0:00 who are you and where are you going what do you [Music] want hello and welcome to trust and Estates weekly I'm your host Kevin bemel and we are here every Monday at 10: a.m. Pacific time to talk about all matters related to EST State planning and Trust in state Administration both from the perspective of someone who needs to go
0:37 through that process and for those professionals like me who help people go through that process so this is our last show of our our second season um 2024 is rapidly coming to a close and we'll pick things up um in January of 2025 for season three of our show got some great guests lined up already um but uh so for for this uh for this final episode um I'm I'm gonna talk about a um a way to
1:14 in to increase the tax savings from charitable giving now um this I came with Came Upon This idea based on an article in the Wall Street Journal by Laura Saunders uh it was in the journal about a week and a half ago and she talks about um two devices if you will for um increasing um the uh the tax savings while making charitable deductions one
1:49 is called a a qcd and the other is a DF th those are acronyms obviously for a qualified charit qualified charitable distributions and a um a a Donor advised fund so I'm going to talk about the qcd first um it it's frankly the more interesting of the two uh and then we'll I'll talk briefly about the daf and um and then uh you know we'll we'll take it from there so qualified charitable
2:25 distributions first of all um in order to take advantage of this a saver has to be at least 70 and a half years old or older all right so not even I'm old enough old as I am to take advantage of of this uh technique however what what it allows um someone 70 and a half or older to do is to make charitable contributions from a traditional IRA account
3:00 and those um those uh charitable contributions they they know they owe no income taxes um on the withdrawal of those funds so if if you recall from a previous episode on a tra traditional IRAs are funded with pre-tax dollars meaning when when distributions are taken from an IRA those distributions are taxable because tax on that money hasn't been paid
3:35 previously in this case the donor can make a contribution directly from the IRA and even though that that constitutes a distribution that distribution does not incur income taxes okay and then uh um so um and on top of that um um sorry so they they they they can get this tax break even if they don't
4:13 itemize okay so um the standard deduction is so large these days that many taxpayers do not itemize their deductions and so um charitable deductions are on your income tax return are are an itemized deduction so if you don't have enough itemized deductions to make itemizing worthwhile so in essence you lose the benefit of the tax deduction
4:48 for making a charitable contribution in this case you in essence recover that because you're giving pre-tax money that that you now end up not having to pay income tax on and so that's that's a big benefit um now there there are um there are some um uh some requirements on these so first of all if you make a a qcd okay let's say let's say you have a
5:23 required minimum distribution from an IRA of $330,000 and let's say that you make qcds of $7500 the qcds now reduce the amount of your required minimum distribution so out of a $30,000 annual required minimum distribution if you make $7,500 in qcds you only need to take an additional $22,500 in required distributions for
6:01 that year now that's that's a great benefit because first of all depending on what other income you have it may keep you from being pushed into a higher tax tax bracket that's number one number two it has lower it flat out lowered your required minimum distribution so whereas before you would have had to have paid 30,00 ,000 on of of taxes on 30 thou $30,000 required minimum distribution now you
6:37 only have to pay it on a $22,500 required minimum distribution okay and um and and and so your you're not only as long as you don't need the additional income right um which presumably you don't because you're giving the charitable contributions right you you are saving quite a bit in in taxes by making your charitable contributions this way okay now
7:13 um the um now there are some hassles that go with a qcd first of all the um the check has to go has to be uh drawn directly on the IRA so you can't make the donation out of your regular checking account and reimburse it with the IRA okay it has to go directly from the IRA so either either the sponsor um has to make the distribution directly or if you've got a you know if you have checks on your IRA then you can
7:50 write a check directly from your IRA that's number one number two you do have to verify that not only does the Char organization receive the check before year end but that they cash it before year end now by the way I I I don't think it necessarily has to be a check per se so for example you could do an electronic funds transfer okay but it's got to be directly from the IRA to the charity so if you can set
8:25 that up okay then you you know you'll you'll know as soon as it clears the the Charity's account okay it's been sent from the IRA it's been received and and Ence cashed by the charity and so you're good to go okay also um you need to receive proper acknowledgment of the gift okay so um now now as a standard practice Charities make um acknowledgements of receipts of gifts so that shouldn't be a big deal okay here's
9:03 now here's the other um significant Hassle and that is most Ira sponsors do not break out qcds as a separate category of required minimum distribution so you're going to have to keep track of that and make sure that your accountant is aware of that okay so that it it all is set up so when you get your 99 are from the um from the IRA sponsor okay it's just going to show what your distributions were for that
9:38 tax year okay so you're they're not required to break out the qcd now maybe in the future they will be um we'll we'll have to see but for now you're going to have to break that out and keep those records separately to give to your accountant so there are some additional um you know administrative issues that you're going to have to deal with however um the the the tax could could be significant uh I mean the tax savings could be significant so for example shrinking the the taxable
