Money Talk

Episode 27

Charitable Giving

Welcome to our listener-supported podcast, Money Talk, uncompromised absolute financial truths behind financial perceptions with host, Ed Sutkowski and Chuck LeFebvre. Let’s listen in.

Chuck LeFebvre: This is Chuck.

Ed Sutkowski: This is Ed. Today we’re going to visit about charitable giving.

Chuck: Yes, we’re in, what we can call the give it phase, right?

Ed: Yes. It’s a get it, give it, and I actually get it, I manage it and give it, and we’ll skip around a little bit, but before we go into the details and there’s insurmountable numbers of details here. Again, an overview after you’ve paid an income tax, if you’re self-employed, you’re entering some self-employment tax, your FICA, FUTA everything else that goes on in your world, we then have a gift tax and the federal level is $15,000, per year per donee, give it away, unlimited tuition, medical, and charitable gifts, plus $11,580,000 per person.

In other words, if Pete and Theresa are married a total of $23,160,000, anything they own in excess of that, about the upon the death of the survivor is taxed at 40%. However, interesting enough tax basis. Chuck, we discuss tax basis, which measures gain or loss when the property is sold.

Let’s assume we have a value, a single individual over $11,580,000 in a single stock. That person’s tax base is the original purchase price is $580,000. The gain is $11 million. That’s not a good thing or not a bad thing, but in any event, when the donee, who we will call him Chuck for a moment, good deal, Chuck, I prepared to do that.

Chuck: I like the scenario already.

Ed: That capital gain tax is at least at 25%. We’ve got the Medicare tax at 3.8%, the Illinois tax or state tax. You’re going to lose about $2,750,000, in addition to gifts to immediate descendants if you go beyond that, the generation beyond that Chuck, tell us about the generation-skipping gift tax.

Chuck: Right, there’s a generation-skipping gift tax, but first, just to clarify what happens when you make that gift and there’s a gain of $11 million. that’s not recognized right away. That’s just a built-in tax liability. When Chuck sells that stock, he’s going to have to pay that income tax.

Ed: Unless Chuck is a sport and dies.

Chuck: Unless I’m kind enough to hang onto it until I die, or in which of course, again, this is something we talk about all the time, which is gee, how do you make use of that without selling it, and will you borrow against it?

Anyway, which by the way, I’m told, I haven’t fact-checked this, but this would make a lot of sense that apparently Jeff Bezos, likes to borrow against his Amazon stock, and that’s essentially his source of income is he just continues to borrow against his Amazon stock. He doesn’t pay any income tax. There’s no dividend income that’s associated with that. There’s no– you don’t have any capital gains tax. It’s a genius way of doing things, but anyway–

Ed: He’s my kind of guy, by the way, some other people like that. We got the generation-skipping that goes down beyond children, right?

Chuck: Right. Whenever you make a gift to someone who’s referred to as a skip person in the tax code, which generally means grandchildren or further descendants, there’s some rules that apply, when you’re not talking about family members there as well. Whenever you make a gift that bypasses more than one generation, then there is also a generation-skipping gift tax. It’s actually a single tax that applies to any kind of gift during life or at death.

Ed: Oh, wait a minute. We paid an income tax. It paid FICA, FUTA, self-employment tax. Illinois, or if there is a state income tax, and now we have the basic gift structure, and now you’re telling there’s a second structure on top of that?

Chuck: There’s a second structure on top of that, that applies to these gifts to so-called skip persons. The logic behind that being that a way of avoiding– so the idea there is that you make a gift tax to your daughter. Let’s say you make a gift to your daughter of money that would be subject to gift tax, and then your daughter, let’s say doesn’t spend the money, but holds onto it and eventually passes it on to her children. That gift would again be subject to the same gift tax.

The idea behind this generation-skipping tax is that let’s say, Ed decides he’s going to be clever here and avoid having his daughter pay that tax by just skipping that generation and making a gift directly to the grandchildren. This is where the federal government jumps in and says, “Aha, because you are jumping down two generations, we’re going to apply two taxes to that gift.” You’ll have the gift tax and then also the generation-skipping tax.

