Giving Series Part 5: Charitable Trusts & Foundations and a Caveat

The fifth part of our giving series deals with Charitable trusts and foundations. For larger charitable gifts, and families that desire to instill the value of giving inter-generationally, charitable trusts or private foundations may be established to provide centralized management of the client’s charitable gifts. These kinds of trusts and foundations can be created during life, or afterlife, so that they can provide the benefit of blessing the charitable cause that the founder is passionate about, but also provide tax deductions. These types of organizations can also be created to last for generations, allowing the founder’s passion for giving to be instilled in their children, grandchildren, and even great-grandchildren.
If you are engaging in a caveat, we encourage you to review this matter with your accountant and attorney. Every person and every situation is unique, and you should be fully aware of the tax and legal consequences of large, systematic gifts.

Giving Series Part 4: Endowments

The fourth way of giving is through endowments. There are several types of endowments, but the basic structure of an endowment takes a gift and manages it for a long period of time to benefit a certain charity, establish a scholarship, or establish an ongoing grant program. An endowment can be funded from a single gift, or from multiple gifts over time, and from a single gifter, or from a group of gifters. Endowments are often created for a specific purpose, with funds managed professionally, and a board of individuals determining how best to grant or spend the funds. Our office has worked with clients to establish scholarship and grant endowments, and to have those endowments administered by organizations like the Community Foundation of Western Nevada, Soroptomist International, the Nevada State Museum of Art and the Nevada Land Trust.

Giving Series Part 3: Donor Advised Funds

The third giving option in this series is Donor Advised Funds. A donor advised fund is an investment account established through a reputable investment advisor. You can donate cash, stocks, real estate or other assets and receive an immediate charitable tax deduction. However, the gift grows in the account until you designate what IRS-qualified charity the funds should be distributed to. This allows your gift to grow income and capital gains tax free, over time, while permitting you the freedom to decide to whom, and when, the gift should be distributed. As a note, once money is deposited into a donor advised fund it cannot be withdrawn for your own benefit.

Giving Series Part 2: One Time, Direct to Charity

The second part to our Giting Series discusses the idea of a One time, Direct Gift to Charity. The reasons for giving are varied, but we are blessed to help our clients give strategically so that our client’s gift can help establish and continue their legacy.
One-time, Direct Gifts to Charity: This has the dual effect of reducing your income taxes, and your estate for tax purposes. There is no limit on the amount you may give directly to charity. The IRS defines charity as an “exempt organization;” you may check the IRS website to confirm that an organization is exempt at You may choose to gift real property, stock, or other business assets, which would allow the charitable organization to receive the entire value of the sale, and not incur any capital gains taxes.

Giving Series: One Time, Direct to Individuals

There is never a bad time to want to give. The reasons for giving are varied, but we are blessed to help our clients give strategically so that our client’s gift can help establish and continue their legacy.  This series of gift giving will go over six ways of giving. The first one being: One Time, Direct to Individuals :

You can give one-time, direct gifts to individuals.  The IRS Code limits the gifts one person can give to another person to:  $14,000.00 per year; or, an unlimited amount directly to a medical facility for another person’s medical expenses; or, an unlimited amount directly to an accredited education institution for another person’s education expenses.  Unfortunately, funding a 529 Plan or Education Savings account does not qualify for the education gifting exemption.  This means that you may gift up to $14,000 to one other person, but also help them by directly paying for medical or educational expenses.  If you are married, you may each give the cash amount so that you can gift $28,000.00.

Why Asset Protection Planning is the Next Step for Your Long Term Care

So, you have a traditional trust — one that is revocable, and changeable, and will avoid the need for a guardian or probate in the event of incapacity or death.  But, did you know that this type of trust offers no additional protection against your creditors, not during your life nor after it?  For many people it is this gap — the lack of protection against the rising cost of long term care and the risk to their non-liquid assets — that motivates them to use an irrevocable trust to hold their assets.

The reality is that the cost of long term care is increasing exponentially.  In 2015, the US Department of Health and Human Service’s determined that the average cost of care is $138,000 per individual.  In the same month, Forbes Magazine estimated the higher figure of $265,000 per individual.  This is not limited to medical care costs like a hospital stay, or medication.  Long term care is defined as the care one needs to meet their basic activities of daily living, like meal preparations, using the rest room, paying bills, or taking medication.  According to the same government study, each of us has a 50% chance of needing assistance to meet these needs if we are 65 years old and older.  And, sadly, between inflation, and economic troubles, and decades of relying on limited pensions and social security to meet financial needs, the reality is that many people do not have the liquid investments on hand to meet the rising cost of their long term care needs.

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Annuities May Create Too Much Income

The last several weeks, I’ve addressed how individuals can maximize their available resources in order to afford needed care as they age.  One to the questions I regular get is whether a person is automatically disqualified from Medicaid if he or her income is too high.  The short answer is no.

Medicaid says that you cannot qualify if you earn more than $2,199 per month.  However, you may still apply for Medicaid even if you earn income above that amount.  In order to apply, you must set up something called a “Qualified Income Trust.”  Some states call it a “Miller Trust.”  Usually this trust is managed by the well spouse.

The basic concept for this kind of trust is that it siphons off and holds the applicant’s income.  All of the applicant’s income, no matter it’s source, must be deposited into the bank account for the Qualified Income Trust.  For example, the applicant’s social security, pension payments, and any annuity payments must all be deposited there.

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Start Tracking Now to Avoid Penalty Later

When applying for Medicaid, the government will presume that any transfers you made for less than fair market value in the last five years was done with the specific intent to qualify for Medicaid.  Even if that was not your intention, Medicaid will treat the transfer as a gift.  Under Medicaid rules, amounts gifted are treated as if they were still in your possession on the day you otherwise qualified for Medicaid and you will be penalized as if that cash was still in your bank account.

For example, Jane gave $15,000 to her grandson to help him with college.  Three years later, she applies for Medicaid when moved into a skilled nursing facility.  Even though that money is long gone, Nevada Medicaid will treat it as if that money was still in her bank account and could be used for her care.  Even though she would otherwise qualify for Medicaid, she would be disqualified for a period of three months.  This means that for a period of three months, Jane would not have any assistance from Medicaid even though she actually has less than $2,000 in the bank.


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Proper Planning Can Protect Healthy Spouse

As we or our parents’ age, we will be forced to confront how to receive quality long term care.  At a certain point, aging adults will need assistance to meet their daily needs.  Many times, this is done in an assisted living or skilled nursing facility.  The concern becomes affording such care.  Medical insurance rarely covers skilled nursing.  Instead, the cost of such a facility may be covered by long term care insurance, privately funded, or covered by Medicaid.

If you are married, the well spouse does not have to become impoverished to place the disabled spouse in skilled nursing.  As a married couple, you do not need to spend all of your assets on care for the sick spouse.  It is very poor planning to spend all of your hard earned retirement on the care of one spouse, and then have years or decades left in your own life with no way to pay for your basic necessities like food or shelter.  Instead, with proper planning, we can protect assets for the well spouse staying at home while still providing for the sick spouse’s care with the assistance of Medicaid.

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Deciphering Medicare & Medicaid

As you age, you will be faced with many difficult decisions, not the least of which is how to pay for mounting medical costs.  Medicare and Medicaid are two government programs that purport to help you pay for care.  But often, these programs are insufficient, encourage you to impoverish yourself, and offer poor quality of life.  Proper planning, however, can help you avoid these traps, and maintain your independence.

Medicaid.  Medicare.  These terms can be confusing.  People often mix them up, or think that one provides more medical coverage than it actually does. Continue reading “Deciphering Medicare & Medicaid”