10:13 portion of your required minimum distribution um it will lower your adjusted gross income okay and in doing so it could lower you it could lower the amount of of um of the 3 Point 3.8% sir tax on net investment income um that that you might have to pay okay um and at the same time um it could it could also create a savings on certain like Medicare search charges and that sort of thing so these are all issues that you
10:51 you you will want to talk to your accountant about um now obviously the year is ending in about a week so you know you're going to have to jump on your horse if you want to do that this year um but it's it's a good thing to um if even if you don't use it this year it's something you can look forward to using next year okay and you'll have more time to get it all set up um correctly okay so doing um uh qualified charitable distributions from an IRA account can be a very good way of saving uh on your
11:28 taxes um if you are 70 and a half years old or older okay so it is this is one that only you know seniors can take advantage of even seniors older than me okay so it is it is more of a hassle than making a just a regular charitable contribution but it may very well be worth it especially if you have large required minimum distributions okay this this is really a strategy that you'll want to talk to your accountant about okay so that's the
12:03 first one qcds the second one is dafs Donor advised funds now unlike the qcd there is no age age restriction on the Donor advised fund although in general um it is something that probably is more beneficial to to seniors than it is to to younger people nonetheless it is something to to look at okay and the way it works is a donor gives a certain amount of money or assets into a dedicated account
12:40 at an umbrella charity known as a sponsor okay so for for example here in Los Angeles we have an organization called the Jewish Community Foundation I'm pretty sure the Jewish Community Foundation is a sponsor of Donor advised funds okay that's not the only thing do but that is one of the things they do now there are sort of the you know the usual suspects of these there's the uh the vanguards and the Fidelity and the Schwabs they all offer um this this service um but um um
13:16 oftentimes Community foundations um will be less expensive because they're o operating on a nonprofit basis right they're there to serve the community so what you do is you donate the money or the assets to into a dedicated account held by this sponsor okay and then when you're ready and you you you by the way you don't have to make uh charitable donations in the same year you set up the daf you can wait a long time okay and then but then when you're ready
13:54 you contact the sponsor and say I want to give x amount of dollars to this particular charity and they take care of all of it for you okay so in other words they write the check and and all all all that stuff it's all done so once you've set up the daf all of your charitable giving is handled by the sponsor now um here's here's the thing um the sponsor has to approve the donation but generally speaking you're going to be donating to 501c3
14:29 nonprofit organizations and so if that's the case they're they're going to approve now um I it's not discussed in the in this in the article but um I I would you know if there are some ideological issues I would make sure that um they're not going to be a problem before you set the daf up with a particular sponsor right so if if you have certain religious um or politic iCal beliefs and you intend making some charitable contributions to
15:05 organizations that support those beliefs and but your sponsor is a Community Foundation that perhaps is at odds with those beliefs that could be a problem so again this is all this is something to talk to your accountant about but you are going to want to make sure that none of those conflicts you know as well as possible none of those conflicts are going to arise because the the sponsor does have to approve um uh you know those the the contributions you want to make now if you've got someone like a Schwab or a Fidelity right so
15:41 these are not ideological organizations and uh you know unless a particular charity is uh is is a you know for example a designated uh sponsor of terrorism I I I don't think you're going to have you know those those issues of values conflicts with you know with Fidelity or a Schwab okay but but again I I would encourage you to talk that over with your accountant talk it over with a proposed sponsor to make sure that that that situation is avoided
16:16 now um the sponsor handles all the paperwork and So within a few minutes of talking to the sponsor you can have all your your charitable giving done for whatever you know time period also donations can be made anonymously if you desire right so although they're coming out of your daf they can be made anonymously by the sponsor and so no one will know that you're making contribution and um if you follow the news at all on these things you'll
16:52 you'll recall that donor lists were were released by you know I know here in California um they were released it appears they were released for political purposes to try and shame people who had made donations to certain organizations and so um people are in some cases more concerned about making their donations anonymously and so the daf would allow you to do that okay and the other thing is the funds in the daf
17:30 can grow okay so let's say you start a daf next year but you don't start making uh um charitable contributions in for 10 years so in that 10 year the the funds are going to grow okay and I and I believe that there is no uh you don't pay taxes on the growth of the funds okay so again it's a way of saving taxes um but and and accumulating the ability to make you know more more charitable