What happens with the generation-skipping transfer tax is just like the gift tax. There’s an $11,580,000 exemption that each person has. The first $11,580,000 that you give away, either during life or at death is exempt from the tax and then after that a tax rate of 40%. Now all of the taxes that are in the tax code, this is the one that there is no reason for anybody ever to pay. It’s easily avoidable. I cannot imagine a scenario, Ed, where it would make sense for someone to voluntarily pay this tax.

Ed: Let’s go through the arithmetic. Let’s assume we have $1 million subject to the estate tax, so now we’re left with $600,000. Now we are subject to the generation-skipping gift tax. That’s 40% on $600,000?

Chuck: It’s 40% on the original $1 million.

Ed: Oh, wait a minute, so that’s another 40%? We have left out of $1 million. How much?

Chuck: Effectively you have an 80% tax. Now it doesn’t work–

Ed: No, but just generally speaking, but 80% of that $1 million goes to Uncle Sam.

Chuck: Goes to Uncle Sam, yes. Once you’ve bypassed your exemption amount and you’re in the category of taxable gifts, which is why you never ever want to structure your gifts in a way where they’re going to attract this generation-skipping transfer tax.

Ed: Okay. We’ve talked about the gift tax now. Now we’re going into the estate tax. We have to the extent I use up, let’s assume $1 million of my gift tax exclusion and generate, I gave it to my grandchild in excess of $15,000. Now, I’m a ghost. Now that $11,520,000 is decreased by the million dollars. Is that right?

Chuck: That’s correct.

Ed: Now I’m in the estate area and again, it’s $11,580,000 times two or $23,160,000, and the excess again is at 40%, but I’m a sport I get to increase my tax basis. I should say my errors. I don’t get. I’m a ghost, Chuck. I guess, I come back from the dead and I look around and say, “Ah, but my heirs got to increase the tax basis.” That same scenario, single individual, I give away $11,580,000, less the million I’ve given already, and I die. The new tax basis for that property is that fair market value at the date of my death.

Chuck: That’s correct.

Ed: All that income tax is saved. The message, I guess is, don’t give anything away during your lifetime.

Chuck: You have to be pretty hesitant before you make lifetime gifts because of the impact of this basis step-up that you get at death. Now, there are a couple of scenarios I can think of where lifetime gifts make sense. One obviously is if you’re talking about assets where you don’t have to worry about the basis step-up, cash or other assets.

Ed: Cash or an IRA. No step-up there.

Chuck: With an IRA, you can’t really give it away during life anyway.

Ed: No, but I’m saying there’s no tax basis step-up there.

Chuck: There are no tax bases step-up on the IRA, correct. You have scenarios where you may not care about the tax basis because you already have a high tax basis. Another place this might be the situation is if you have a stock and an S corporation where there’s been a lot of accumulated profits. The basis that you have in the stock has gone up as a result of the accumulated undistributed profits in the S corporation. Anyway, there are scenarios where you don’t have to worry about the tax basis.

The other situation is that there is this little mathematical trick here, which is that, both the gift tax and the estate tax have a nominal rate of 40%, but the effective rate is actually lower in the case of the gift tax because of the fact that you actually pay the tax during your lifetime.

Ed: The donor pay, I pay the tax during my lifetime versus the estate tax is paid from the estate.

Chuck: Correct. For instance, if you make a gift at death of let’s say you’ve completely expended your exemption and so you make $1 million gift at death. You have $1 million left when you die and it’s all taxable. There’s going to be a 40% tax that applies to that gift that’s made at your death and that is paid out of the estate.

Your beneficiaries end up with the remaining $600,000. If you give that away during your lifetime, let’s say you’ve already given away your full exemption amount and you have $1 million left, and you say, “You know what? I’m going to make a gift that just leaves me with a balance sheet of zero.” You only pay the tax on the amount you actually transfer to the beneficiaries.

The way the math works out is they might get about $650,000 and you end up paying about a 35% tax rate on that because you’re paying tax on the actual amount transferred and not on the amount that you spend on tax.

