News

11 Nov

Must-Know Info on How Charitable Deductions Work

You need to itemize in order to claim your charitable deduction

The latest tax act raised the standard deduction single filers to $12,200 and joint filers to $24,400. It appears the big increase in standard deduction has had a negative impact on the percentage of taxpayers who make charitable contributions because you are unable to deduct the contributions if you decide to go with the standard deduction rather than opting for itemization. Determining whether to itemize or not depends on your specific situation so you will need to consult an experienced and knowledgeable tax advisor. As a general rule, the interest on your mortgage is a factor in determining whether you should itemize as this is a write-off that you can take advantage of only if you itemize. The new tax law also limited the interest deduction to loans up to $750,000 for homes purchased after December 15, 2017. If you purchased your home prior to that date, then you can deduct the interest on a home loan of up to $1 million for primary residences. In addition, you can continue to enjoy the mortgage interest deduction until the year 2025, according to Lending Tree.  Also, your taxes paid to the state are limited to a $10,000 deduction.  If your mortgage interest deduction plus your state tax deduction is close to the standard deduction amount then your charitable contribution will provide you with the tax benefits outlined below.

Donating to Just Any Charity is Not Enough to Claim the Tax Deduction

It is extremely important to understand that, in order to qualify for the charitable donation tax deduction, your donation needs to be made to a “qualified” charitable organization. If you donate to an individual or institution that is not qualified under the tax code, then your generosity doesn’t count and you won’t be able to get the deduction.

Qualified Charitable Organizations

To qualify for the deduction, your donation must be made to a tax-exempt 501(c)(3) organization or fall under Section 170(c) of the Internal Revenue Code (“IRC”). For example, you can generally get a tax deduction for contributions made to:

·       Churches and other religious organizations that fall under Section 170(c) of the IRC

·       American Red Cross

·       Goodwill

·       Salvation Army

·       C.A.R.E.

·       Boy Scouts and Girl Scouts of America

·       Boys Clubs and Girls Clubs of America

·       Tax-exempt educational organizations

·       Tax-exempt hospitals

·       Nonprofit volunteer fire companies

·       Specific veterans’ groups and fraternal societies

·       You can only claim for charities registered in the U.S. This means there is no tax deduction for foreign entities.

Many charitable organizations qualify for tax-deductible donations, but not all, so you need to be proactive and make sure your chosen charity is considered “qualified” under the tax code. If you are curious, the Internal Revenue Service maintains an online database of all qualified and acceptable charitable organizations.

Organizations Generally Not Qualified for the Charitable Giving Tax Deduction

Generally, the charitable tax deductions are not allowed for contributions made to:

·       Individuals

·       Chambers of commerce, or

·       Labor unions.

Limitations on the Amount You Can Give

In addition to limiting who and what you can donate to, the IRC places a limit on how much of your generosity you can claim via the itemized tax deduction. As of 2019, an individual is limited to 60 percent of their adjusted gross income (AGI) on most donations made to public charities and certain private foundations. However, if you donate “appreciated tangible assets” that you owned for one year or longer, then you can only claim a 30 percent deduction of the asset’s current fair market value. This rule applies to donations made to veterans’ organizations, fraternal societies, and some private foundation. Furthermore, if you make a donation of capital gain property, then you will be limited to a 20 percent deduction.

When You Can Claim the Tax Deduction

Your donation to a qualified charity is deductible the same year in which it is made. So, if you make a donation in November 2019, you can claim the deduction on your 2019 taxes. This means the donation is considered paid when you place the check in the mail, or when the donation is charged to your credit card, as opposed to when you pay the credit card.

This means you should make sure that your charitable donation is made prior to December 31 of the year in which you plan to claim the charitable deduction.

Documentation Needed to Claim the Charitable Deduction

If you drop a few hundred dollars into a charity’s collection box or bucket without getting a receipt or any other documentation, then you should not claim that donation for tax purposes. Why? Because there is no actual proof that you made the donation and the IRS probably will not take your word for it.

In order to properly claim this deduction, you need to secure written confirmation from the charity. The confirmation needs to include the name of the charitable organization, the date you made the contribution, and the amount or value of the donation. Charities are only required to provide written acknowledgment for donations over $250, but most do offer a receipt, no matter what size of contribution you make. If you attempt to claim more than a $500 non-cash donation, be prepared to file IRS Form 8283 with your tax return.

