Highlights of Heckerling: Charitable Estate Planning

The American Heart Association Professional Advisor Network is proud to present the top five charitable estate planning highlights from the 58th Annual Heckerling Institute on Estate Planning. We will also address common problems advisors face in estate and charitable gift planning and solutions available to members of the American Heart Association Professional Advisor Network.

1. Estate Planning for Modest Estates: Practical Tools Every Planner Should Know

The definition of a modest estate varies from planner to planner. For estate planners that work with wealthy individuals as well as planners that work with more modest estates, great care is given to the tools that are available to reduce taxes and express the settlors wishes for assets and the family. As 2026 looms and the sunset of the current exclusion is scheduled, planners are examining their documents with fresh eyes. Mickey Davis and Melissa Willms’s presentation gave an overview of items to keep in mind as you refresh your toolbox. The panel noted that when wealth transfers are made during life either to individuals or to charities, consideration should be given to the cost basis of assets and income generated from the asset. They also suggested clients could function as the bank for children by holding the mortgage on real estate and forgiving the interest. From a charitable perspective, following the IRS guidelines with the need for qualified appraisals and timelines is critical to the Service to accepting the deduction.

Common problem in advising: Clients act before seeking advice and guidance.

Professional Advisor Network benefit: We can assist advisors with custom illustrations as well as suggested language for documents.

2. “Goodbye Chapter 42” – The New World of Social Welfare Philanthropy

Brad Bedingfield’s presentation on the “new philanthropy” made a clear distinction between 501(c)(3) and a 501(c)(4). The general requirements for a 501(c)(3) have been clearly defined as outlined by Bedingfield as “organized for religious, charitable, scientific testing for public safety, literary or educational purposes or to foster certain national or international amateur sports competition or for prevention of cruelty to animals”. No substantial lobbying activities or political campaigns support are allowed.

A 501(c)(4) on the other hand is established to “exclusively” promote social welfare per Treas. Reg. 1.501(c)(4)-1(a)(2)(i): “An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community. There is no income tax deduction for the donor for gifts, but if an appreciated asset is donated, there is no capital gains tax on the sale of such gift. Bedingfield made clear that there is much to consider, for some people contemplate a 501(c)(4) to be “dark money” and that clients need to be made aware of the concern.

Common problem in advising: Social impact funds are complex and have strict management issues.

Professional Advisor Network benefit: Introduction to the American Heart Association Social Impact Funds.

3. Let’s Not Go There— Avoiding Penalties in Tax Court

There are numerous penalties for not paying taxes as prescribed in the code. Kathleen Sherby, Mary Anderson, and Briana Loughlin lead a discussion on the tax courts views of violation of the code. Accidents happen, missed deadlines occur, but deliberate violations are deemed to be egregious. Of the multiple penalties mentioned, they outlined the penalty for failing to take the required minimum distribution (RMD). The distribution amount is calculated on the December 31 balance of all retirement plans divided by the taxpayer’s life expectancy. Failure to follow the process is steep – 50% penalty of the missed RMD. It was also discussed the required appraisal of property valued more than $5,000 that reflects a substantial valuation understatement or gross valuation misstatement. It was also noted that not following the appraisal guidelines can disqualify the deduction.

Common problem in advising: Often clients do not disclose complete information or do not follow established guidelines.

Professional Advisor Network benefit: We assist clients with Qualified Charitable Contributions from their IRA; and provide the link to the IRS Code for gifts over $5,000.

4. That Life Insurance Policy May Be Worth More (Or Less) Than You Think!

For years, life insurance was purchased and then put in a drawer until maturity occurred. Over the past 20 years, many policies went underwater since the assumptions used in the illustrations were excessive and carried in the future. Donald Jansen, Lawrence Brody, and Mary Ann Mancini presented an overview of the complex nature of various policies and how to ascertain their value and determine how to manage the policy. Mr. Brody stated that policies should be an “actively managed” asset such as a stock portfolio and not one to “buy and hold.” The panel discussed adding more funds to the policy, exchanging the policy for a more modern policy, cashing in the policy as well as determining if the policy qualified for a life settlement. All these issues should be discussed with an expert to determine the best solution for the client.

The panel reviewed the general rule of a charitable deduction should the policy be donated to a non-profit organization. For the income tax charitable deduction, the Internal Revenue Code takes a different approach of allowing a deduction equal to the lesser of policy basis and its fair market value.

Common problem in advising: Clients often proceed with gifts without consulting their advisors.

Professional Advisor Network benefit: We can assist with gifting life insurance policies as well as other non-cash assets.

5. SECURE is Not A Toddler Anymore

As always, Natalie Choate provided valuable insight in planning with retirement assets in her presentation. With her sense of humor, offered to give her puppy to anyone that purchased her book. Of course, this was in jest, but her point was to think and obtain advice before acting as she did not when she retired and bought a puppy. She mentioned that the SECURE Act is now four years old, and IRS rule

s have changed including new definitions and terminology. As an example, the Service has issued new rules for one beneficiary and for trusts. She covered the completion of beneficiary designations forms and the importance of looking at the entire picture to make individual elections.

Choate suggested adding a single sentence to wills/trusts that will save dollars. For charitable gifts, she suggested adding “This gift shall be funded as much as possible with my IRA or proceeds of my IRA and other traditional retirement accounts.” She also suggested not using “IRD” in the language. She noted that this can be complex and when possible, make sure the charitable gift is at least the amount of the IRA or greater.

Common problem in advising: IRA planning for income tax as well as for estate tax is overwhelming and forever changing.

Professional Advisor Network benefit: We provide customized illustrations for gifts of retirement assets, qualified charitable distributions, beneficiary designations and IRA funded Charitable Gift Annuities.

If you are not currently a member, please consider joining the American Heart Association Professional Advisor Network. Membership is complimentary, and we can help you offer your clients meaningful options to reach their unique personal and financial goals and grow your practice while helping save more lives from heart disease and stroke.

About the Author

John W. Cullum

John W. Cullum, CFP®
Charitable Estate Planning Advisor
[email protected]

John is based in Birmingham, AL, and serves the southern states.

After a 35-year private banking and trust career, John, a Certified Financial Planner ®, took early retirement and decided to do something that would make a difference. He worked in college fundraising and has dedicated the last eight years to the American Heart Association, where he collaborates with professional advisors to connect the philanthropy of their clients with the mission of the association. Throughout his career, he has served on numerous philanthropic boards.

John is a graduate of the University of South Carolina and University of North Carolina at Chapel Hill Young Executive Institute. John and his partner, Chris, live in Highland Park in Birmingham. Between the two, they have four adult children and four grandchildren as well as two four legged children, Julio and Boone. John is an avid gardener.

This material was not produced in conjunction with or endorsed by the Heckerling Institute on Estate Planning. The Heckerling Institute is not responsible for its content. For information about the Heckerling Institute, visit www.law.miami.edu/heckerling.