Protecting and Preserving Wealth – Estate Planning Part 5 Video

Speakers: Jon Gay, Bruce Hosler, Jason Hosler, & Alex Koury

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Jon Gay (00:08):

Welcome back to Protecting and Preserving Wealth, I’m Jon Gay. I’m joined by Bruce Hosler, Jason Hosler, and Alex Koury of Hosler Wealth Management.

Continuing our series on estate and legacy planning, part five involves charitable giving and charitable legacy. It’s good to be with all three of you today.

Bruce Hosler (00:22):

Great to be with you, Jon.

Jason Hosler (00:24):

Good to see you, Jon.

Alex Koury (00:25):

Hey, Jon.

Bruce Hosler (00:27):

So, Jon, today, charitable giving and charitable legacies. So, the charitable giving is during your life; charitable legacies is how you want to leave assets to charities at your death. We want to address both of these.

Let’s start off with the best tools for charitable giving during your life. So, Alex, I’m going to let you start off here. We’re going to talk about QCDs (qualified charitable distributions). Where do we give those from, and what are the requirements?

Alex Koury (00:56):

Great. So, a qualified charitable distribution is a distribution from your IRA, your individual retirement account. So, your tax-deferred monies when you’re older than 70 and a half, and it allows you to make a tax-free distribution to a charity up to a maximum of $108,000 in 2025.

So, I was having this conversation with my dad last year, and he does the same like most people do. He gives cash to his church, and he was taking his RMD that year, and I said, “Why wouldn’t you consider giving money out of your IRA instead?” He said, “Well, what do you mean?”

Well, I said, “Look, as part of your RMD, you can take a qualified charitable distribution, give the money partially to your church.” It’s tax-free to you, meaning you’re not going to pay any income taxes on that. And the charity of your choice, being his church, receives that distribution check every year as a tax-free benefit. So, everyone wins in that situation.

This year, there’s a little bit of a twist on it. So, under the SECURE Act 2.0, individuals this year can make a one-time $54,000 QCD into a charitable remainder trust, or a charitable gift annuity rather than sending a distribution directly to a charity.

Now, what are the advantages of this? What are we talking about? Well, if you knew that every year you could take this distribution in 2025, you pull the money out, you put into a CRT (a charitable remainder trust). Every year you take out a little bit of income as low as 5% up to a maximum of I think 12.5%, depending on your situation.

You can use that to either give it away or just take it for your own personal income. And at the end of the day, when you’ve passed away, whatever’s remaining, whatever the remaining amount of money is in that charitable remainder trust can pass on to the charity of your choice as again, a tax-free legacy benefit.

So, this is brand new for 2025 under the SECURE Act 2.0. We’ve got the ruling on this. It’d be a great way to again, minimize your tax exposure, put some extra money away, and use those benefits for yourself, but then pass it on at your passing.

Bruce Hosler (03:07):

Just for clarity folks, the rules now for RMDs is age 73, but the QCD you qualify for at 70 and a half. So, you may not have a required minimum distribution, but you can start using a QCD at age 70 and a half.

Jon Gay (03:22):

I’m glad you made that point of differentiation, Bruce. And Alex mentioned that we just got some clarity on some of the SECURE Act stuff. Worth mentioning recording this on March 5th of 2025. So, everything accurate as of today’s recording.

Bruce Hosler (03:34):

Jason, talk to our listeners about donor-advised funds (DAF). What are they good for?

Jason Hosler (03:42):

Donor-advised funds are a great tool for a number of purposes. So, the way it works in a donor-advised fund is that you donate cash, properties, money to the fund and you receive a deduction for that donation for the full value that you donate. From that point on, you can direct the donor-advised fund, advise them on making distributions to charities of your choice. So, it’s like front-loading your deduction.

So, let’s say you have a highly appreciated stock in your trust account, you bought some NVIDIA and it traded up quite a lot. You don’t necessarily want to pay the capital gains, but you could take a portion of that, and you donate it to your donor-advised fund. You avoid paying the taxes on it-

Bruce Hosler (04:34):

Capital gains taxes.

Jason Hosler (04:36):

Right. You get a deduction for that contribution to the donor-advised fund. And from there, over the next however many years, you can choose to make distributions to charities of your choice.

So, you could set it up so that every year you’re supporting your church or your charity that you care about, you could use it to teach your children about philanthropy and your charitable inclinations, and involve them in choosing where the donor-advised funds should be spent or used.

Bruce Hosler (05:05):

And do they have to make a distribution out of the donor-advised fund every year?

