Estate Planning, Charitable Giving, and Trusts: The Big Beautiful Breakdown

Speaker A: Do complex legal issues hold you back? Let's get energized and bring clarity to your top legal question. This is Law Talk with the Flock by Gooseman Law Firm. Hello and welcome to the podcast. For today's episode, I have with me Ashley Krause. Ashley is an attorney at the Guzman Law Firm, and I'm so excited to have you here.

Speaker B: Welcome.

Speaker A: M. Ashley.

Speaker B: Hi. Thank you, Gina. I'm so excited to be here. I, uh, am an estate and business succession planning attorney with Guzman.

Speaker A: Fantastic. And actually, there have been a lot of developments in the law this year, and I thought we would just come together and talk a little bit about things as we're nearing year end and the holiday season and a lot of folks are thinking about their plans. And with that in mind, uh, there was a huge piece of legislation this year called the Big Beautiful Bill. Can you just, at a high point, tell us a little bit about the Big Beautiful Bill?

Speaker B: Yeah, absolutely. So this was President, uh, Trump's massive tax package. This was probably the biggest piece of tax legislation that has been passed since the Tax Cuts and Jobs act during his first term. Uh, and so for estate planners like us, this is very exciting. Uh, we have a lot of big changes with it, and those changes include, uh, just general tax planning strategies as well as charitable giving strategies.

Speaker A: Very good. Well, we'll kind of dive into a few of those. It is called the Big Beautiful Bill for a reason. It is very large. So we are not going to get to cover a whole lot in today's episode, but we're going to be able to give people a flair of what's in there and some, some knowledge related to these topics. So, Ashley, um, do you want to pick one that is sort of top of mind for you and something that you're considering as you're advising clients?

Speaker B: Yeah, certainly. I think the biggest, uh, and most exciting thing for a lot of people is the permanent extension of the federal gift in a state tax exclusion amount. And so, uh, there was a lot of talk amongst estate planners where we're thinking, oh, my gosh, this is going to sunset in 2026, and the exemption is going to go from 14 million, which is what it is, uh, here in 2025, all the way down to about 7 million. Once that number is adjusted for inflation. Uh, that was made permanent. It's going to be 15 million, uh, permanently going forward. Uh, so that's also going to get the annual adjustments for inflation as well. Uh, and the result here is that for most Americans, you're not going to need very complex advanced planning strategies, uh, particularly if you're married, because most people's estates fall under that $30 million threshold. Uh, so things that we may have seen in the past, uh, especially in the 90s when the exemption was much lower, Credit, shelter, trust, we don't need those anymore. And so now we can kind of streamline many uh, advanced plans for folks. Thank you.

Speaker A: Bet. And so I know it caught a lot more people when it was going to sunset. And at this higher uh, level it doesn't catch near as many people. I've always said though, this is what the law is today and I think it's going to be this way for quite a while. But I don't have a crystal ball. The other belief I just generally have, Ashley, is it's easier to tax dead people.

Speaker B: Definitely. Absolutely. Absolutely.

Speaker A: So I remember uh, a lot of folks saying, well, how come I don't know about this? What's the deal with it? I'm like, well they're deceased. And so not as many people are talking about it, but it definitely is real still for people that own businesses or assets that are increasing a lot in value. So, so let's think a little bit more on the charitable side as we're thinking about the holiday season and end of year. So what kind of techniques uh, did this impact with regard to charity?

Speaker B: Yeah, so there were quite a few changes that were made, uh, particularly for uh, non itemizers. So most of us who are not going to be itemizing our tax return deductions, the standard deduction has been increased. And that uh, increased deduction was made permanent under the big beautiful bill. Uh, and in addition to with uh, a new piece to the new big beautiful bill is an above the line deduction for charitable uh, donations. And so for individuals, uh, standard deduction is $31,500. And so if you have a charitable donation of uh, uh, $1,000 per filer, who takes advantage of that, you're going to get that deduction. Uh, there, uh, however, this does exclude donations to donor advised funds and private foundations, which if you're taking the standard deduction, that's probably not going to be a significant issue for you. Uh, most folks that are going to have a donor advised fund or a private foundation, they're likely already doing some advanced planning techniques. They're likely already going to be itemizing uh, as well.

