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 57th 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. The Use and Misuse of the Marital Deduction

The Fundamentals Program was presented by Lauren Wolven, Julie Kwon and Cynthia Lamar-Hart and centered around the use and misuse of the marital deduction. The marital deduction provisions are the most valuable tool available to married couples. Portability, which was introduced in 2010, allows the surviving spouse to use any unused portion of the deceased spouse exclusion but this does not include the deceased spouse’s generation skipping tax (GST) exemption.

In prior years, paying a portion of taxes in each estate was a strategy used by planners. It was discussed in the presentation that today other strategies are more often used:

  • Gifting of assets to children with attention paid to basis and income
  • Charitable gifts during lifetime, either outright, in a charitable trust or charitable gift annuity for life income
  • Consumption of the estate
  • Gifting interest in closely held businesses using available discounts
  • Consideration that estate taxes may not apply or exist at the second death
  • Depending on age, parents may want children to enjoy assets before death

The panel noted that the key is to review plans and assuming the client is competent, plans can be changed. It was also suggested to build in as many options as possible in the documents that can be used postmortem. It was noted that if the spouse is the only non-charitable beneficiary of a charitable trust, this would qualify as part of the marital share.

Common problem in advising: Clients understanding the variety of options and making decisions including gifting and charitable giving.

Professional Advisor Network benefit: We can assist with suggesting opportunities for current giving with cash and non-cash assets as well as deferred giving solutions. Learn more about these gifts.

2. The SECURE Act 2.0

Recent Developments was presented by Steve Akers, Samuel Donaldson, and Beth Shapiro Kaufman. With the 118th United States Congress in session and the Republicans taking control of the House and the Democrats maintaining their majority in the Senate, legislative changes are not expected in the divided Congress.

SECURE Act 2.0 passed in December as part of the Consolidated Appropriations Act of 2023 which was signed by President Biden on December 29.

The SECURE Act 2.0 has nine key changes:

  1. Multiple required minimum distribution (RMD) changes
  2. Higher Catch-up contributions
  3. Qualified Charitable Distribution – One-time $50,000 gift to a CRT or Charitable Gift Annuity (more on this later)
  4. Matching company contributions allowed for Roth accounts
  5. Changes to employee retirement plans
  6. Qualified Longevity Annuity Contract (QLACs) premium increase
  7. Emergency Savings Plans to Roth Plans
  8. 529 Plans can be rolled into a Roth IRA
  9. Matching employer payments to a retirement account for student loan payments

Bloomberg reports that one-third of Donor Advised Funds (DAFs) did not make a distribution in 2020. There is a proposal in the Green Book that would not allow a grant from a foundation to a DAF to count for its required 5% distribution unless the DAF makes a like grant. More changes are being considered.

It was noted that the IRS conducted fewer audits in recent years since WW II. The Consolidated Appropriations Act increases the resources to the Service to review returns timely and update their platform.

Common problem in advising: In an ever-changing tax environment, planning is difficult and frequently overwhelming for clients.

Professional Advisor Network benefit: We provide assistance and resources for your clients on Qualified Charitable Distributions and life income solutions.

3. Working with Clients that are “Middle-Rich”

Turney Berry’s presentation “Not Too Rich, Not Too Poor: Goldilocks Planning for the Middle-Rich Clients who Need Our Help” and the follow up panel discussion was a great overview of working with clients that are “middle-rich.” As the estate tax exemption amount has increased over the past 20 years to $12.92 million in 2023 and with the portability election, tax planning for numerous clients has become increasingly income tax driven rather than estate tax driven. Berry commented that the struggle is often getting clients started and then giving up control of their assets. His suggestion was to work with a core plan and advance over time as needed to manage the size of the estate.

Berry stated that keeping up with the size of the estate is important and advising clients of gifting strategies that would be beneficial and care should be taken not to gift assets that would benefit with the step up in basis at the death of the owner.

Retirement planning has become more important with the SECURE Act and SECURE Act 2.0. The use of trusts has become complicated with children, grandchildren, disabled children, and blended families. It was suggested that naming charities as beneficiaries of IRAs instead of making charitable gifts through the estate can be further tax efficient. The use of Qualified Charitable Distributions (QCDs) has become popular and with the one-time gift of a maximum of $50,000 per person to a CRT or a Charitable Gift Annuity provides many advantages. The preference would be a Charitable Gift Annuity due to virtually no cost to the client.