18:07 contributions um down down the line so um excuse me um now one of the things about a daf is um with the current high standard deductions um donors have to you you you'll have to decide whether you're going to take the standard deduction or itemize your deduction um for a contribution by a daf okay and and one
18:43 of the ways to to deal with that is bundling several years of contributions from a daf into one tax year and itemizing in that tax year and then just taking the standard deduction in the other so maybe you do five years worth of giving in one year and in that year you itemize because it makes sense to do so you've given such large donations but the other four years you just take the standard deduction you don't you don't make any charitable
19:19 donations that can also simplify your tax preparation overall okay so rather than trying trying to squeeze out the rationale to itemizing deductions every year um you don't you know you don't need to do that um and and so uh you know it it will simplify things a little bit in that way um the other thing about a a daf is you can appreciate are you sorry you can donate
19:54 appreciated um assets to the daf and you'll get the full market value um without owing any capital gains taxes on the appreciation so let's say you bought some stock for $10,000 and over the years it went up to $50,000 so you've got a $40,000 essentially a $40,000 long-term capital gain okay if you donate that stock to the daf you going to get a
20:30 $50,000 charitable deduction okay but you're not going to be paying taxes capital gains taxes on that $40,000 long-term capital gain okay so so again it is it it it is a way to be more efficient in in your tax savings okay um now the um donations of appreciated assets are restricted to 30% of your adjusted gross income um but again these are details that you'll want
21:05 to talk to your accountant about um if you are considering this so you know everybody's situation is different and and so I'm here just to pass along to you some information for you to have to talk about um these these you know these concepts with your accountant and see will this work out better for me if I want to make charitable contributions will this work out better for me uh from a from a tax standpoint even though it may involve a little bit more work at
21:40 least a little bit more upfront work in the case of the daf um and and in the case of the qcd a little bit more work just just overall okay so short show today as we you know come into the uh end of uh 2024 um a couple of ideas on how you can save taxes um and and and still do your charitable giving so uh by the way you i' I've been saying talk with your accountant you can certainly do that um
22:16 you may also want to talk with your estate planning attorney about that these should be tools in the in their uh quiver or arrows in their quiver as as we say to help you with your estate planning um many um estate planning attorneys um will ask you about your desire to to to give charitable contributions in fact I was just um I used to work with an attorney here in La by the name of Alan cutro and I was um I I came across his name in in my list I
22:51 said oh I got to get back in touch with Allen and I was looking him up on um his his firm's website he's with uh Mitchell silberberg and it mentions in his bio that that one of the things Allen really focuses on is charitable giving um and I think that's a that's a good thing because many times uh you know making your charitable charitable giving part of your estate plan is a very not only a good thing to do in terms of a moral good but it is also a good thing to do
23:26 from being from the standpoint of tax planning and being efficient in in how you deal with with those Tax Matters so that's what I have for you today toot sweet as as the French say short and sweet um I I thank you very much for joining me um I can see again I've got some of my live live viewers on thank you so much for your support um over uh over the year and and I I I um really appreciate it hope we'll continue to join together um in in the New Year
24:01 2025 um tomorrow is my last show for the year and because it's Christmas Eve I'm doing a special edition um in recognition of the holiday um just a few minutes ago I I got a uh well not a few minutes ago a few minutes before uh the show started I got a text message from a friend of mine wishing me a merry Christmas and I wished her a Merry Christmas back and then it occurred to her wait a minute I don't think celebrates Christmas so she sent me another uh text message saying wait should I have wished you happy Hanukkah and and I text her back I said yes but
24:37 Christmas is a much more important holiday this time of year and so uh you know the rabbis is gonna do a show on on Christmas Eve and it it'll be a little bit nostalgic for me I remember being in the Cub Scouts um and and and the Boy Scouts and um celebrating the holiday um in in uh pack and Troop meetings and and getting to learn about it um I remember learning about an Advent wreath for example and um and such so I'll be um sharing a couple of those stories tomorrow um as as well as as you know on
25:12 my special editions I do some kind of reading which I'll be doing tomorrow as well a visit from St Nicholas so again thank you so much for joining me not just today um but but all year long I'm very very grateful and uh for all of you who subscribed um I hit the magic number of 500 subscribers on my YouTube channel over the weekend and thank you so much for being a subscriber I I deeply deeply appreciate it and um I I I hope that you will continue to find benefit in being a
25:49 subscriber if you have any thoughts about topics that you'd like to see in this show or any of my four shows please do share them with me I'd love to hear from you if you have comments questions um you know negative or positive um please feel free to drop them into my social media you'll see all the links in in the show notes after this episode posts if you have something private as always you can email me my email addresses in the show notes as well so I wish you a wonderful rest of the day and
26:25 signing off as I always do Marie darling you are my bell courage at all times