Ed: It’s tax inclusive versus exclusive. In other word, the donor pays the gift tax, and the estate pays the estate tax.

Chuck: Right. Now, the other thing that is relevant today although generally is not a relevant consideration on when you’re talking about lifetime giving versus giving at death is that we have this $11,580,000 exemption built into the current Tax Code is for that to be cut in half at the end of 2025.

Ed: Oh, you’re wishful thinking. Let’s assume we have a change administration; it may go to zero.

Chuck: It may go below that. If Congress sticks to its current format of not being able to pass any legislation so that we’re stuck with the current law then what will happen is at the end of 2025, that exemption level will get cut in half. Today you can make a gift of $11,580,000, and not pay any tax on it and you will never pay tax on that gift of $11,580,000 even–

Ed: There’s no claw back there?

Chuck: There’s no claw back. Even if that exemption amount decreases in the future, you have made that gift today tax-free versus if you decide you’re going to hang onto it. Before you die that exemption, amount goes down, like it’s scheduled to, you could end up having part of the estate taxed that currently there’s an opportunity to transfer without tax.

Ed: I think comparing and contrasting that with changes in the term revenue, the income tax sections. There let’s assume we have a Christmas gift by increasing the tax rate, that’s retroactive to the first of the year. The Congress can income-wise do what it please to do, but gifts once they’re made, they’re made.

Chuck: Yes, exactly.

Ed: Now, I want to make sure that we also understand that we have the generation-skipping estate tax. We have the generation-skipping gift tax. Now, we have generation-skipping estate tax.

Chuck: Yes, and it works exactly the same way as the generation-skipping gift tax in the sense that the tax applies, again, when these gifts are made to a so-called skip person and in this context how you measure someone who’s a gift person is generally going to be anybody who’s a grandchild or further descendant.

One of the reasons why you can easily avoid this tax is you might say, “Gosh, I could get trapped in that if I happen to have a child who dies and then I don’t have a child to give the money away to, so it’s going to go to a grandchild.” There’s an exception in the tax code where if that intervening generation has predeceased you, then the grandchild is no longer considered a skip person.

Ed: A step-up. In other words, fiction is that grandchild was deemed to be a child.

Chuck: Right, exactly. Again, this generation-skipping transfer tax is not something that perhaps without professional assistance, you can easily avoid, but anybody who’s receiving professional assistance can easily, easily avoid paying this tax under circumstance, I think and it’s just a travesty to ever run into a situation where it’s being paid.

Ed: Now, having said that I understand we’re talking about a lot of money. A lot of the folks listening to the podcast do not have assets that exceed this $11,580,000. However, the planning aspect is heads up because there will be changes, and no matter what the issue is will there be adverse changes? Remember the folks that are passing this legislation have money also.

Chuck: That may change too, depending on what happens with the–

But, it really was not all that long ago. We’re talking maybe a decade ago or so but it’s fairly recent memory when these exemption amounts were low enough that you could be in a situation where you had a family that– I don’t want to over–

Ed: Let’s use farms, for example.

Chuck: Yes, you can have a family, where the family does not feel like they’re very rich at all. Yet they really did have an estate tax problem that they had to worry about. We could end up– there are a lot of plausible scenarios here where those exemption amounts could end up being low, low, low enough again, where a lot of people who are listening right now, who are saying my gosh, $11,580,000.

Ed: I don’t have that kind of money.

Chuck: Yes. I’ll never have that kind of money.

Ed: Never say never.

Chuck: Yes. You could still end up with an estate that is taxable. As an example, in Illinois, the state tax exemption is $4 million, which is still plenty of money. If you have $4 million in the bank, you probably feel fairly financially secure. But, that’s not too rare for someone who’s accumulated a retirement savings to have that nest egg, particularly if they’ve bought something, for instance, a farm or particular stocks that they may not have invested a lot of money when they bought it, but the value has just taken off.

