[WSBAPT] large gifts of appreciated stock to charities in estate planning

Fri May 15 16:56:41 PDT 2020

Susan,

Gifts under $15,000 per person per year are not reported anywhere and don’t do anything except reduce the giver’s “estate-taxable estate” (and increase the recipient’s “estate-taxable estate”). Neither side of the gift pays tax in Washington or federally. A married couple can give $150,000/year to their child, his/her spouse, and their 3 lovely children (i.e., 5 recipients total, at $30,000/each/year) – no reporting anywhere; doesn’t reduce anybody’s estate tax exemption; but reduces the giving couple’s “estate-taxable estate” by $150k/year.

Gifts over $15,000 per person per year are “reportable” and are reported on the giving party’s federal gift tax return, but still are not taxable to either side of the gift . . . unless/until the giving party’s reportable gifts exceed the current (approximately) $11 million lifetime exemption amount. (This means $22 million for a married couple . . . at least through 2025 under current federal law.)

But even the “reportable” gifts are NOT relevant to Washington estate tax in the way you are thinking. The gifts do not come back into the giver’s Washington “estate-taxable estate” (or further reduce it) after the giver’s death. The money simply isn’t “in” the giver’s estate-taxable estate, because it was gifted before death.

So likely your client’s situation is much easier than you may be expecting, provided the client is comfortable doing something like giving the equivalent of the then-current Washington exemption amount to her relatives and friends – and giving the balance to qualified charities. Nobody will pay any estate tax and (unless taxable IRAs are involved) nobody will pay income tax. And if there are taxable IRAs involved, by all means use those to fund the charitable gifts at her death, either by standard or custom IRA designations filed with the IRA custodian.

I hope this helps. All my best, Josh

Joshua D. McKarcher
McKarcher Law PLLC
537 6th Street
Clarkston, WA 99403
(509) 758-3345
(509) 758-3314 (fax)
josh at mckarcherlaw.com<mailto:josh at mckarcherlaw.com>

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Susan Donahue
Sent: Friday, May 15, 2020 4:20 PM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] large gifts of appreciated stock to charities in estate planning

I didn’t mean that the gifts have to be reported by the recipients.  I totally agree with this.  But reported by the gifter on federal income tax so that the amount gifted can be deducted from the gifter’s estate upon death so as to possibly reduce the taxable estate and escape Washington estate taxes.  But the gifts reported on the gifter’s federal income tax have no effect on it.  It is just a record of lifetime gifts that will allow the Washington estate tax to be lowered.   In my understanding, which could be incorrect, when the gifts are given, up to $15,000 in any year to an individual, a form is submitted with the gifter’s federal income tax and then at death the estate may deduct these lifetime gifts from the gross estate to reduce it so that Washington estate taxes may not have to be paid, depending upon the amounts.  Perhaps I am not perfectly clear about this.

I apologize if I’ve been unclear.

Susan

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Philip N. Jones
Sent: Friday, May 15, 2020 3:21 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] large gifts of appreciated stock to charities in estate planning

That is not correct.  Gifts are not income and should never be reported on a federal income tax return.  And Washington does not have an income tax.
And lifetime gifts are not part of the gross estate and need not be deducted on the Washington estate tax return.  The money is already gone before the date of death.
Phil Jones
Philip N. Jones
Duffy Kekel LLP
Portland, OR
pjones at duffykekel.com<mailto:pjones at duffykekel.com>
(503) 226-1371

On May 15, 2020, at 3:13 PM, Susan Donahue <sdonahue at sdonahuelaw.com<mailto:sdonahue at sdonahuelaw.com>> wrote:

Ok.  Thank you for the clarification.  But I thought that the $15,000 maximum annual gifts to individuals had to be reported on Wash income tax so that they could be deducted from her gross estate at death.  I’ll see if I can speak with her tax accountant.

Susan

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Philip N. Jones
Sent: Friday, May 15, 2020 2:47 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] large gifts of appreciated stock to charities in estate planning

The lifetime charitable gifts are no longer part of her estate once they are made, so her estate need not worry about deducting them on an estate tax return.  But she should be deducting them on her federal income tax return.
The same is true of gifts to individuals, except they are not deductible on her income tax returns.
Whether these gifts were or were not reported on gift tax returns does not change these answers.
These answers are the same in both Washington and Oregon.
Phil Jones

Philip N. Jones
Duffy Kekel LLP
Portland, OR
pjones at duffykekel.com<mailto:pjones at duffykekel.com>
(503) 226-1371

On May 15, 2020, at 2:04 PM, Susan Donahue <sdonahue at sdonahuelaw.com<mailto:sdonahue at sdonahuelaw.com>> wrote:

Hello everyone,

I have a client who gives large gifts of appreciated stock to charities each year.  I’m not certain the effect these gifts will have on her gross estate/taxable estate at her death.  Are they treated the same as $15,000 gifts to individual persons which, if the proper gift tax form is filed each year, can be deducted from the gross estate at death?  I’m trying to figure out the best estate plan for her, but I’m not familiar with the effect of gifting appreciated stock to charities annually, as she does.  Any thoughts would be appreciated.

Her estate is over the $2.193 million exclusion amount, but I’m not sure by how much.  I am just beginning to work on this.  If it is not too much over, she can have her estate just pay the 10%estate tax on the amount over $2.193 million if her estate is worth less than $3.193 million, but the tax could be a lot more than the expense of creating an irrevocable trust.  I think the purpose for her to have a trust would be to shelter her estate from taxes.  But how do the annual charitable gifts factor into this?  I’m thinking an irrevocable trust of a certain amount of her present estate would keep her taxable estate at her death under the exclusion amount.

Any thoughts?  All are appreciated.

Susan

Susan Donahue
Law Office of Susan Donahue
125 West 2nd Avenue, Suite “B”
P.O. Box 81
Twisp, WA 98856
(509) 996-5944 (phone)
(509) 362-9692 (fax)
sdonahue at sdonahuelaw.com<mailto:sdonahue at sdonahuelaw.com>
www.sdonahuelaw.com<http://www.sdonahuelaw.com>

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