan. 1, 2026, reverting to their pre-2018 exemption levels as indexed for inflation. Taxpayers can use their unified credit now, and avoid the risk of losing them come 2026. Is there a clawback risk if an individual were to gift away his or her entire gift tax exemption during that person s lifetime and then die after Dec. 31, 2025?

36. New Regulations Issued November 2018 REG-106706-18 Allows the estate to compute its estate tax credit using the higher of the exemption applicable to gifts made during life or the exemption applicable on the date of death.

37. An Example Harry and Meghan $30,000,000 in marital assets; 60 years old in 2021 In 2021 Harry and Meghan each have a lifetime exclusion amount of $11,700,000 ($23,400,000 as a marital unit). They could each gift $11,700,000 or a total of $23,400,000 in addition to annual exclusion gifts and remove $23,400,000 from their taxable estate. Assume Harry and Meghan pass away in 2030 REG-106706-18 allows Harry and Meghan to use the exemption that was in place when they made their gifts (in 2021) rather than when they passed away (2030) .

38. Takeaway #6 Retirement Assets Still Require Thoughtful Planning

39. Gifting Retirement Assets Retirement assets may be subject to taxation, even if a donor is not subject to federal estate taxes. That s because most retirement assets are considered to be tax heavy assets they were never taxed during the lifetime of the donor. Upon the death of the donor, then, the recipient of those assets may need to pay taxes on the assets they receive. 39

40. Retirement Assets and RMDs After Age 72, Required Minimum Distribution Rules Apply 50% Penalty on shortfall below RMD RMD rules were suspended for 2020 RMD rules reinstated for 2021 and beyond

41. Required Minimum Distributions Must distribute a minimum amount Life expectancy factor applied to account balance Example: Widow, Age 73 Life Expectancy = 11 years $1,000,000/24.7 = $40,485

42. What is a QCD? A QCD is a direct transfer of funds from your IRA custodian, payable to a qualified charity. QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year, as long as certain rules are met.

43. Importance of a QCD $50,000 from an IRA Non-QCD $50,000 - 0 - $50,000? Yes QCD - 0 - - 0 - - 0 - No None Taxable Income Charitable Deduction - Nonitemizer Charitable Deduction Itemizer Income Limits on Charitable Deduction Tax Effect Zero at best (likely more)

44. QCD requirements Age 70 or Older NOTE THAT THIS DIFFERS FROM RMD REQUIREMENTS Maximum annual amount is $100,000 Deadline December 31 Cannot give to Donor Advised Fund Supporting Organization Income-Producing Gift

45. QCDs and Deductible IRA Contributions Secure Act permitted deductible contributions to IRAs after age 72 QCD is reduced by amount of IRA contribution Example: You make a QCD in 2020 for $10,000. You also make a $7,000 deductible IRA contribution. Your charity receives the full $10,000 The tax-free portion of the QCD reported on your tax return is reduced to $3,000. The remaining $7,000 of the QCD is taxable.

46. SECURE Act and Stretch IRAs Inherited IRA, owner must withdraw the entire IRA balance within 10 years of the death of the IRA s owner Exceptions Spouse Children under age of majority 10-year rule applies when they reach age of majority A disabled beneficiary or chronically-ill beneficiary, or A beneficiary within 10 years of age of the decedent

47. Stretch IRA Example SECURE Act Current Law Assume 25-year-old inherits $1,000,000 IRA Life Expectancy = 57.2 Years Required Minimum Withdrawal = Assume same 25-year-old IRA must be withdrawn within 10 years Investment earnings limited to 10 years $1,000,000/57.2 = $17,482 (Note: Investment earnings may exceed payout in early years)

48. Takeaway #7 Tax Laws Don t Last Forever And Here Is an Example

49. A Prediction (Sorry, Yogi!)

50. Biden Tax Plan Elimination of Stepped Up Basis Removal of $10,000 SALT Deduction Limitation Reduce estate tax exemption to $3.5 million Reduce lifetime gift exemption to $1 million Increase maximum tax rate to 45% Higher rates/stricter deduction limits for those with income above $400,000

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