Annapolis, Maryland Wills, Trusts & Estate Planning

How Can I Use My Life Insurance to Give to Charity? - Annapolis Estate Planning

“Financial planning is an ongoing process that examines your goals, situation and finances, in order to determine if and how these goals can be met. It’s not a product-centric process, but often we use financial products like mutual funds, annuities and/or life insurance to achieve goals in the most efficient manner.”

As Forbes explains in the article “2 Ways To Combine Charitable Giving And Life Insurance,” one of the core products for protecting wealth is life insurance. As you age, your need for life insurance may lessen, but sometimes it will increase. If you have a life insurance policy that you no longer need, one option might be to donate the policy to a charity. There are several ways that life insurance policies can be gifted or used for charitable purposes.

Gift Your Existing Policy. You can simply give away an existing policy, if you no longer need the policy for estate liquidity or estate taxes. You could gift the policy outright to your favorite charity or use a Donor Advised Fund (DAF). If you give the policy to a charity outright, you can change ownership of the policy and pretty much be done with it. You might get a charitable income tax deduction for the value of the policy at the time of the gift (it’s measured by the sum of the interpolated terminal reserve plus unearned premiums rather than the death benefit amount).

If the policy has ongoing premiums, those would be the responsibility of the charity. However, you can help them, by continuing to make the premium payments on behalf of the charity by directly paying the insurance company. You could also pay the value of the premiums to the charity and let it pay the insurance company. The premiums would then be tax deductible, since the charity owns the policy.

You could also simplify your life as the donor, where you could convert the policy to a reduced and paid-up policy and donate it with no ongoing premiums needed. This may be easier because you don’t need to create an additional outflow of cash after the gift is made to keep the policy in effect for the charity. You just transfer the policy value without any further obligations.

Charities typically like to receive gifts of policies with no ongoing premiums because it eliminates the task of sending the donor a gift receipt every time a premium payment is made. It also eliminates the issue of whether the donor or the charity is to pay future premiums.

Gift a New Life Insurance Policy. Another tact is to give a new life insurance policy. This can be a bit more involved because if the charity’s going to be the owner, they must have an insurable interest in the donor. However, if you have a strong ongoing relationship with the charity, this requirement can be satisfied. You can then pay up the policy completely at the start or make ongoing premium payments over time.

Reference: Forbes (March 6, 2019) “2 Ways To Combine Charitable Giving And Life Insurance”

Holden & Campbell, LLC – Annapolis Estate Planning

Protecting the Kids By Leaving Them Nothing? – Annapolis Estate Planning

It’s not a concept that everyone agrees with: your kids will be ruined if you leave them a lot of money. However, for many celebrities, especially those who came from modest beginnings, this is the best way to ensure that their kids are not spoiled brats.

Sometimes we learn about star’s philosophies after they die when it’s made public that their kids have received a small or no inheritance. Others, like Gordon Ramsay and Nigella Lawson have made it very clear that they have no intention of leaving their fortunes to their children after they die. They are not alone in this belief, reports Starts at 60 in the article “Famous snubs: The stars who have cut their kids out of their will.”

Let’s look at some of the big names leaving their children with little or nothing.

Known for his harsh words and incredible comebacks in the kitchen, Gordon Ramsay has built up a nice fortune for his family. However, he’s said that most of the millions won’t be going to his children, Matilda, Jack Scott, Holly Anna, and Megan Jane. Ramsey has said has no intention of leaving his entire fortune to them when he’s gone.

“It’s definitely not going to them, and that’s not in a mean way; it’s to not spoil them,” he said. “The only thing I’ve agreed with Tana is they get a 25 per cent deposit on a flat, but not the whole flat.”

Elton John may have been hurt when his own mother snubbed him in her will when she passed away. But he’s said that he doesn’t intend to pass over his entire fortune to his two boys when he passes away. The 71-year-old singer, who has sons Elijah and Zachary with husband David Furnish told the Mirror: “Of course I want to leave my boys in a very sound financial state. But it’s terrible to give kids a silver spoon. It ruins their life.”

Bill Gates has famously stated that he will leave much of his estate to charity. Gates remarked, “I definitely think leaving kids massive amounts of money is not a favor to them. Warren Buffett was part of an article in Fortune talking about this in 1986, before I met him and it made me think about it and decide he was right.”