Speak to an Attorney

If you have questions about whether it makes sense to move forward with a charitable donation and the impact a donation could have on your estate, consider speaking to an experienced trust and estate attorney in your area.

12 Oct

Income Tax-Free States May Be Worth Considering for Residency in Retirement

There are a number of states – such as Florida, Nevada and Texas – that do not tax income that have received an increasing amount of interest after the new federal tax law passed in 2018 capped state and local tax (SALT) deductions at $10,000. There are currently nine states that do not tax the income of residents.

States with No Income Tax

Below is an overview of the states with no income tax, according to Fox Business.

Alaska

  • In addition to not having an income tax, Alaska has no sales and use tax, generally. Though, local jurisdictions have the right to levy sales and use taxes.
  • According to a study by WalletHub, Alaska has the lowest tax burden of any of the 50 states – at a cumulative 5.1 percent. The average property tax burden is 3.66 percent

Florida

  • In addition to no income tax, the effective real estate property tax rate in Florida is 0.98 percent, according to data from WalletHub.
  • The sales tax rate, generally, is 6 percent. However, localities can collect their own sales taxes, too, for a maximum rate of 8.5 percent

Nevada

  • Despite not having an income tax, Nevada has a high sales tax rate of 4.6 percent. Though, it can reach as high as 8.265 percent in certain localities. As a result, the total sales and excise tax burden is the second-highest of any state besides Hawaii.
  • Property taxes are relatively low, at about 2.24 percent, according to WalletHub.

South Dakota

  • The sales tax rate in South Dakota is 4.5 percent, but can reach as high as 6.5 percent depending on the rates in different localities.
  • The average property tax burden is 2.87 percent.

Texas

  • In addition to no state income tax, Texas has no state property taxes. Though, property is taxes through local taxing units.  
  • Even though the Lone Star state does not have a state income tax or state property tax, it imposes a 6.25 percent state sales tax and local jurisdictions have the ability to impose up to 2 percent sales and use tax for a combined top rate of 8.25 percent.

Washington

  • It may have no income tax, but Washington makes up for that loss of revenue in other areas. For example, the state sales tax is 6.5 percent, but rates in certain localities can exceed 10 percent. In addition, the average property tax burden in the state is nearly 2.6 percent.

Wyoming

  • Despite not having an income tax, the state imposes a fairly high property tax rate of 4.32 percent.
  • The sales tax rate ranges between 4 percent and 6 percent.

Watch Out for Higher Taxes on Other Investments in Income-Tax Free States

If you are planning to move to an income tax-free state when you retire, be cognizant of the fact that some states attempt to recoup revenue by taxing other investments. Most notably, New Hampshire and Tennessee tax investment income and interest. This is important since, if you are retired and not working, you may be more reliant on your investment income.

A similar strategy is applied in other states where there is no income tax, but the states have much higher sales and/or property taxes. For example, Nevada has a fairly high sales tax on groceries, clothing and other goods, according to Bankrate.com.

Do Not Let Taxes Dictate Where You Decide to Reside in Your Golden Years

The overall tax burden on residents in a particular state is an important consideration, but it should not dictate where you ultimately decide to reside when you retire. There are a variety of factors that you should analyze when assessing whether to move and where to move when you decide to stop working.

To help, Kiplinger created one list of the best states to live for retirees. Kiplinger’s rankings analyzed important factors such as living expenses, health care costs, poverty rates, and the economic wellness of the state, according to World Population Review.

According to Kiplinger, South Dakota is highly ranked for retirees since the cost of living is 4 percent below the national average, health care costs are below average, and it is one of the most fiscally sound states in the United States. Hawaii is also at the top of the list since health care costs are manageable and the overall economic wellness of the state is strong.

