The American Heart Association Professional Advisors Network is proud to present the top five charitable estate planning highlights from the 55th Annual Heckerling Institute. We’ll also address common problems advisors face in estate and charitable gift planning and solutions available to you as a member of the AHA Professional Advisor Network.
1. Anticipating estate and income tax changes
As is typical during the first year of a new presidential administration, the tax code is expected to change in 2022. There is some thought that the changes would be retroactive for 2021. Estate tax rules and the step-up in basis rules may be reviewed.
I learned early in my career to make decisions based on facts — as they are known – family, assets and tax code. During the Fundamentals Program, many advisors said they’re reluctant to encourage clients to pay taxes early, once taxes are paid, there is no refund. But it’s premature to anticipate changes and make decisions based on those projected changes, so engage with your clients early and often.
Prepare your clients for change since it is on the horizon. Transfer assets your clients are considering using in a year-end transaction into an entity to ease the transfer and move quickly, even over a weekend. Taking advantage of the runway we have been provided will make the discussions easier with your clients and your life easier as December 31 draws closer.
Common problem in advising: Staying up to date on charitable giving specific tax and legislation news
AHA Professional Advisor Network benefit: We provide you with the latest tax and legislation news affecting charitable giving through emails, like our Gift Law eNewsletter and priority distribution of our annual Federal Tax Pocket Guide.
2. Knowing your clients, IRA law and CRT law
Christopher Hoyt’s presentation, “Can a CRT Stretch an Inherited IRA?” outlined the importance of knowing your client and potential beneficiaries. The conversation merges the IRA laws and the CRT laws. The SECURE Act changed the distribution period to 10 years for non-spouse beneficiaries. So, will the family have more wealth by making a CRT the beneficiary of the IRA and extending the payout period as a result of paying taxes at a potentially lower rate?
Hoyt summarized factors that affect the decision:
- The older the beneficiaries of the CRT, the more chance the CRT will qualify with a 10% remainder to the charity.
- Using a term of years instead of lifetime won’t result in the maximum deferral.
- The estate should be under the Federal Estate Tax Guidelines to achieve the greatest result.
If the factors don’t support a CRT, Hoyt suggested including grandchildren in addition to children as beneficiaries to spread the income tax liability at potentially lower rates; considering lifetime Roth IRA conversions; and designating a charity as a beneficiary of the IRA along with the other beneficiaries.
Common problem in advising: Finding turnkey solutions for charitable gifts of non-cash assets or gift-use restriction language in estate planning documents
AHA Professional Advisor Network benefit: Receive personal assistance and streamlined approaches for you and your clients. For example, a testamentary Charitable Gift Annuity (CGA) can be an alternative to a more complex CRT. Most larger charities have experience working with advisors and offer a Memorandum of Understanding as well as guidelines regarding age and rates.
3. Incorporating ESG investing and philanthropy
Robert Sitkoff’s presentation, “Can a Trustee ‘Do Well While Doing Good?’ The Law and Economics of ESG Investing”, provided a comprehensive overview of engaging trustees to incorporate ESG (Environmental, Social, Governance) factors in individual investment programs. Trustees should have a duty of loyalty to charitable trusts to enact a mission-related investing program and understand the charitable purpose of the trust. The blend of the two will produce appropriate returns while managing risk as the mission of the charity stands tall.
Sitkoff pointed out the importance of maintaining adequate records for the benefit of the trustee and the beneficiaries. This practice promotes prudent and loyal administration and discipline for the trustee. The records can be reviewed by the beneficiary to ensure they understand decisions. The records also protect the trustee if a transaction or decision is questioned.
Most charities, including the AHA, have a gift acceptance policy that outlines the type of gifts accepted, gifts that require approval from the Gift Acceptance Committee and gifts that are not accepted. For example, the AHA doesn’t accept stock or mutual funds from parties associated with tobacco and vaping.
4. Working from home and office
John Berfner, Jeff Chadwick and Lauren Wolven discussed working remotely, client confidentiality and other ethical challenges. They reviewed basic definitions of confidentiality and attorney-client privilege. They also talked about electronic devices at the office and home. Training is critical to ensure adherence to accepted protocols. The Federal Trade Commission also has tips on how to protect privacy at www.FTC.gov.
Video calls bring up another issue – what might the viewer see on your desk or around you? The use of a screen background can be problematic, but this will ensure privacy. Also, enacting the security feature of allowing participants into the call will diminish the risk of an unauthorized user.
A termination letter is important to set expectations at the termination of a relationship, either by being fired, firing the client, if the client moves or at the death of a client. Although the relationship is terminated, this is a good step towards safeguarding the rights of all parties.
The presenters also discussed how it’s imperative for advisors to inform clients of a mistake or breach.
Common problem in advising: Finding resources at your fingertips from home
AHA Professional Advisor Network benefit: Receive access to planning tools, on-demand calculators and resources for you and your clients.
5. Retirement benefits and estate planning
Natalie Choate provided valuable insight into how the SECURE Act affects retirement benefits and estate planning. She said retirement plans are a “bag-full of taxable income,” subject to minimum distribution rules and pass by beneficiary designation not by will or trust. She also said planning has no grand strategy — just “damage control.”
Choate reviewed the newly released 590-B and pointed out several mistakes in the publication concerning five-year and the 10-year rules. She also noted that new life expectancy tables will be issued in 2022. Reviewing various ways to minimize distributions to reduce taxable income, she reiterated that the key is to know the client’s goals and various retirement plans the client participates in and the rules that govern them.
Choate reviewed the Fiduciary Income Tax Rules and stressed the importance of understanding how these affect the client and trusts. She suggested drafting trust accounting income rules for retirement plans in the document.
Common problem in advising: Finding a way to visualize how clients can grow their wealth, plan and create a legacy
AHA Professional Advisor Network benefit: We provide customized illustrations for gifts of retirement assets, qualified charitable distributions, beneficiary designations and more.
Please consider joining the AHA Professional Advisors Network now. 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.
John W. Cullum, CFP®
Senior Advisor, Charitable Estate Planning
American Heart Association
John is based in Charlotte, North Carolina, and serves the southern states.
After a 35-year private banking and trust career, John took early retirement and decided to do something that would make a difference. He worked in the college fundraising setting and has dedicated the last five years to the American Heart Association, where he works with professional advisors to connect the philanthropy of their clients with the mission of the AHA. He has served on numerous philanthropic boards, most recently Wing Haven Gardens in Charlotte.
John is a graduate of the University of South Carolina and University of North Carolina at Chapel Hill Young Executive Institute. John has two adult sons, a 4-year-old granddaughter, 18-month-old Plott Hound and 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.