The Ready, Set Retirement Blog Focuses on Financial Planning issues facing Gen X Execs and Soon-to-Be Retirees. My name is Derrick Glencer, CFP and in this Blog we are going to be looking at an estate planning issue-Gifting in a volatile market

During times of market volatility, it’s important to review your charitable options and opportunities.

The coronavirus has financially impacted individuals and businesses, and market volatility may leave you cautious about making gifts. However, lower valuations can offer certain tax advantages, and temporary pandemic relief legislation is designed to promote charitable giving as well.

Annual exclusion and lifetime gifts (this relates to family and friends)

This is a good time to make annual exclusion gifts (up to $15,000 per person). Using marketable securities when volatility is high and valuations are down can provide for extra tax advantages on these gifts.

Hot tip-If you are married that means you can gift $30,000 ($15,000 from each spouse) to a child without it impacting your gift exclusion amounts. If your child is married, you could also gift $30,000 to the spouse as well. So that is a significant amount of gifting to children without an impact on your gift exclusion amount.

It makes sense from a tax standpoint to make larger gifts with low value securities. This allows a taxpayer to remove assets from the taxable estate while retaining more of the estate tax, gift tax, and generation skipping transfer tax exemptions (currently $11.7 million).

Investors who have concerns that the exemption will be lowered with possible changes in legislation should consider consuming a larger portion of the exemptions sooner rather than later. The IRS will not recapture these gifts if the exemption is lowered.

Now let’s take a look at charitable giving

As in 2020, COVID-19 relief legislation provides incentives for charitable giving in 2021. This is only applicable if you have yet to file your taxes in 2021.

For taxpayers who itemize, the charitable cash contribution limit is still increased to 100% instead of the standard 60%. The taxpayer must make an election. The existing five-year carryover rule remains in place, and the election would allow an increased amount to be deducted in 2021 and less carried forward.

Hot Tip-Congress has not extended this legislation so for 2022 tax filing, unless it is extended, expect only the standard 60% of charitable cash contributions, if you itemize, to be allowed.

For corporations, the percentage limitation on the corporate income tax charitable deduction is still increased from 10% to 25% of the corporation’s taxable income for 2021. In the case of charitable contributions by partnerships or S corporations, each partner or shareholder must separately elect to use the modified percentage limitations.

For taxpayers who take the standard deduction, the act allows an above-the-line deduction for cash contributions up to $600 for married couples filing jointly who aren’t itemizing. In order for the contribution to be deductible, it must be given to a charitable organization described in Internal Revenue Code section 170(b)(1)(A).

These incentives are only available for cash contributions and are not available for contributions to private foundations, supporting organizations and donor advised funds.

Charitable remainder trusts (CRT): Funding a charitable remainder trust with highly appreciated stock can solve capital gain tax problems and allow tax-efficient investment diversification. The CRT can sell appreciated assets and the donor avoids capital gains tax. To the extent capital gain income is paid to the donor, it is spread out over time.

Retirement planning: The suspension for required minimum distributions under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has expired, but the increased adjusted gross income (AGI) limitations for cash contributions provides an opportunity for individuals between 59½ and 70½ to have benefits similar to a qualified charitable contribution. They can take a cash distribution from their IRA and donate the cash to charity to offset a larger portion of their income taxes.

High-net-worth strategies: High-net-worth investors with appreciated assets should consider combining giving strategies to maximize gift tax benefits.

Make larger donations in cash to charity.

Consider gifting through a donor advised fund, donating long-term appreciated assets to minimize capital gains and maximize the 30% AGI limits for appreciated securities. I would urge you Donors to consult your attorney, accountant or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.

Hot Tip-I like to give a hypothetical example. If your AGI is $300,000 that means you can give appreciated securities worth up $90,000. What’s great about this is you receive the deduction in the year you make the donation you have also eliminated the capital gain from your balance sheet.

Plan for future giving and take advantage of the increased AGI percentage limit by additional cash gifts to a donor advised fund.

Use a combination of strategies to help take full advantage of the increased AGI percentage for gifts and receive tax savings on long-term appreciated assets.

The CARES Act has created a number of opportunities for charitable planning. Talk to your financial advisor to learn more about charitable opportunities during times of volatility.

My name is Derrick Glencer I am a CERTIFIED FINANCIAL PLANNER™ Practitioner if you enjoyed this content you can book a no obligation consultation via Calendly at: https://calendly.com/djgcfp

Or directly through email at:
derrick.glencer@raymondjames.com

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Thank you very much and go make it a great day!

Any opinions are those of Derrick Glencer and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/ SIPC.

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