I’ve been privileged to be a member of the Estate Planning Council of Northern Nevada for a few years and was delighted with a presentation made recently by Bernstein Global Wealth Management. The presentation focused on the recent changes and increases to the estate and income tax rates, not just at the federal level but also at the state level.
The effective federal rate for high income taxpayers has greatly increased the benefit of such instruments as the charitable remainder unitrust. The benefit is primarily when the assets contributed to the trust have a low or zero basis. The presentation included a comparison of the benefit of selling appreciated stock versus contributing it to a trust that then sells the stock. For example, if a taxpayer sells $5 million of zero basis stock, the effective federal tax rate of that sale is 22.9% (assuming a long-term holding period). If the sale is for more, the rate is even higher. The rate is so high because the income thresholds at the highest tax bracket are so small in comparison to the total taxable income. But because a charitable remainder trust is not subject to income tax, the sale of the stock in that structure doesn’t result in any immediate tax liability to the trust or to the unitrust recipient. The benefit is even better if the taxpayer is a resident of a high income tax state like California where the highest bracket of 13.3% is imposed on taxable income over $1 million.
Of course, for this to be a benefit the taxpayer must be high income and also must be interested in charitable works in addition to good tax planning; but there are many such people and, thanks to their generosity, all of our quality of life is improved.
The presentation made a key point that much of our estate planning has changed as estate taxes have been reduced and income taxes have increased. Donors can take advantage of this not only in their estate planning but in their current financial planning as well. If you are interested in exploring the idea of a charitable remainder trust, please talk with your tax advisor or give me a call and we can work up an illustration that you can discuss with your advisor(s).
In another note it was interesting to see that the Charles Stewart Mott Foundation recently made a gift to the Lilly Family School of Philanthropy at the Purdue campus of Indiana University to endow a professorship in community foundations. In making their gift, they noted that it will support research to help nonprofit leaders understand why “some community foundations are the central, relevant ‘go-to’ places in their communities and why others have not flourished to the same extent,” says Patrick M. Rooney, associate dean for academic affairs and research at the Lilly School. At the Community Foundation of Western Nevada we are working to ensure that we are fully engaged with the community in partnering with and working with the community to improve our community for this and future generations.
We make philanthropy simple, powerful, and effective. Please contact me if you’d like to discuss the initiative or any other charitable ideas.
Chris Askin, President and CEO
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