He added that it’s not a favor to kids to leave them have huge sums of wealth. “It distorts anything they might do, creating their own path.”

Simon Cowell may be completely dedicated to his son Eric now, but before becoming a father, the music mogul said he didn’t believe in passing down millions to kids.

“I’m going to leave my money to somebody. A charity, probably–kids and dogs. I don’t believe in passing on from one generation to another,” he said in an interview with Esquire.

Facebook founder Mark Zuckerberg and his wife Priscilla Chan don’t intend to pass on their wealth to their children. In an open letter, Zuckerberg said he wanted to leave the vast majority of their fortune to the limited liability company Chan Zuckerberg Initiative.

“We will give 99% of our Facebook shares–currently about $45 billion–during our lives to advance this mission. We know this is a small contribution compared to all the resources and talents of those already working on these issues. But we want to do what we can, working alongside many others,” he wrote.

Actor Philip Seymour Hoffman left most of his fortune to his partner and his mother, instead of to his children. He told one news outlet that he didn’t want his kids to be considered ‘trust fund’ kids.

Reference: Starts at 60 (January 19, 2019) “Famous snubs: The stars who have cut their kids out of their will”

Holden & Campbell, LLC – Annapolis Estate Planning

How to Make Your Charitable Giving Have a Greater Impact - Annapolis Estate Planning

Most donations are made in December, and charities of all shapes and sizes make the most of the holiday spirit. However, by taking a bit of time to plan out charitable giving, including doing some research and talking with your family about your legacy, your giving could have a greater impact this year and in years to come.

A rough ride in the start of the year’s markets and changes to the tax laws have left many donors wondering if they can afford to be as generous in 2019 as they were in the past. Fundraisers advise donors to think more about what non-profits have greater meaning to them and to take a more thoughtful approach to giving. Philanthropy is still good for your legacy, sense of community and, when done right, taxes.

The Reno Gazette Journal’s article, “Get an early jump on charitable giving” looks at tax planning opportunities for charitable giving, specifically in light of the Tax Cuts and Jobs Act and Qualified Charitable Distributions (QCD). Here’s a review of why people give. The primary reasons for donating include the following:

• Personal experience;
• Being proactive in solving a problem;
• Taking a stand on an issue;
• Personal recognition;
• It’s a good thing to do; and
• Making a difference.

The true effect of the new tax laws won’t be known, until after the country’s tax returns are filed in April. Some–such as Giving USA–think that charitable giving will decrease, but others contend that high-income taxpayers will be motivated to donate more.

It’s now more difficult for individuals to hit the threshold required to qualify for the deduction. Taxpayers can either take the standard deduction or itemize their deductions. The standard deduction has doubled. Deductions for state and local taxes are capped at $10,000, and mortgage interest may be limited. The Council on Foundations estimates 5 to 12% fewer Americans will itemize. So if you can only take the standard deduction, think about “lumping” contributions into every two or three years to itemize deductions for that year.

QCDs are direct transfers from IRAs to eligible charities. For this to happen, the IRA account holder must be 70½ or older. The benefits of the QCD include:

• The distribution goes directly to charity from the IRA;
• It's not includible in your income; and
• It counts towards satisfying your required minimum distribution (RMD).

Note that QCDs can come only from IRAs and not from employer-sponsored plans (SEP, SIMPLE and 401(k)). However, you might be able to roll those employer plans to IRAs to be eligible for QCDs.

If you qualify for itemized deductions, the QCD is still better for you because it reduces your AGI, which is more favorable than a charitable deduction which reduces taxable income. You should also remember that donor-advised funds and private family foundations are excluded.

Speak with your estate planning attorney to find the best solution for your charitable giving. They’ll be able to guide you to making your donations work for you and for your charity of choice.

Reference: Reno Gazette Journal (January 9, 2019) “Get an early jump on charitable giving”

Holden & Campbell, LLC – Annapolis Estate Planning

Think Differently About Estate Planning - Annapolis Estate Planning

If someone wanted to give you a gift that would make your life less stressful and help you save a lot of money and time, we bet you’d welcome it.