Georgia is another highly ranked state for retirees since the cost of living is 7 percent below the national average and state taxes are manageable.  Here is Kiplinger’s list of the top 10 states for retirees:

  • South Dakota
  • Hawaii
  • Georgia
  • North Dakota
  • Tennessee
  • Alabama
  • Virginia
  • Florida
  • New Hampshire
  • Utah

Speak to a Trust and Estate Planning Attorney To Discuss Your Long-Term Goals

As you can see, there are a variety of factors to consider when you are contemplating the best plan for your life post-retirement. To ensure you make the best decision, it is prudent to speak with an experienced and knowledgeable trust and estate planning attorney at InSight Law. Our law firm offers clients a detailed, workable plan that emphasizes the importance education, not only for our clients, but their loved ones as well. We also provide a continuing maintenance plan to make sure client’s estate plans fit their changing lives and provide protection for their families in the future.

15 Jun

Death and Credit – Important Info You Need to Know

When a family member passes away, there are certain steps that should be taken to alert the passing to the major credit reporting agencies and to assess whether a freeze, or lifting a freeze, on their credit is needed.

Swift action is important when it comes to a decedent’s credit. Why? Because if the major credit reporting agencies, along with the financial institutions where your deceased family member had open checking accounts, saving accounts, retirement accounts, etc. are not timely notified, your loved one’s accounts would remain open and could heighten the risk of identity theft and other issues. Suffice it to say, when someone passes on, their credit reports aren’t closed automatically. There needs to be action taken by a personal representative to ensure the accounts are closed properly.

What Happens When Credit Reporting Agencies are Notified of a Death

Credit reporting agencies are notified when someone passes on in one of two ways: (i) they receive a notice from the Social Security Administration or (ii) they are notified by the executor of the decedent’s estate.

Regarding the Social Security Administration, in most instances, the funeral director will notify the SSA of the death. However, to ensure this done, someone will need to give the decedent’s Social Security Number to the funeral director. From there, the SSA will inform the credit reporting agencies and lenders.

Once the three major credit bureaus (i.e. Equifax, Experian and TransUnion) are notified someone has passed on, their credit reports are sealed, and a death notice is placed on them.

Of the two, the most effective and efficient notification option is having an estate executor notify the reporting agencies. This will help expedite the sealing and death notice process, rather than waiting for a large government beauacracy to accomplish the notification.

How an Estate Executor Should Notify Credit Reporting Agencies of a Death

If you are the executor of an estate or other court-appointed designee, here are the steps to take to notify the credit reporting agencies of a death:

1. Contact each of three major credit bureaus and ask a representative what needs to be done to have a death notice placed on the decedent’s credit reports. A death notice flags a person’s credit reports as “deceased – do not issue credit.” If someone attempts to use the deceased person’s information to apply for credit, the notice should be displayed informing the creditor the person is deceased.

2. Make sure to compile necessary legal and financial paperwork, including verification that you are an authorized representative of the decedent empowered to initiate the death notice request. The documents necessary to get the process started will vary, based on your relationship with the deceased and based on the credit bureau. In most instances, a credit reporting agency will ask for the following information:

  • The decedent’s full legal name
  • The decedent’s Social Security number
  • The decedent’s date of birth
  • The decedent’s date of death
  • An official copy of the death certificate
  • Copies of any required legal documents
  • Your full name
  • Your address (to send confirmation of death notice placement)

If you are also requesting a copy of the decedent’s credit report, you will need a copy of a government-issued ID, such as a driver’s license.

3. Submit the required documents to the credit bureaus. Consider making copies of everything you send and sending the documents via certified mail.

4. Review the decedent’s credit reports to get a better sense of what accounts are open, their status, the balances, etc.

What If a Credit Report Freeze Was in Place for a Minor and the Parents Pass On?

More parents are starting to put credit freezes on their children’s credit record because they are prime targets for identity theft via the web. So what happens if the freeze was initiated by the parents and they suddenly pass away? This interesting question was recently posed by one of my clients. He wanted to now who would have the authority to lift the freeze on his child’s credit report. Answer: In this scenario, the guardian selected by the parent via their estate plan would be vested with the authority to lift the credit report freeze.

Contact InSight Law Today

As you can see, there are numerous action items that need to be completed when someone passes away. The entire process can be quite daunting and overwhelming. This is why it makes sense to sit down with an experienced trust and estate planning attorney to discuss these scenarios, ways to streamline the process, and strategies for developing an effective estate plan that fits your unique situation. Contact InSight Law today to learn more.

