Since the enactment of the federal Tax Cuts and Jobs Act (TCJA) in 2017, fewer people have been itemizing charitable deductions on their income tax. The TCJA nearly doubled the standard deduction available to taxpayers, making it less burdensome for many to simply take the standard deduction than to itemize such things charitable donations in an effort to reach a higher deduction amount.
Those who still itemize donations because it makes better financial sense for them may do so because they have significant charitable donations. Those taxpayers need to be aware of the limitations on deductions for various types of property donated to various types of organizations. In other words, not all charitable donations are created equal for the purposes of income tax deductions.
When the TCJA offered a higher standard deduction without the need to make charitable donations, such donations, predictably, declined. Then along came the COVID-19 epidemic, plunging many Americans into dire financial straits. Charit… Read More
Nothing is certain except death and taxes—and the headaches that result when the two intersect. Rarely do people die with their finances neatly tied up, and one of the frequent issues that arises is the matter of the deceased person’s (decedent’s) last income tax refund.
If a person dies being owed an income tax refund (as thousands of people do every year), what happens to the money? Obviously, the decedent cannot cash a check made out to him or her. A refund in the sole name of the decedent is an asset of the decedent’s estate. Eventually, it will be distributed to the decedent’s heirs or beneficiaries (assuming there is money left in the estate after all legitimate debts are paid). But what happens in the meantime? And what if the tax refund is from a tax return jointly filed with a… Read More
If you have amassed significant wealth, either through inheritance, hard work, wise investments, or all three, you may be considering your legacy. Like many people with significant assets (including Bill and Melinda Gates), you may have concluded that it's not necessarily in your family's best interests to inherit a large sum. Wealth can offer security, yes, but also a sense of entitlement and sometimes a lack of motivation, as heirs know they won't need to work for their living.
In addition to concerns about excess wealth leading your descendants to a profitless life of leisure, you may want to set your heirs the example of making a real difference in the world with your wealth. To this end, you may have considered creating a private foundation. A private foundation is a charitable organization, often established by a family or individual, to lend support to charitable causes.
Private foundations are overseen by a board of directors or trustees. This governing body receives charitable contributions, is responsible for investment and management of the foundation's assets, and making grants to worthy charities. The board also handles administrative responsibilities,… Read More
Trusts come in many forms and serve many purposes, including avoiding probate, protecting assets from creditors, and offering tax benefits. Many people also use trusts to protect beneficiaries whom they fear would not be able to manage assets if they inherited them outright. But what if you have a beneficiary that you trust to manage their financial affairs? You can still help them reap the other benefits of a trust while granting them more control over the assets in it. Learn how a Preservation Trust™ provides asset protection and income tax flexibility.
A Preservation Trust™ is more commonly known as a beneficiary-controlled trust. Beneficiary-controlled trusts are a subset of dynasty trusts. Using a Preservation Trust™, you can grant your beneficiary the authority to manage trust assets while still protecting the assets in the trust for their use and for that of future generations.
A Preservation Trust™ is a trust in which the primary beneficiary also serves as the controlling, or primary, trustee. This allows the beneficiary to have nearly the same level of control over trust asset… Read More
What's the difference between taxable income and accounting income when administering a trust? Taxable income and accounting income may be different on paper, but they are both important, and it's important to understand how they differ.
Trust accounting income, or TAI, is the income that is available to distribute to the income beneficiary of a trust. The formula for calculating TAI is all income of the trust, less expenses attributable to income.
Ohio, like most states, has adopted the Uniform Principal and Income Act (UPIA). This law allocates income and expenses as follows: operating income and expenses, depreciation of assets, interest, rents, royalties, and dividends are allocated to accounting income. Taxes on accounting income are also allocated to income. Capital gains and losses, capital improvements and extraordinary repairs to trust property, casualty gains and losses and insurance recoveries are allocated to principal. Taxes on trust principal are also allocated to the principal.
Why is it important to know exactly what the trust's accounting income is? Certain trusts (known as simple trusts) are require… Read More
If you're at the stage of your life where you have spent decades working hard to build a solid financial future for your family, and are now in a position to make the lives of your adult children more financially comfortable, you may be wondering about the best way to go about that—for them and for you. Perhaps you're also wondering if a time is coming when you will need long-term care outside of your home. You don't want your assets to go to the nursing home; you want them to go to your family. Should you just go ahead and transfer assets to your children now? You could, but doing so is not without risk. Let's talk about some of the pitfalls of transferring assets to adult children.
You would do anything for your children, and you believe they would do the same for you. So it doesn't occur to you to hesitate to transfer assets, even the deed to your house, to them. You have an understanding, implicit or explicit, that if you have a need, they will take care of you or even transfer the asset back to you. You might even have a "wink and a nod" agreement with them: the asset is theirs in name only, but really, you both intend that it i… Read More
A trust is a legal tool that splits legal ownership of assets from the ability to benefit from those assets. In a moment, we'll get to the question of why anyone would want to do that. First, let's talk about how a trust works.
A trust involves three roles: the grantor, also known as the trustmaker; the trustee; and the beneficiary or beneficiaries. For living revocable trusts, commonly called "living trusts," the same person can serve in all three roles, at least initially. The grantor creates and funds the trust by putting assets in the trust's name. The trustee manages the assets and distributes them for the benefit of the beneficiary. If you create a living trust to hold your assets, you can continue to manage and use them just as if they were in your own name.
Which brings us back to the question: if you can manage and use the assets in a living trust just as if they were in your own name, why create a trust at all? Why not keep the assets in your own name? As it turns out, there are… Read More
Benjamin Franklin famously said,"In this world nothing can be said to be certain, except death and taxes.” And while death puts a stop to many things, taxes is not one of them. In this blog post, we will take a look at when your estate has to file a tax return.
Let's clear up a few confusing issues first. Just because your estate may have to file a tax return doesn't mean that your estate is subject to estate tax. Estate tax and income tax are two different things, and for the purposes of this post, we will be talking about an income tax return for your estate. (Estate tax, by contrast, is levied only on the very wealthiest estates. If your assets total less than $11,180,000 in 2018, you probably won't have to worry about it.)
Unlike estate tax, many estates need to file an income tax return. At the moment of a person's death, their estate becomes a separate legal entity from them. If you are the personal representative of an estate, you will probably have to file a final income tax return for the deceased person (decedent) for the year in which they died, and also an income tax return for the estate.
For example, if your Uncle Bartholomew died on June 5,… Read More