Consider starting a new tradition with your family, suggests the Brainerd (MN) Dispatch in the article “Give the gift of estate planning to loved ones this holiday season.” When you devote the time and resources to making sure that you have an estate plan prepared, you’ve given your family the gift of less stress and guilt. They’ll have all the proper legal documents to avoid a host of problems.

When you pass away, your family will be dealing with stress, grief and emotional hardships. If you fail to create a will or other legal documentation, the process for your family to access your assets will be long and expensive. The probate process can take many months and money to distribute assets to your spouse, children, and grandchildren.

Without a will, there's also no guarantee that your assets will pass as you intended. For example, if you have a stepchild you reared as your own or aren’t married but in a serious relationship when you die, then many states do not recognize that stepchild or your significant other. These individuals may not get any of your assets, because there's no legal documentation linking them to your estate.

Lifetime giving is a great way to see that the money you are donating goes to good use. There are also tax deductions that go along with these gifts. You may not consider charitable giving as a part of your estate plan right now but discussing how much and when to give with your estate planning attorney can decrease your taxable estate. That could result in more money for your family in the future.

If you do plan to leave a donation after you're gone, there are several options to accomplish this. You can create a trust, scholarship fund, or donor advised fund to leave a legacy of giving to the causes you support. Because there are so many options available, your estate planning attorney is your best resource to help you decide which course of action will fit your circumstances and best meet your needs.

Yes, the estate planning process does require some time, and some decisions have to be made. However, that’s no different than making decisions when planning a vacation. Your estate planning attorney will guide you through the planning process, make sure that legal documents are correctly prepared and give you and your family peace of mind. That’s a worthwhile gift.

Reference: Brainerd (MN) Dispatch (December 8, 2018) “Give the gift of estate planning to loved ones this holiday season”

Holden & Campbell, LLC – Annapolis Estate Planning

What If I Don’t Want to Give My Kids My Assets? – Annapolis Estate Planning

Just because Warren Buffet wants billionaires to sign his giving pledge, doesn’t mean you have to. However, not everyone wants to leave everything to their kids.

There are many reasons why some parents simply don’t want to give all, or a large portion of their assets to their children. Type “A” personality parents who made every sacrifice to grow their wealth, may be disappointed with kids who aren’t at all motivated. A family may also be fragmented by politics, or disappointed in their children’s selection of partners.

America is about to see a massive transfer of wealth from baby boomers, who’ve stockpiled an estimated $30 trillion. The “Me Generation” will probably spend some of its fortune, but there’ll be a lot remaining to pass along to their heirs. Research shows that between 2031 and 2045, as much as 10% of U.S. wealth could change hands every five years.

Think Advisor’s recent article, “Who Leaves an Inheritance, Who Doesn't,” says that some people are more inclined to leave an inheritance than others. The reasons for doing so aren’t all intuitive.

In an effort to better understand what influences an individual’s intention to leave an inheritance, researchers at Kansas State University analyzed data from the 2016 Survey of Consumer Finances. The survey is given every three years by the Federal Reserve. It gathers data about U.S. household balance sheets, income, expenditures, key demographics and attitudes. After controlling for net worth, household income and other demographic characteristics, KSU used a binary logistic regression model to parse out the variables associated with the expectation of leaving an inheritance.

The results revealed the traits that are closely linked to bequest intentions and those that aren’t. They found that children aren’t a significant predictor of whether a person is likely to leave an inheritance. Likewise, owning cash-value life insurance or being a habitual saver doesn’t seem to play a role in an individual’s bequest rationale.

The top predictor most associated with passing on wealth is an individual’s own expectation of receiving an inheritance. The survey found that people were nearly 16% more likely to leave money to their heirs. However, those who actually did receive an inheritance, were 7% more likely to want to do the same for their own family.

It is not a shock, but a second leading predictor is a person’s attitudes about leaving an inheritance to others. Those respondents who ranked this goal as important, are 9.5% more likely to expect to leave an inheritance, as opposed to those who said it wasn’t important.

One interesting note: people who own businesses place a high value on inheritances. Perhaps the same drive that fuels the acquisition of wealth to attain a luxurious retirement, also pushes individuals to want to provide for their families.