17 May

Time to Re-Brand “Do Not Resuscitate”

Stories of hospitals being subjected to civil litigation for failing to intervene or, alternately, for wrongfully intervening to resuscitate a patient using advanced life support are quite common. These unfortunate incidents typically have at their core three central figures:  

  1. A dying patient;
  2. The dying patient’s family; and
  3. A healthcare professional who misunderstands the meaning of the term: “do not resuscitate.”

What Does “Do Not Resuscitate” Actually Mean?

The term “Do Not Resuscitate” (also referred to by its acronym DNR) means that a patient should not receive cardiopulmonary resuscitation (CPR) in the event of cardiopulmonary arrest. This is a situation where the patient is unresponsive, has no pulse and is not breathing (i.e. they have died).

Vague Terms Creates Confusion

Unfortunately, a wide array of healthcare providers and patients misinterpret a DNR order to mean that no life support should be given when there is evidence of clinical deterioration. Basically, this is a fancy medical term meaning a patient has not yet died but is rapidly getting sicker. In other instances, someone will mistakenly interpret a DNR to mean that there should be no intubation in order to place a patient on a breathing machine when their oxygen level plummets.

There is also concern that if someone has a DNR, it may result in reduced medical care in general. For example, a recent survey of more than 500 internal medicine residents revealed that doctors were less likely to pursue aggressive or invasive medical treatment when a patient had a DNR order in place, according to a great article published on The Hill.

Progression of Medical Terminology Highlights Need for Change

The evolution of medical terminology contributes to misunderstanding. CPR was first introduced in the 1960s and became standard of care for cardiopulmonary arrest. In the mid-1970’s, concerns that universal CPR might cause more harm than benefit for some patients led hospitals to develop policies allowing patients to forgo CPR, described as “orders not to resuscitate.”

In the 90s, the term “resuscitation” started appearing in medical literature to describe strategies to treat people with reversible medical conditions, such as IV fluids for shock from bleeding or infection. As the medical terminology surrounding treatments designed to intervene before arrest might occur effectively appropriated the term “resuscitation,” an unintended consequence is that the term “DNR” became ever more confusing to healthcare providers, patients, and their loved ones.

In an effort to try and address these misunderstandings, the Physician Orders for Life Sustaining Treatment (POLST) paradigm actually separated CPR from other forms of life-sustaining medical treatments. For example, POLST describes CPR as only being necessary “when the patient is unresponsive, has no pulse and is not breathing. This is similar to a do not resuscitate order, but a patient only has a DNR Order when they do not want CPR.”

Now is the Time to Re-Brand DNRs

An initiative is afoot to try and modify the terminology surrounding DNRs. Some people have suggested modifying the term to “Do Not Attempt Resuscitation” (DNAR) or “allow natural death” (AND). Another option is for a patient to have a document that simply states “No CPR.” The ability to designate a preference against CPR would make it more transparent to patients, families and medical providers what treatment, exactly, the patient wants withheld.

A full-on re-branding of DNRs would likely create administrative burdens for the state governments, hospitals, nursing homes, etc. needing to modify statutes, policies, forms and information technology. Nevertheless, healthcare systems make these types of modifications quite frequently. For example, the United States recently adopted a new diagnosis and treatment code categorization system in order to improve billing detail, which is expected to cost in excess of one billion dollars to fully implement. Officially eliminating DNRs from medical lingo and replacing it with a more appropriate term such as “No CPR” or “Allow Natural Death” is just as worthwhile. 

Have Questions About Your End-of-Life Care? Contact an Experienced Trust & Estate Planning Attorney with InSight law

The decisions concerning end-of-life care, including whether you prefer to be resuscitated, are extremely personal and should be respected by family, friends, and medical professionals. That is why it is important to retain the services of the right estate planning attorney who is able to explain your options and clearly communicate your preferences to your healthcare agent. A skilled and knowledgeable attorney can also help train your healthcare agent on how to communicate your preferences to healthcare providers. This is what effective counseling is all about. The legal team at InSight Law provides these services, and many more. Schedule a meeting with one of our team members today.