The age-old question of using a Donor Advised Fund (DAF) or a Private Foundation was the subject of great discussion. The consensus of the panel was to use a DAF due to its ease and assistance of the DAF sponsor in making grants. Most DAFs have expertise in the acceptance of non-cash assets. For clients that wish to maintain total control, the private foundation is still the best choice.

Inter-family loans was a popular conversation as well. Usually, the rate is lower than market rates and the family member with the borrowing need may not qualify for a commercial loan. Mortgage interest can become a potential tax deduction for the family member if secured by real estate. The use of a term loan was suggested with its flexibility and ease.

Common problem in advising: Creating urgency with clients to begin planning and consider charitable solutions.

Professional Advisor Network benefit: We can provide timely information and illustrations for your clients as well as provide information on the American Heart Association Donor Advised Fund Program.

4. Philanthropic Gift Agreements

“With Strings Attached” was presented by Alan Rothschild. Gift agreements can be problematic for the client as well as the charity. Most often, the charity would prefer the use of their standard gift agreement when appropriate. The gift agreement outlines the parties - a person, a foundation, or a donor advised fund; restrictions on use of funds; to create an endowment or current use; naming rights; enforceable after death and who can enforce the restrictions, if any.

Naming a building or program is often the most litigated aspect of an agreement. Look long into the future to determine a remedy when the purpose of the program is no longer available at the charity or if the building becomes obsolete. Outlining the remedy is critical and will reduce litigation and ill will.

Should the donor wish to become more involved with executing the purpose of the gift, tax issues for the donor could arise. Title IX requirements may become an issue with a gift that alters the mix of students participating in sports. Rothschild encouraged open dialogue between the charity, the donor and the donor’s attorney.

Common problem in advising: Clients often proceed with gifts without consulting legal counsel.

Professional Advisor Network benefit: We can assist with gift agreements for restricted or endowment gifts to the American Heart Association as well as suggested language in estate planning documents.

5. Planning with Retirement Assets

As always, Natalie Choate provided valuable insight in planning with retirement assets in her presentation “Down and Dirty Estate Planning for Retirement Benefits.” The SECURE Act 2.0 provides many provisions that affect the distribution of retirement assets.

The age of required minimum distributions have changed again, giving the owner of an IRA a longer period for the assets to grow tax deferred before required minimum distribution (RMD) comes into play.

Secure Act 2.0 could be very appealing to clients who are taking a RMD and that need or desire additional income. Thus, the charitable gift annuity could be appropriate for a portion of the population over 70 ½. Choate explained that to qualify under Secure Act 2.0 the annuity payments must benefit the donor and/or spouse, and income payments must commence within one year of the gift and must continue for life.

The split interest gift option provisions are too small to appeal to wealthy individuals, particularly ultra-high net worth individuals who do not need additional income. She also noted that very few financial institutions will be able to serve as trustee of of $50k to $100k since these are one-time trusts; these potential trusts cannot be combined with other trusts; and the cost to prepare the documents and on-going administration will be prohibitive.

She indicated that some of the sponsors of Heckerling offer Charitable Gift Annuities, including the American Heart Association. Like most charities, the American Heart Association utilizes standards set by a board that establishes investment policies and sets recommended rates. Choate indicated CGAs would be a sound strategy for clients taking a RMD who might wish to increase their income, and this could be an immensely popular outcome from the provisions of Secure Act 2.0.

Choate also discussed naming a trust as a beneficiary of retirement assets. She reviewed how to test the trust, make sure the four trust rules are present, as well as conducting the test using the outcome in completing your assessment and continue the planning.

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

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

Please consider joining the American Heart Association Professional Advisor Network. 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 CullumJohn W. Cullum, CFP®
Senior Charitable Estate Planning Advisor
[email protected]

John is based in Charlotte, North Carolina, 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 seven 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. He has served on numerous philanthropic boards, most recently the Charlotte Garden Club.

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 5-year-old granddaughter, 3-year-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.