In the end, what families leave to their children is just as much about values, family lore and a sense of belonging, as the asset left for children and the grandchildren.

An estate planning attorney can help you create a plan that addresses the assets you’d like to leave for the family members, charitable giving, a plan to manage estate taxes and a means to pass along more intangible and meaningful assets, like values and principles.

Reference: Think Advisor (October 19, 2018) “Who Leaves an Inheritance, Who Doesn't”

Holden & Campbell, LLC – Annapolis Estate Planning

Expect to Keep Working? You Still Need a Succession Plan – Annapolis Estate Planning

If you’re a business owner who loves what you do, you consider your business to be one of your biggest achievements after your family and enjoy the challenges it presents. As for retiring, why should you?

Some business owners are reluctant to even consider selling the business or retiring. They don’t make a succession plan, says The San Antonio Business Journal in the article, “Plan your exit even if you never plan to leave your business,” and that can lead to a disaster for their family and their employees. That’s something the business owner needs to consider—and why even if they plan on working, until they are carried out, they need a succession plan.

Decrease your taxes. Whether you ultimately decide to sell your business, transfer ownership or die working, you probably don't want to pay more taxes than you have to. There are two ways exit planning can help minimize taxes, even if you truly want to work until you die. If your business value increases, your estate can benefit from a step-up in basis, if your ownership transfers pursuant to your estate plan. This saves your estate or beneficiaries from paying duplicate taxes on the entire business value.

The lifetime exclusion for gift and estate taxes is now to the point where most small and mid-sized business owners don’t need to pay estate taxes, if owners have created an appropriate estate plan. Your exit plan lets you leverage these benefits, since estate planning is a vital component in proper exit planning.

Protect your values. If you created a work culture that’s so unique and strong that it helps your company stand out in the marketplace or your business gives back to the community through charity work, exit planning lets you pursue and preserve your progress toward those objectives. Exit planning strategies can foster the culture you’ve built, protect the employees who made the business a success, and help you build the legacy you want. Exit planning can help keep your chosen values front and center and protect its value, even without your presence.

Growing your business. Everyone wants their business to grow in value, but many business owners get to a point where they can’t grow the company any more, by simply doing the same things they’ve been doing. However, exit planning concentrates on building business value, whether you exit or not. These activities can help you increase your business’ growth potential, by emphasizing value drivers. Those are the aspects of your business that make it attractive to buyers. When it’s done the right way, installing value drivers can make your ownership even more fulfilling—concentrating on certain value drivers can let you focus on only your favorite tasks within the business and delegate your least favorite responsibilities to other qualified employees.

You may keep working until the very end, or you may encounter a life event that makes you rethink how much of your time you want to devote to the business. Either way, a succession plan is like an estate plan for your business. It protects your family at home and your work family. Both will appreciate you doing so.

Speak with an estate planning attorney who can help you with your personal and business plans for the future.

Reference: The San Antonio Business Journal (October 16, 2018) “Plan your exit even if you never plan to leave your business”

Holden & Campbell, LLC – Annapolis Estate Planning

How Did One of the Wealthiest Men in the World Address His Estate Plan? – Annapolis Estate Planning

We may never know how one of the founders of Microsoft structured his estate plan. His finances were addressed wisely, and his legacy will likely continue for many years, if not many generations.

Paul Allen left Microsoft back in the 1980s, when he had to fight a mild form of a lymph node cancer, so he had many years to put his financial house in order. According to a recent article from Wealth Advisor, “Paul Allen Had A $20 Billion Estate Plan (The IRS Can't Touch),” those who knew him know that he had a long-term plan. His money has been working for him for many decades, and he had very little control of it.

Allen was rich, so he spent his life engaging in a wide range of interests, like venture capitalism, research, real estate development, yachting, sports and music. His fortune flowed through a holding company. Subsidiaries of Vulcan Inc. ran his investments, as well as his charities, sports teams and high-tech toy collections. Vulcan isn’t a conventional family office, so there’s no division between the principal and his interests on the “family” side and the day-to-day operations on the “office” side. That makes it much harder to separate Allen’s personal estate from his corporate interests. He was sole owner of the company, but the company owned everything else.