Ed: Chuck, I want to emphasize the IRAs, we’ve talked about that before, but I will tell you 80% folks that have licensed, or licensed professionals have 80% of their assets in one or more IRAs. Those IRAs do not get a tax basis step-up and people think they’re not subject to the estate tax.

Chuck: Right, but they are.

Ed: They are.

Chuck: They’re subject to both estate and income tax. They’re a double whammy.

Ed: You have an estate tax on an income tax. IRAs are really good thing and yet they can be a real bad thing. The takeaway, the lesson I suppose, is that none of this may be applicable now, but heads up in terms of the annual exclusions. One thing we didn’t mention to the extent that a married person doesn’t use for gifts and estate tax purposes, that full $11,580,000 it’s portable, it’s available to the surviving spouse.

Chuck: Right and this is a place where the generation-skipping transfer is different than the estate and the gift tax in the sense that you do not have this portability feature with the generation-skipping transfer tax. As far as I can tell, that’s just because Congress isn’t all that good at doing its job. Had they given this any thought, they probably would’ve built it into the GST tax. It was just an oversight on their part. There’s no real policy reason to have one tax operate one way and the other way.

That’s the way it is. Of course, having discovered the issue that’s very normal when legislation has passed that later, you discover these technical corrections and so on. A functional legislative body would go back and do technical corrections. Congress just doesn’t seem to do that.

Ed: No, here are the observation, I call it confiscatory and voluntary tax. The lifetime and death transfer tax are again voluntary, do nothing you’re going to pay it or someone is going to pay it. They added accounts for such a small percentage of the total revenue versus the fees, cost expenses that generates the lawyers, accountants, appraisers. It’s an incredible sinkhole if people were to analyze this from a business perspective, they say, “What are you doing?”

Chuck: You could think of it as a way of stimulating the economy.

Ed: Yes. What’s economy are you defining?

Chuck: In the sense that it puts a lot of accountants and attorneys to work.

Ed: Evaluation, people also.

Chuck: It would be interesting to see math on that. It wouldn’t prize me at all if you generated more in fees to professionals that are designed around avoiding this tax than you do in collecting tax, just because the collections are as low as they are. It’s a combination of the collections being as low as they are and also the fact that the tax is so easily avoided with appropriate planning.

Ed: To the extent it’s not avoided the tax basis step-up.

Chuck: Exactly.

Ed: When you look at the application of these transfer taxes, you must factor in lifetime gifts basis carries over your cost for the share of caterpillar carries over, death, new tax basis. That appreciation avoids at least 23% plus maybe 25% in tax. If you’re going to pay in estate tax, the net tax is something you’ve got to consider. If you think these roles are complicated, let’s talk about charitable contributions.

More or specifically, this will be posted on the website, there’s a publication 526 of the Internal Revenue Service called charitable contributions for use in preparing these returns and the booklet is incomprehensible it really is for tax purposes. It’s 26 single space pages and it deals with limitations and the like, and rather than go through all the detail, everyone can read those, put yourself asleep, if you have some trouble sleeping. It’s unduly complicated, whether you’re giving cash, or whether you’re giving appreciated property, other kinds of property and the identity of the donee charitable organization.

Let’s just say that without getting into the thicket, it’s better to give away at your death, except for the average distributions as we’ve talked about for those that are 70 and a half, that is the lifetime opportunity that shouldn’t be avoided for those that are 70 and a half. Chuck, let’s turn to the ways of avoiding some of these issues specifically my favorite happens to be the charitable remainder trust. Can we talk about that?

Chuck: Yes. The charitable remainder trust the general way this works is you create a trust, it’s irrevocable and generally cannot be amended other than designating new charities as the beneficiaries of the trust. The way the trust works is that you create a trust that for a period of time pays money out to a non-charitable beneficiary, typically, either the grantor or one of the grantor’s children or grandchildren for a lifetime, an annual payments for a lifetime or some period of years.

Those payments are either a set dollar amount or they are a fixed percentage of the value of the assets at the end of each year. Then upon the expiration of that non-charitable interest then whatever’s left in the trust pays out to charity. The nice way, the thing about this operation is when you fund the trust, when the money goes into the trust, a calculation is done for the actuarial value of the charitable interest and that is considered to be a charitable contribution.