Speaker A: So just for a really high level perspective, so if they make a donation to a charity and they're in this circumstance, it's $1,000 and is it above the line or below the line? And what does that mean?

Speaker B: Yeah, so it is an above the line deduction. So off the top.

Speaker A: Okay, so off the top, so your income gets reduced by that thousand dollars, and then you're taxed on, uh, a lower level of income.

Speaker B: Exactly.

Speaker A: Got it. So that goes a lot further for people then, if they make that charitable deduction, uh, they don't have to pay quite as much in tax for the year.

Speaker B: Absolutely. And so now we're seeing a greater incentive for folks of all economic. Of all tax brackets are being incentivized to engage in charitable giving, which is really awesome.

Speaker A: I'm going to the, uh, Children's Hospital foundation gala tomorrow night. I don't know if everybody in the room knows this. We should have you come up on stage and explain it before they ask for donations. Well, let's talk about some more of the provisions out of the big beautiful bell and some other things that have changed that people should be aware about.

Speaker B: Yeah, well, so on that same note, for people who do itemize, um, so now one change that has taken place is charitable donations are only deductible if they exceed half a percent of that donor's adjusted gross income. And so what that means is for folks, uh, who are high earners, they're going to be wanting to make, uh, more significant charitable gifts. Uh, a lot of folks, uh, are calling this bunching. Uh, and so instead of doing a number of, you know, maybe 10, $1,000 gifts to a bunch of different charities, maybe instead you're going to do a $10,000 gift to one charity, uh, because you want to be able to get over that floor. Uh, uh, this is also going to be influencing folks who maybe are interested in setting up a charitable remainder trust, uh, a CRAT or a crute, uh, depending on how you want to say it, or what type of trust you want to use. Uh, and so when you're creating those charitable trusts, you can actually easily meet that floor by making a funding for that trust. And so I think we're going to see more of those trusts become, uh, popular estate planning vehicles, particularly with the increase in federal estate tax exemption, people are going to want to use more money for those charitable causes during their lifetime.

Speaker A: So used a couple of terms that I'm familiar with, but maybe not a lot of people will be. So you talked about a crat and a crut, so, so let's break each of those down. What is a crat? What does that stand for? And why do people form that?

Speaker B: So Charitable Remainder Annuity Trust. That is a crat. And so essentially a CRAT is a trust where um, it functions like an annuity and so the charity is the remainder beneficiary, hence charitable remainder. And so you can gift or you can distribute assets from, from that charitable remainder trust to named beneficiaries during your lifetime after your life ends. Uh, and then the trust, uh, will donate the remaining assets to that charity.

Speaker A: So what kind of um, assets do people typically put in a cred, for

Speaker B: example, uh, so generally you want to think about the end beneficiary. Uh, so this can be uh, brokerage accounts. Any sort of, uh, investments, financ financial assets, any sort of liquid assets are obviously going to be a great choice. Real, uh, estate, you know, could you put it in there? Theoretically yes, but most people don't find that this is necessarily what they want to do. Um, and so generally the liquid assets are our best. But uh, you could even use equity ownership interests in a closely held business. Uh, that could work as well. Ah, particularly if those equity ownership interests are going to increase in value. Uh, it's a great way to keep those assets out of your taxable estate.

Speaker A: And how does it help people in their annual basis while they're alive if they set up one of these sorts of CRAT style trusts?

Speaker B: Well certainly, uh, you would be able to reduce your taxable income because you're making those charitable contributions. And especially it's going to be easy because you are already encouraged to make those bunched donations, bunched allocations. And so when you're funding the trust with say, you know, we're going to put $100,000 into it, you're now reducing your taxable income for that year by making that charitable allocation perfect.

Speaker A: That's a wonderful example and demonstration. You also mentioned a crut. Uh, can you walk me through what is the, what's a CRUT stand for compared to the crat?

Speaker B: So the CRUT is the Charitable Remainder Unit Trust. And it is very similar in that, you know, the charity is the remainder beneficiary. Uh, however, the key difference between the two is how the stream of income is ultimately paid out to the charity, uh, after the uh, trust ends, essentially. Uh, so the unit trust, obviously Charitable Remainder Annuity Trust, it kind of tells you how it's going to be paid out in the name. It's paid out the way an annuity would with fixed payments. Whereas the unit trust, that's going to be on a fixed percentage of its value. And that percentage that's determined when the trust is funded. So it is important that when you are forming a crut, uh, or a unit trust that, uh, you are aware of what that percentage is going to be.