The cancer came back 10 years ago. He licked it then, but probably took that as a wake-up call to be sure the operations would continue without him. Execs at his company have mentioned his plan for continuity. Therefore, Vulcan will look exactly the same without him, as it did when he was running it.

Vulcan invested billions into reshaping Seattle, purchasing real estate and sometimes selling it for big profits. He owned the local sports teams and a few of the museums. Vulcan also ran the most prominent local movie theater. On the business level, Vulcan was the vehicle through which he bought into the start-up companies that he liked.

Allen was never married, and his sister and her children were his only close family. His sister was a key employee at Vulcan, but Paul kept control and full ownership. She moved to the family foundation side. Her three 20-something children are probably well off, and the older ones have already worked for family businesses. The youngest is still in school. These children will most likely find spots at Vulcan, but whether they ever own the company in their own right is unknown.

The unanswered question is how he set things up to keep the IRS at bay. He maintained full ownership and control of the company. There is no obvious trust, and the private equity structure of the firm ensures that there has not been a lot of information shared with the general public.

It should be noted that Allen had signed the giving pledge, where the world’s billionaires promise to give most of their wealth away. Handing formal ownership of the firm to the foundation satisfied that commitment. The firm would continue unchanged, following Allen’s directives to invest in things that mattered to him and fund causes that mattered to him. We may never know more than that.

Reference: Wealth Advisor (October 22, 2018) “Paul Allen Had A $20 Billion Estate Plan (The IRS Can't Touch)”

Holden & Campbell, LLC – Annapolis Estate Planning

Sheryl Sandberg is “Leaning In” to the Giving Pledge – Annapolis Estate Planning

Sandberg is donating her entire stake in SurveyMonkey to charity, in the shape of shares or the proceeds of sales of those shares. The Facebook COO and SurveyMonkey board member has embraced the Giving Pledge.

You don’t have to give away millions, or billions, to be philanthropic. In fact, if you are a regular donor to charities, you may want to give some thought to creating a donor-advised fund. CNBC’s article, ““What you can learn from Sheryl Sandberg's plans to donate her SurveyMonkey shares,” explains how donor advised funds work and how donating appreciated assets benefits investors at all asset levels.

Sandberg plans to donate all of the shares she owns, or the proceeds of the sale of those shares, to the Sheryl Sandberg & Dave Goldberg Family Foundation, according to the company's IPO prospectus. Her charitable plans are part of her strategy to participate in the Giving Pledge, whereby some of the world's wealthiest individuals, including Warren Buffett and Bill Gates, have agreed to give most of their wealth to charity. Sandberg has already donated Facebook shares to charity through a donor-advised fund.

Many people experience satisfaction in giving during life, and Sandberg’s actions are a good lesson in charitable giving. Giving appreciated investments to charity is a wise strategy. However, there are some things to consider before you do this.

The tax savings from charitable giving can be significant, but that shouldn’t be your sole rationale for giving. The reason is that you’ll still be parting with more money than the tax itself. Don't write a large check for charitable purposes without reviewing it with your attorney. In many cases, she can increase the value and benefit of the gift at no cost to the charity. If you plan to give money away to charity on a regular basis, you may want to think about a donor-advised fund.

A donor-advised fund allows you to monitor your charitable donations, because the money comes from one fund. The IRS lets you take a tax deduction in the year you give to your donor-advised fund. You then can let the money sit in your account until you decide that you are ready to donate it. Donor-advised funds also let a person shield their gifts from the public.

People who have multi-millions in assets can also create a private foundation for their giving strategy. The cost of setting up and managing a foundation is prohibitive for anyone but the wealthiest individuals or families. The foundation has to file a tax return every year, and usually requires the help of an attorney to set up. For families with that kind of money, the foundation provides a larger degree of control, and their gifts are public, not private, in nature.

Reference: CNBC (October 4, 2018) “What you can learn from Sheryl Sandberg's plans to donate her SurveyMonkey shares”

Holden & Campbell, LLC – Annapolis Estate Planning

Learn about your local non-profits in Anne Arundel County! - Annapolis Estate Planning

Since their founding in 2006, Anne Arundel Women Giving Together has raised and invested over $1 million to improve the lives of women, children, and families in Anne Arundel County!