Then in addition, the trust itself does not pay any income tax. There’s an accounting of the taxable income that occurs inside the trust and then to the extent that income is what gets distributed out to the non-charitable and beneficiary. That beneficiary will pay income on it, but any income that is accumulated inside trust that ultimately goes to charity is never taxed. It’s a great a vehicle to use, for instance, with IRA funds.

Ed: Let’s talk about that, it happens to be my favorite. Let’s assume a single taxpayer, my spouse predeceased me, or I never was married but I have a nephew, a niece, call her Savannah, a niece. I want to set up a charitable remainder trust for her into which my IRA, at my death, will be payable. Bearing in mind that I understand that the percentage that Savannah must receive is not less than five, no more than 50% of the amount per year with an exception that at least 10% of it must ultimately go to a charity.

Chuck: That’s correct.

Ed: We have these rules on both the short end and the long end, but then that IRA, which is a very difficult asset to work with will not attract an income tax when it’s paid to the charitable remainder trust, she’ll pick it up as income, and in her passing, I send it to a donor-advised fund. Let’s talk about that.

Chuck: Those donor-advised funds are fantastic and they’re perfect for a situation like this. Because when this trust turn terminates, what happens is you’ve got this presumably large amount of money. Let’s say, there’s $5 million in this thing, you had an IRA that was worth, let’s say $3 million on the date of your death and then your niece has, even though has made some payments out to your niece during her lifetime, the value is consider continuing to accumulate.

When she finally passes away, there’s $5 million all going to charity, and this is maybe 20 years after you died, so you’re supposed to pick the charity that’s going to receive $5 million, 20 years after your death? No.

Ed: Go on.

Chuck: What you do is, you can put these funds into a donor-advised funds, so this is just a fund that’s set up by Schwab or Fidelity or any of these other brokerage houses and it’s considered to be a charity. What it is, is really just a pass-through vehicle where then at least 5% of the value of that fund each year needs to go out from that account to some charity. Then you can designate who is able to select those charities to receive the benefit of those distributions each year.

What you can do is, you get the charitable deduction, you don’t have to find a home or even a single charity that’s going to receive this gigantic gift or predict what’s going to be appropriate that far into the future. All you need to do is figure out who you trust to make that selection in the future and then they have control over the account.

Other than the fact that the payments need to be made out of that account at, at least a 5% level each year, and they need to go to charities. They have really have control over what happens with that fund. It’s a wonderful way of giving money to charity while still allowing the control or without having to make irrevocable selections today.

Ed: Yes. I’m thinking, comparing, contrasting that with the foundation of you can create a private foundation if you will, to be the recipient or that IRA. However, the rules it’s a bit of a lawyer’s dream and an accountant dream, setting it up and maintaining all the filings versus the donor-advised fund which gives you some flexibility.

By the way, there are some that’ll allow the donor complete flexibility as to investments, but the large ones, Fidelity, Vanguard and Schwab, the global opportunity of investing is a little constrained, but nonetheless it’s valuable. With the donor-advised fund, you have no requirement of these annual filings, but you have the requirement designating the individuals who’d be able to direct the distributions from that donor-advised fund.

To recap, we’ve gone through the gift and estate tax issues and basis step-up and not applicable to an IRA, which is the greatest things than a slice bread, but creates all kinds of distribution problems, especially since under this new legislation, a non-spouse must take all the distributions out at least within 10 years. Putting another way nothing has to be taken out for the first 10 years, but at the end of the 10-year period the full amount has to be taken out.

Instead of living it outright to that child versus the spouse, you leave it to a charitable remainder trust, which extends the duration over the lifetime of the beneficiary which was the case before this act was put in place, which demonstrates the silliness of this legislation. Something gets in place constraining distributions over the lifetime of the beneficiary, non-spousal beneficiary and you can avoid it with the charitable remainder trust, which probably even more beneficial than it was otherwise. I give up charitable lead trust. What’s the difference there, Chuck?

