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February 2021 Newsletter

Dear Clients and Friends,

Charitable Tax Deductions 2021

For the 2021 tax year, people who take the standard deduction can deduction up to $300 of cash donations to charity. Note the emphasis on the word "cash" – this deduction isn't available if you donate a car, clothing, food, furniture, or any other property. Donations to donor advised funds and certain organizations that support charities are not deductible, either. Contributions carried forward from prior years and most cash contributions to charitable remainder trusts are excluded, too.

The $300 amount is per person. So, if you're married and filing a joint return, you can deduct a total of $600 on your 2021 tax return (which you'll file in 2022). The deduction won't reduce your 2021 adjusted gross income, though.

This new deduction was originally allowed for 2020 returns only. However, the recent COVID-relief and government spending bill extended the $300 charitable deduction for non-itemizers for another year. There are some differences between the 2020 and 2021 deduction, though. For instance, the maximum deduction for joint filers is $300 for 2020 returns. The 2020 deduction also reduces your AGI.

Charitable Tax Deductions: An Additional Reward for the Gift of Giving | Kiplinger

Revocable Living Trusts

In the October newsletter, I wrote about using beneficiaries to avoid probate. In the November newsletter, I wrote about how property owned by 2 or more joint tenants will avoid probate.

Now I will cover when to consider using a revocable living trust.

  1. A revocable living trust will avoid probate. True, but so will using beneficiaries.

  2. A revocable living trust can eliminate or reduce the Federal Estate Tax. This was often true when the estate tax exemption (the amount of the estate that is not taxed) was $600,000 or $1 million. Today, the exemption is $11.7 million, and double that if you are married. Unless you are over that amount, a trust will not help you reduce estate taxes.

  3. Help for incapacity. A trust will have a provision to allow your successor trustee to take over management of your trust assets if you become incompetent. You can accomplish the same thing if you have a Durable Power of Attorney for Financial Matters. This power of attorney also allows your named agent to deal with non-asset issues such as your social security, pension, an apartment, a contract at assisted living, a pet, and much more.

  4. Protecting children of the first marriage. When there are children from a first marriage and a second spouse, a trust can be used to protect the children from the second spouse remarrying and taking control of the assets to disinherit the children. The trust would provide that the second spouse does not receive ownership of the trust assets but may pay the income to the second spouse and also to draw on the principal for emergencies. Otherwise, the assets will pass to the children on the death of the second spouse.

  5. You do not want your beneficiary to get their inheritance when you die. This is the major reason to have a trust. If you use an ordinary beneficiary form on your assets, then your beneficiary will receive their inherited asset within 1 to 4 weeks of death, on average. However, sometimes you do not want that inheritance to be paid so soon. You want to delay the payment. Here are some examples of this type of situation:

    • Money for grandchildren, often for college, when they are old enough

    • Heir is an alcoholic

    • Heir is a drug addict

    • Heir is an adult but is disabled and receiving SSI or Medicaid

    • Heirs are a large number of nieces and nephews

    • The estate owns assets that will be difficult to liquidate like an art collection

What is the bottom line?

  1. First, if you have a trust, you should probably keep it. Have it reviewed to make sure it is current and consider if you need to change your successor trustees or heirs.

  2. Second, if you do not have a trust, do you have any special circumstances with your beneficiaries that you need the trust to delay distribution? If so, get the trust. However, if all your beneficiaries are adults in their 40’s or more and there is no reason to hold back their inheritance on death, then simple beneficiary designations on your assets will suffice. You can put a beneficiary on all your assets including a ladybird deed to add a beneficiary to your home or cottage.

Seminars

Our seminars remain in a state of flux due to Covid19 and the variance in the rules of the senior centers. Please check our website for the latest information: https://gfalawfirm.com/events/

Very truly yours,
Gary