Jason Hosler (05:09):

No, you can retain and continue to invest the assets in the donor-advised fund until you choose where you want to direct them.

Bruce Hosler (05:16):

And folks, that’s a lot of fun. Laura and I have a donor-advised fund, and it’s very cool. You grow your donor-advised fund, and you get to give more money away out of your donor-advised fund every year. It’s really a lot of fun if you’re charitably inclined.

Now, let’s talk about the tools for the right way to leave assets to charitable legacies when you die. The first one I want to talk about is the breakout of an IRA. So, I love this the best. Couples come in and we ask them, “Hey, are you leaving all the money to the kids? Are you leaving any money to a charity?”

And they go … well, this is Dr. So-and-so, and he wants to leave some money to his medical school. I run into that: doctors are very loving of their medical schools, and so we want to make sure that you leave that money out of the best place possible, which is an IRA.

But people get confused. They’re like, “Well, are we going to make that a beneficiary? Does that split it out? Does she get to be the primary sole beneficiary, Bruce, because I thought that’s what you told us we’re supposed to do.”

And the answer is no, we’re going to split out however much you want to the IRA, we’re going to name her as the primary sole beneficiary, and we’re going to name the charity as the contingent beneficiary.

So, if the doctor dies, she doesn’t need the money, she’s okay, she can disclaim. And now, we just let that go to the charity, and he didn’t pay taxes, and she didn’t pay taxes. And the University, the medical school doesn’t pay any taxes either, and I like that the best of doing that.

Now, how about leaving a tax-deferred fund from a tax-deferred annuity? Alex, what about that?

Alex Koury (06:57):

So, you want to be mindful of your annuities, life insurance policies, IRAs, as well on who the beneficiaries are of those accounts. So, the same thing applies that we want to be tax efficient with your distribution.

So, if you are charitably-inclined, you would like to leave an asset to charity at your passing. You would use a beneficiary form to add that charity or charities to that annuity. And then that way, when you pass away, they receive all the benefits of all those assets you’ve held in that tax-deferred annuity that passes to them as well, tax-free.

Bruce Hosler (07:32):

Jason, we use DAFs also to leave funds to charities as a legacy. Talk to our listeners about how they can do that with their heirs.

Jason Hosler (07:46):

So, for people who are using DAFs, it doesn’t go away after you pass away and you still have funds within there. It continues to exist, it can continue to be invested, and it can still continue to give to charities. You can allow your heirs to continue to advise which charities they want to give to each year even after you’re dead.

Bruce Hosler (08:08):

Excellent. So, that’s that donor-advised fund, so they can pass on the advising of what charities are used for.

So, folks, this is great. If you’re charitably-inclined and you want to leave these philanthropic values to your grandchildren, what a great way to bring in the grandchildren or bring in your children and sit down together and say, “Okay, you have $5,000, I want you to research all the charities and tell us which charity, and make the sale to the rest of the family to advocate for your charity that you want to leave money for.” What a great activity as a family evaluating different charities.

Jon Gay (08:46):

Before we move on, Bruce, if I may. It’s not just doctors. I was a lowly communications major, and I still like to donate to my old college radio station. So, it’s not just the doctors (laughs).

Bruce Hosler (08:56):

There we go.

Jon Gay (08:57):

And I know we’ve talked about a lot about strategies here so far. I’ve got to imagine there are a lot of common mistakes that folks make in this area and we’re going to address those too, right?

Bruce Hosler (09:06):

Right now, Jon, thank you for bringing that up. So, what about mistakes of charitable legacies that you want to leave?

The first one is what we run into all the time with attorneys that if the client just goes to the attorney alone and we’re not there to kind of intercede, is the attorney will ask them, “Hey, are you charitably inclined?” And they go, “Yeah, we want to leave some money to the church.” The attorney writes it down and puts it in the trust. What is the problem with that, Jason?

Jason Hosler (09:37):

Well, the problem is you have to take a holistic view of a family’s complete asset picture. Most families will have 401(k)s or IRAs, they may have been doing Roth conversions, and they’ll have some taxable money. They’ll have some money in all of the different buckets that we’ve talked about.

In an IRA, you got the deduction for your contribution. You got to have that grow tax-deferred, and if you leave that to the charity, neither you or the charity is going to be paying taxes on that. So, why do you want to leave assets in your trust that would receive a step up in basis if you leave those to your spouse or to your children, to the charity when you can leave IRA money?

So, when we are helping people who are charitably-inclined, our first choice as we talked about later is to use that breakout IRA. You want to utilize those tax-deferred monies for charity before we get to the taxable bucket.