Chuck: There you flip the script. What happens is, you have a trust that pays for a period of years or for a person’s lifetime annual payments to a charity. Then at the end of that charitable period the balance of that fund goes to a non-charitable beneficiary. With the charitable remainder trusts typically, those are set up so that the amount that goes out to the first beneficiary, the non-charitable beneficiary is based on a percentage of the account value. With the charitable lead trust, where you’re making payments out to charities for a period of years, typically, that will be a set dollar amount that you establish that’s going to a charity during that so-called lead period.

Ed: Wait, I make sure I understand this. Charitable remainder unitrust, it’s a percentage of the value, not less than five, no more than 50% with a 10% element distribution requirement. As the fund and stocks go up at the rate of 6.5% to 6.7%, 5% per year, theoretically, over the two-year history. If we’re distributing out only 5%, that should be growing and so that the amount of the distribution each year and the charitable remainder unitrust should increase.

Chuck: Correct.

Ed: You’re saying in the lead period you make it a fixed dollar amount.

Chuck: Yes. You make it a fixed dollar amount. Typically, you make it a fairly high fixed dollar amount with the idea being– remember when these trusts get funded, the first thing that happens is you do a calculation, an actuarial calculation to determine how much of that funding is deemed to be a charitable contribution, i.e., what’s the actuarial value of the amount going to the charity versus what’s the actuarial value of what’s going to a non-charity and you take a charitable deduction for the portion that’s deemed to go to a charity.

What you can do with this charitable lead trust is you can set a fixed dollar amount that goes to the charity that is high enough that when you do this actuarial calculation 100% of what you put into the fund is considered to be a charitable contribution.

Ed: Versus the charitable unitrust, charitable remainder?

Chuck: Where you can never hit the 100% mark, just because the way the math works on that. What happens with this charitable lead trust is the goal is you put something in there that you’re confident is going to outperform the actuarial calculations so that you’re making substantial charitable contributions for a period of years.

Yet at the end of that lead period, let’s say it’s a 10-year trust, at the end of the 10 years, there’s still going to be a nest egg there that someone who’s a non-charitable beneficiary, a child, or sometimes other relatives, will receive what ends up being a pretty substantial gift, which is considered to have never been made to them because of the fact that the entire trust funding was deemed to be a charitable gift. Whatever’s leftover at the end, passes completely tax-free, transfer tax free.

Ed: Yes. Make sure I understand, we’re sending the dollar amount payable to, this is at death, I am setting up at death, not during a lifetime. The dollar amount goes to my foundation after my death and the assets that generate that dollar amount are going to increase such that there will always be more in the charitable lead trust than the amount required to make the distributions.

Chuck: Just a real-world example, let’s say you decide, you’re going to put, we’ll call it $1.2 million into a trust. You say that what you’re going to give out to the charity is going to be– let me make this simple, you’re going to put $1 million into the trust, and you say that each year, what you’re going to pay out to the charity is going to be $102,000. It’s $100,000, it’s 10% of the value of the trust, plus you’re adding a 2% interest to that, so that’s going to last 10 years.

Over the course of 10 years, you’ve essentially paid out 102% of your initial funding amount. You can do an actuarial calculation and say, “Gee, that entire fund is deemed to have gone to a charity,” but let’s say you’ve put an asset in there, that’s growing at a rate of 10% or 8%. What happens is at the end of that 10-year period, you still have a very substantial asset that goes to somebody who’s not a charity and they receive it without that being deemed to be a taxable gift.

Ed: That’s all well and good. Let try a real-life story, and it’s about Ed’s near death. A great idea, I had. Let’s have a series of charitable lead trust, let’s have five, 10, 15, and 20-year lead trusts. Guess what? The folks that are the proud potential recipients of the 20-year lead trust, want to burn my house down because it’s a nice house, because they’re not getting the money.

The first series of charitable lead trust didn’t produce that much because the rates of return over this very, very long 20-year period at five, 10, 50 were not sufficient to result in a significant amount to those prospective donees, but that 20-year is going to pay off in about 18 months. Guess what? Those kids are in their 50s or 60s and they’re saying Eddie Spaghetti, it’s nice, but let’s see if we can burn your house down for recommending. Aside from the fact there’s a savings a couple million dollars in tax, that’s great, but I don’t have the money to spend it.

