Year-End Tax Planning and Charitable Estate Planning Go Hand in Hand

by | Dec 7, 2022 | charitable giving, Tax Planning, tax planning and estate planning

Many clients suffered investment losses in 2022,” a Financial Advisor magazine article points out, so year-end tax planning becomes especially important. New York-based tax advisors EisnerAmper explain that this year, planning has to account for three different tax acts:

  • Tax Cuts and Jobs Act of 2017
  • SECURE Act
  • CARES act.

While we offer no tax advice at Geyer Law, we have been, since 2015, alerting clients to the first opportunity described in Financial Advisor: Donating up to $100,000 from an IRA account to a qualified charity by December 31 in order to reduce 2022 income. The funds go to the charity income tax free, and the distribution itself is not considered income to the participant.

Although the SECURE Act changed the age at which Required Minimum Distributions begin out of IRAs (from 70 ½ to 72), direct donations to qualified charities out of an IRA are allowed beginning once the participant reaches the age of 70 ½.

Another interesting opportunity to which the Financial Advisor article calls attention is “front-loading” charitable contributions. Using this strategy, clients might make five years worth of charitable contributions in a single year, getting a big deduction the first year, then taking only the standard deduction on their taxes for the following four years. As EisnerAmper explains, the total deductions would end up being more than if the clients had taken the charitable deduction each year.

Again, while we offer no tax advice, instead working in cooperation with our clients’ tax advisors, many estate planning and tax planning decisions are interwoven. For example, if your assets include IRAs and also real estate and other assets held outside the IRA, it can make sense to name a charity as beneficiary of the IRA accounts, with the “nonqualified” assets going to your heirs in your estate planning. The charities pay no income tax, leaving the children assets which are not subject to tax unless there is a gain on the sale of investments or real estate between your date of death and the time the asset is sold.

As year-end draws nearer, we often find that some Geyer Law clients need the tax benefits of charitable contributions, but are simply not ready to make firm choices about which charities they wish to benefit. For that very reason, we include donor-advised funds in our discussions. With donor-advised funds, the specific choice of which charities will benefit does not need to be made in the same year as the contribution. In the meantime, assets donated do not need to be sold, and may be held inside the fund and continue to be managed by the donor’s own wealth advisor. Donors can take their time deciding on which charities will benefit and in what amounts.

Year-end tax planning and charitable estate planning goals often go hand in hand.

– by Cara Chittenden, Associate Attorney at Rebecca W. Geyer & Associates