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Pros and Cons of a Revocable Transfer on Death Deed for California Residents

The California legislature enacted a law in 2016 that offered residents an alternative to keep their homes out of the costly and inefficient probate process. This alternative is known as a “revocable transfer on death deed.” This type of deed is sometimes referred to as the “poor man’s trust.” Why? Because it is a less costly way to transfer real property to a named beneficiary without having to create a full-fledged trust.

Limitations to a Revocable Transfer on Death Deed

There are some limitations associated with transferring real property through this type of deed. For example, the only forms of real property that qualify for a transfer through this deed are (i) a single-family home or condo unit, (ii) a single-family residence that sits on agricultural property of 40 acres or less, or (iii) the residence has no more than four residential dwelling units.

Advantages of a Transfer on Death Deed

There are many advantages associated with a  revocable transfer on death deed. For example, the filing and recording of the transfer on death deed is fairly cost effective and straightforward. This deed will protect your property from probate court, as long as your chosen beneficiary does not predecease you. Another advantage is, as the name implies, the deed is fully revocable during your life time so you can maintain control and ensure the property is passed on to the beneficiary of your choosing.

Disadvantages of a Transfer on Death Deed

Despite the many advantages associated with a revocable transfer on death deed, there are some disadvantages to consider. For example, your property will be subject to probate court if your beneficiary predeceases you and you lack an alternate estate plan. Another disadvantage is if you co-own property under a joint tenancy. In this situation, your joint tenant becomes the sole owner of the property upon your passing and has full control of the property, even if you created a transfer on death deed. Yet another disadvantage is the fact that if you leave your property to a beneficiary who is still a minor when you pass on, the beneficiary will not automatically receive your property. Instead, a court-appointed custodian will be granted control and management of the property until your beneficiary reaches legal age. Another issue that your real property may still be subject to Medi-Cal estate recovery if you were a recipient of Medi-Cal benefits.

Talk to an Experienced Trust & Estate Planning Attorney in California

As you can see, there are many factors to weigh when deciding whether it makes sense to create a revocable transfer on death deed. To ensure you are making the best decision for your family, take the time to sit down with an experienced and knowledgeable trust & estate planning attorney who is familiar with California law.

 

Pros and Cons of a Revocable Transfer on Death Deed for California Residents

The California legislature enacted a law in 2016 that offered residents an alternative to keep their homes out of the costly and inefficient probate process. This alternative is known as a “revocable transfer on death deed.” This type of deed is sometimes referred to as the “poor man’s trust.” Why? Because it is a less costly way to transfer real property to a named beneficiary without having to create a full-fledged trust.

Limitations to a Revocable Transfer on Death Deed

There are some limitations associated with transferring real property through this type of deed. For example, the only forms of real property that qualify for a transfer through this deed are (i) a single-family home or condo unit, (ii) a single-family residence that sits on agricultural property of 40 acres or less, or (iii) the residence has no more than four residential dwelling units.

Advantages of a Transfer on Death Deed

There are many advantages associated with a  revocable transfer on death deed. For example, the filing and recording of the transfer on death deed is fairly cost effective and straightforward. This deed will protect your property from probate court, as long as your chosen beneficiary does not predecease you. Another advantage is, as the name implies, the deed is fully revocable during your life time so you can maintain control and ensure the property is passed on to the beneficiary of your choosing.

Disadvantages of a Transfer on Death Deed

Despite the many advantages associated with a revocable transfer on death deed, there are some disadvantages to consider. For example, your property will be subject to probate court if your beneficiary predeceases you and you lack an alternate estate plan. Another disadvantage is if you co-own property under a joint tenancy. In this situation, your joint tenant becomes the sole owner of the property upon your passing and has full control of the property, even if you created a transfer on death deed. Yet another disadvantage is the fact that if you leave your property to a beneficiary who is still a minor when you pass on, the beneficiary will not automatically receive your property. Instead, a court-appointed custodian will be granted control and management of the property until your beneficiary reaches legal age. Another issue that your real property may still be subject to Medi-Cal estate recovery if you were a recipient of Medi-Cal benefits.

Talk to an Experienced Trust & Estate Planning Attorney in California

As you can see, there are many factors to weigh when deciding whether it makes sense to create a revocable transfer on death deed. To ensure you are making the best decision for your family, take the time to sit down with an experienced and knowledgeable trust & estate planning attorney who is familiar with California law.