Chuck: That’s true.

Ed: I don’t have money to buy my wife all kinds of shoes and whatever else. There is a downside of all these wonderful ideas, for example, that 5% thing, it’s subject to Congressional review. They’re going to change this 5% distribution requirement, either on foundations or donor-advised funds.

All these rules are magnificent games to play, but before you do anything, you’ve got to check the rules. Having checked the rules, you got to check the desires of the descendants because they will want to kill you if they don’t get the money, even not a tax, what am I going to do with all this money when I’m 60-years-old?

Anyway, the bottom line here is that this is a fun mathematical exercise, but real life suggests that the wealth accumulation process is a lot of fun, but the wealth transfer process is fraught with issues, and watch out and make sure you have plenty of fire extinguishers around your house because people– that big, bad wolf blow your house down. Trust me, I’ve been there. [laughs]

Chuck: We’ve done these in combination before where you have the same beneficiary is the beneficiary of a charitable remainder trust. They’re getting those annual payments out of that trust, but then they’re also the beneficiary of a charitable lead trust. Then when the charitable remainder trust stops making them payments, they get this lump sum that comes out to the charitable lead trust. If someone’s got enough wealth that they can do both of those things, that combination works pretty well.

Ed: The overriding issue in all these plans you must have, A, the discipline, and B, the deferral of self-gratification.

Chuck: They’re fairly complicated to implement. I find sometimes it’s difficult for clients to really be able to wrap their heads around these things. It’s important to have a good way to be able to communicate them so that the client understands what it is you’re talking about.

Ed: I couldn’t agree wholeheartedly. The only issue that I’ve expressed and I’m being redundant because I’ve been there is that you’re explaining it to the client about the ultimate recipients, the descendants didn’t get that explanation. You better have a long letter in the file with graphics and make sure that you’ve got some fire extinguisher around your house.

Chuck: Very true.

Ed: Is there anything else that we talk about today? I think that we’ve covered a lot of stuff, that’s so silly in the sense it’s a game, it’s a mathematical game, a function of financial prowess, results. The bottom line is maybe you should try to take it with you.

Chuck: You should mention before we sign off your favorite thing, which is the qualified charitable distribution from the IRA.

Ed: Oh, yes, that’s the $100,000, that is a magnificent change, in the sense, it reduces your required minimum distributions, even though those RMDs for this calendar year 2020 are suspended. Nonetheless the level of communications in these IRAs with a reasonable selection of assets is just astronomical. That happens to be my favorite opportunity. It’s painless, it’s coming out to your IRA and that’s in effect subject to tax.

If you’ve done a decent job at accumulating it, then the fallback is using a charitable remainder trust with the element at death, with the element beneficiary, being your donor-advised fund. The bottom line is most folks enjoy the process, the accumulation process, but they don’t focus on the distribution process. You don’t have your will and trust in your coffee table, but if you think about it [music] too is a game. Accumulation process is a game, and the distribution process is a game. If you approach it as Walt Disney, as a game.

Chuck: Life can be pleasant.

Ed: Okay?

Chuck: Sounds good.

Ed: End of story.

Thank you for listening to Money Talk. Please join us again and do check out our previous Money Talk topics.

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Everyone can be an investment advisor. Which is better? Making less money or no money. There is a new math being used. Why pay attention? It's not my money. I would rather bet your money. Insulated from losses. Build your obituary today.

Episode 56

Whatever attorneys charge is too much. The problem is communication. Move across the river and save $3,000,000. You will be shot for a $500,000 bill. The quicker the bill is paid, the happier the client. Send your check via FedEx for better service. Peter Pan works here.

Episode 55

"There are some tricks to transferring assets". Ed loves family members fighting for assets. Nothing lasts forever. More anger equals less tax. Where's the money? "Let Charley run it as long as I'm getting paid cash".