Bruce Hosler (10:36):

Perfect, perfect. Alex, I want you to talk to our listeners about donating their assets to donor-advised funds before they die. Why are we worried about that if they have appreciated assets?

Alex Koury (10:49):

One of the primary reasons why we would consider doing that prior to your passing is that you can receive a charitable deduction on your taxes when you donate those highly appreciated assets to the donor-advised fund.

So, if you’re doing active tax planning, you’re doing Roth conversions primarily, we can use those deductions to offset the income tax you’re going to be paying on making those Roth conversions. So, we’re trying to keep your taxable income at certain levels.

Right now, it’s an effective rate of 24%, the target goal of what we’re trying to achieve here. So, again, it’s looking at the bigger picture of everything that you’ve got, being very strategic about how you’re converting monies and or giving to charities to maximize it for your full benefit and to again, minimize your taxes.

Bruce Hosler (11:36):

And they don’t have to worry about giving it to the charity or deciding which charity they’re going to give it to. If they’re coming to end of life or they’re having some health challenges or whatever, they can just donate that appreciated asset, whether it’s real estate or stock or whatever to the donor-advised fund, lock in that charitable donation, even if we can’t use it all this year, depending on our income on highly appreciated assets.

A lot of times folks, it might only be 30% of your adjusted gross income, we can carry that over for other years. But if we don’t get that donated, the highly appreciated asset, we can’t get that charitable deduction this year if we need that.

Now, what if we have assets that have lost value, Alex? And we’ve seen that happen. If someone dies and the asset has gone down, we lose the loss on the sale of that asset. So, how are we wanting to harvest that loss and how do we take advantage of that?

Alex Koury (12:35):

So, as you just mentioned here, harvesting losses in your taxable accounts is something you want to practically do every year in your portfolio, especially right now in 2025. If you’ve made some investments this year, they’re probably down in value today. It’s a great way to mitigate future capital gains as well.

But again, you can harvest the loss of those assets, sell them off, and then you give the cash proceeds from the sale of your asset, whether it’s stock or bonds or real estate, whatever have you – give the cash proceeds to your charity of choice, and then use that loss to offset other capital gains later this year or sometime in the future since those capital gains potentially can carry forward indefinitely.

Bruce Hosler (13:18):

Folks, we have seen families that have had big pieces of real estate or whatever, had huge losses on something. They paid something for it and it’s in a recession or it’s down, and they failed to sell it before grandpa died. And what happens is we lost that loss. It’s a step down in basis when he died to the fair market value as of his date of death. All that loss just got lost to the family as a write-off, a capital loss.

So, we want to harvest that loss when possible. We can use some of those proceeds to fund the charitable wishes that we want, and we’re not doing that with taxable money. So, that’s kind of the close of the charitable giving and legacies.

Jason and Alex, in closing, is there anything you want to leave for our listeners?

Jason Hosler (14:07):

I think I would say to our listeners that it can get complex when you’re trying to decide how best to either give while you’re alive or to leave a legacy. And be sure to talk with us about your desires because there’s even more tools that we haven’t talked about today.

Alex mentioned the charitable remainder trust. Depending on your situation, there could be a specific tool that applies to you.

Jon Gay (14:33):

I’m really glad you mentioned that, Jason, because coming up in our next episode, part six of the series, we’re talking about the two-generation tax-free legacy plan. I know that’s something that you work on a lot at Hosler Wealth Management.

But in the meantime, if our listeners want to contact you and the team, how do they best find you?

Bruce Hosler (14:47):

Well, they can get us on the website at hoslerwm.com. What about if they want to call us, Jason, in Prescott?

Jason Hosler (14:53):

Up in Prescott, they can call us at (928) 778-7666.

Bruce Hosler (14:58):

And Alex, in Scottsdale?

Alex Koury (15:00):

(480) 994-7342.

Jon Gay (15:05):

Great information as always, gentlemen. Such important stuff, we’ll be back to talk about more in a couple weeks.

Bruce Hosler (15:11):

Thanks, Jon.

Alex Koury (15:13):

Alright, Jon, thank you.

Disclosure (18:33):

Investment advisory services are offered through Mutual Advisors, LLC DBA Hosler Wealth Management, a SEC registered investment adviser. Securities are offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Advisors, LLC and Mutual Securities, Inc. (collectively “Mutual Group”) are affiliated companies. Forward-looking commentary should not be misconstrued as investment or financial advice. The advisor associated with this podcast is not monitored for comments and any comments should be given directly to the office at the contact information specified.

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