Page 123 - May 2021

a Charitable Remainder Trust or Donor Advised Fund. A CRT is a type of irrevocable trust that provides a couple of tax benefits. With a CRT, you have the ability to avoid capital gains tax on an appreciated asset
by earmarking the asset to a charity. The actual transfer doesn’t occur until you pass on and you are able to receive income on
the asset until then. You can utilize this as
a current charitable deduction in the year you made the gift. A Donor Advised Fund
is an easy way to make charitable gifts over time. With a DAF, you can pick and choose which charitable organization you’d prefer
to support. The account would be under your name but owned by the organization.
A couple of non-profits to be considered
are the Permanently Disabled Jockeys Fund (PDJF), and the EQUUS Foundation. The PDJF has disbursed roughly $11 million to permanently disabled jockeys since 2006. The EQUUS Foundation is the only national welfare charity in the United States which is solely dedicated to the livelihood of horses. There are many other non-profits worthy of your consideration. Just make sure that they are registered 501(c)(3) organizations.
ESTATE TAXES
Another issue to keep in mind is that
more and more people are expected to find themselves in a taxable transfer situation.
This is because the estate lifetime exemption could potentially be reduced drastically by the Biden Administration. As of the beginning
of 2021, the lifetime exemption amount
is $11.7 million per person. The rumor is
that it could be lowered to as little as $3 million. Remember, the value of your estate
is a summation of all your assets, which
often includes life insurance proceeds if the ownership remains under your control. This is a fatal mistake that many people make when purchasing life insurance. If you anticipate running into an issue with this potential estate tax policy change, look to your financial planner or estate attorney for advice.
STEP-UP IN BASIS
Cost basis step-up is not a document to include in your estate plan, but with some forethought about asset disbursement, this rule can potentially save you and your heirs a great deal in unnecessary taxation. A step-up in basis is not a complex topic, but surely a beneficial rule that minimizes tax. Here’s how it works. Let’s say your parents have a stock portfolio and they are thinking about selling it to buy a vacation home. The investments were purchased a long time ago and the
value has appreciated. If the portfolio is sold, there’s going to be a good chunk owed in capital gains tax. However, if not sold until after your parents pass, it will qualify for a step-up in basis. This means that original cost of each holding will increase to the
share price at the date of death. Essentially, avoiding the capital gains tax. Here’s a quick example: Let’s say you bought property for $100k and sold it for $400k. You have a gain of $300k and owe taxes on that gain. If held for a year or more, the taxes would be 20% or $60k versus passing the property onto your heirs, receiving the step-up and owing zero in capital gains tax. Talk with your financial planner if you expect to receive an inheritance to see if the assets would qualify for a date-of-death step up. Once again, there
is discussion in congress about eliminating the date of death step up. Keep an eye out for this potential change as it could be very significant and require action on your part.
To conclude, an estate plan can be very beneficial to not only you, but to your heirs as well. By avoiding the probate process, your heirs can save both time and money. With
a plan in place, you can ensure that your belongings go to whom you want, when you want. Keep in mind, you can benefit from this as well by giving yourself an opportunity to minimize tax, not to mention the feeling of comfort that everything will be taken care of when you are absent.
FINANCIAL PLANNING
“Having the correct planning done can ensure that your estate will transfer to your preferred heirs without first going through the probate process and also without taxation by federal and state government if your estate exceeds the exemption amount.”
Cade Peterson
SPEEDHORSE May 2021 121