Anne Arundel Women Giving Together (AAWGT) is a women’s giving circle with over 200 members. AAWGT is a fund of the Community Foundation of Anne Arundel County.

They invest — pooling their annual contributions for “collective philanthropy,” thus multiplying the power of one by many. Since 2006, AAWGT has awarded grants totaling over $1,000,000 to non-profit organizations to improve the quality of life for women and families in Anne Arundel County. Grants focus on health and welfare, education and the prevention of and treatment for violence and abuse. They inform — holding in-depth education sessions highlighting issues in Anne Arundel County that require active attention and support. And, they inspire — encouraging their members to engage as leaders and philanthropists in their local community.

Joint AAWGT in celebrating the 2017 Grantees and congratulating the 2018 Grantees. The 2017 Grantees will talk about what their organizations have been able to accomplish with their funding, and the new 2018 Grantees will be introduced.  This evening provides a wonderful opportunity to understand the real meaning of AAWGT's grant-making.  Learn about the 2017, 2018, and past Grantees here.

 All are welcome!  Come and invite your friends to learn more about the outstanding non-profits working to improve the quality of life for women and families in Anne Arundel County.

To register, click here.  

Members: to register friends you must provide an email address for each person so we can send confirmations and reminders to them.  Follow the registration questions all the way to CONFIRM;  your confirmation should arrive within seconds.  If you have any questions about registering, please contact [email protected] for assistance. 

Additionally, there will be complimentary photographer from Wolford Photography joining the event from 5:30-6:30 to take professional headshots of members and guests! If you know of any potential members or young women in the area who would be interested in this service, don’t forget to invite them! See Lisa Wolford's work here.

This event is free, open to the public, and accessible to persons with disabilities. Join the event for wine and appetizers.

Reference: Anne Arundel Women Giving Together (September 7, 2018) http://givingtogether.org/

Holden & Campbell, LLC – Annapolis Estate Planning

What You Need to Know About Charitable Giving – Annapolis Estate Planning

Even with the new tax laws in place, there are still advantages to philanthropy, at all levels of giving.

There are many ways to support causes that matter to you. Some charitable giving can be incorporated into your estate plan, according to Investopedia’s article, “A Primer on Philanthropic Vehicles.” However, some people enjoy giving while they are living, to have control over their generosity and enjoy the positive impact their giving has on others.

Cash is the most basic donation and is one that most people know about. That’s as simple as writing a check to the charity or other tax-qualified organization of your choosing.

Gifts of appreciated securities, like shares of individual stocks, mutual funds, ETFs, or closed-end funds, can be made to qualified organizations. After contacting the organization directly to confirm they can accept such gifts, transfer the shares from your account to the brokerage account of the organization. You get the tax benefit of the charitable contribution, based on the market value of the shares at the time the contribution is made, and you won’t be subject to the capital gains that would incur, if the security was sold outright. This can be a large amount for securities that have been held for some years with an extremely low-cost basis.

You can also choose to gift non-securitized assets. With real estate, stock in a privately held business, art, or collectibles, the value of the asset at the time of the gift is deductible, like publicly traded securities. Similar to publicly traded securities, you also won’t be subject to capital gains tax due on the amount of unrealized appreciation of these assets. However, the charity needs to be able to take these types of assets as gifts. Contact the organization and make sure that this is the case. You’ll usually need to have a third party conduct an appraisal of the asset to be donated, to determine its value.

Giving directly to the charity by donating unrestricted funds is one of the most appreciated forms of giving, since it allows those running the organization to use the money in ways that are most always not so visible, but are just as necessary.

Donor advised funds are offered by many brokerage houses. They are philanthropic funds created as public charities that invest money on behalf of the donor. Donors can usually designate the recipients of their donations. The donor advised fund allows donors to gift several years’ worth of donations at one time, receiving credit for the gift for tax purposes in the year of the donation, but spreading them out over years.

Talk with your estate planning attorney about how to make charitable giving a part of your estate plan, and maximize its benefits for your estate.

Reference: Investopedia (April 16, 2018) “A Primer on Philanthropic Vehicles”

Holden & Campbell, LLC – Annapolis Estate Planning Attorneys