Case study #1: “Jane”, a surviving spouse over the age of 70 ½, receives annual Required Minimum Distributions (RMDs) from the IRAs her husband left naming her as beneficiary.  While the RMDs are about the same amount as when “Dick” was alive, Jane suddenly finds herself with an unexpectedly large income tax liability because she now files Single rather than Married Filing Jointly.  Using Qualified Charitable Distributions (QCD) to fund her gifts to charity could save her money on her taxes.

Case study #2: Dick and Jane are a married couple over 70 ½ receiving annual Required Minimum Distributions from their IRAs.  They think they are paying too much in taxes.  If Dick and Jane give typically money to their church, or give to other charities, they can save money on taxes by utilizing Qualified Charitable Distributions – QCD – to make their gifts.  Senior couples with IRAs should know about QCDs for tax  savings.

What is a Qualified Charitable Distribution and how can it help a senior couple or a surviving spouse over 70 1/2? Instead of receiving the IRA required distributions from the IRA custodian, and then making gifts to church/charity, the taxpayer requests that the IRA custodian make all or part of the distribution DIRECTLY PAYABLE from the IRA custodian to the charity.  The effect is that the amount paid directly to the charity is not income to Dick or Jane, reducing the amount of IRA distributions that would otherwise be taxed as income.  The tax savings can be significant, especially for taxpayers in a higher tax bracket or for a surviving spouse.

While it is true that Dick and Jane will not receive a charitable deduction for the gift, it is more advantageous for the amount of the gift to be excluded from their income than it would be to receive the distribution and take a charitable deduction.

To find out more about Qualified Charitable Distributions or other tax saving or estate planning tips, consult with your financial advisor and estate planning attorney.

© Karen S. Hindson, Hindson & Melton LLC   March 25, 2016

Trustees of revocable trusts are required to file annual income tax returns; but if the grantor or the grantor’s spouse is a trustee, the income and deductions are reported on the grantor’s personal tax return instead of a trust tax return.  So, the trust uses the grantor’s social security number instead of obtaining a separate tax ID number.

During the grantor’s lifetime, there are no significant income tax consequences of the revocable trust.   The grantor trust rules result in the grantor being taxed on the trust income whether or not the income is distributed from the trust.   Similarly, transferring your property to your revocable trust won’t typically be considered a taxable event which would trigger tax due on gain.  If you transfer your principal residence to your revocable trust, you would still be entitled to tax advantages available upon sale of your principal residence.

Transferring property to your revocable trust does not have immediate gift tax consequences, but a gift is made if the trust property is then distributed to someone else.  Property transferred to a revocable trust is included in the grantor’s gross estate for estate tax purposes.

If you transfer your residence to a revocable trust, it should not affect your eligibility for Georgia homestead exemption.

There are often non-tax considerations involved in creating revocable trusts.  A revocable trust can offer some creditor protection, especially for claims that arise after transfer of the property to the trust.  Additionally, the trust vehicle offers greater privacy than probate and is less vulnerable to attacks based on undue influence or mental incapacity.  Finally, the revocable trust can provide for management of your assets in the event of your incapacity.

© Karen S. Hindson, Hindson & Melton LLC   October 26, 2013