Speaker A: So a couple different options there that you can walk people through as they're thinking about charitable giving. And it sounds like bunching is becoming a bigger deal. So I guess I'll have to myself think about how this might impact me and do I need to make one bigger gift or, or set up my crater crut? I think that there's a lot to consider and definitely need an advisor to kind of help walk you through all of these different components. It sounds like quite a bit has changed. Changed. Uh, anything else in particular you want to highlight today from the big beautiful bill?

Speaker B: Yeah, uh, one thing I did want to touch on briefly is, uh, I had mentioned earlier in our session how, uh, for married folks, that exemption is going to total $30 million. And so filing a Form 706 or a state tax return for portability is going to be very important. Uh, that way, if the deceased spouse has an unused exemption amount, and we think that there may be an estate tax problem when the second spouse passes away, it's going to be so important to file that, uh, and we recently received a opinion from, uh, the tax court in July of this year which kind of highlights just how important a properly filed 706 is. So definitely making sure that your financial team, your cpa, is aware of those tax filings, how to do it properly so that you don't end up with a tax problem after you die.

Speaker A: Got, uh, it. So it's really something that needs to be taken care of once the first spouse passes away. Is that true? Correct.

Speaker B: And you have nine months to get it done. Um, if the spouse is the sole beneficiary of, uh, your estate, it's pretty darn easy, pretty darn quick. Uh, now if it is more complex, and certainly that is something that any estate planner will walk you through, uh, they'll also want to get in touch with your financial team, with your CPA to make sure that they're aware of certain, uh, valuation requirements, the timing, uh, because with portability, it is all in the timing, uh, to make sure that you get the benefit of that exemption.

Speaker A: Good to know. I know when one spouse dies, a lot of times people don't necessarily think they need to do a whole lot, but certainly there are things to be considered and absolutely, uh, would be a good idea to consult with your legal team and your cpi. So it's a good thing to Point out, Ashley, especially with that ruling that clarified, uh, some of that for folks.

Speaker B: Yes.

Speaker A: How about anything else? I know we're kind of coming to, uh, the close, but any other major points from the big, beautiful bill that you would love to highlight?

Speaker B: Well, uh, certainly there's a lot. Uh, we had the change in the income tax rates being made permanent. Uh, so now we have those higher tax brackets, which I think a lot of people are very excited about, uh, when it comes to charitable giving. However, uh, I just want to quickly point out that for the highest tax bracket, the deduction is limited to 35% of the gift instead of 37%. So that new tax bracket, the highest tax bracket is 37%. But if you're maxing out your, uh, charitable giving for that year, uh, to kind of create a little bit more balance there, it is only going to be a 35% deduction, uh, rather than the 37%. Uh, still. However, uh, we have a very generous limit of up to 60% of adjusted gross income for cash gifts for those highest earners. Uh, so absolutely. Still going to be a huge benefit to make those charitable gifts. And, uh, make sure that you're maxing out your, uh, make sure you're maxing out your abilities to reduce your taxable estate. Uh, there is less of a pressure to use it or lose it, uh, with the high exemption. But for folks where their. Their income tax is a little higher than they want it to be, this is a great tool to kind of mitigate that and give back to their communities.

Speaker A: Giving back to their communities. One of our offices is in Omaha, Nebraska, and I have just found that that is the most charitable community that we've ever been a part of. There are so many philanthropic people.

Speaker B: It's really incredible.

Speaker A: I know when we do a lot of planning, uh, out of our Omaha office, um, that is a hot topic for people. They want to know how to give back and give, uh, back to their community and all these different tools and techniques that we're able to help implement for them. And I just wanted to give a shout out to Omaha for that reason.

Speaker B: Yeah, I fully agree. I lived in, uh, Austin, Texas for about seven years. And coming back to, uh, Omaha, that was just one of the things that really floored me was how charitable the community is and how much the community works together to lift each other up. It's just an amazing place.

Speaker A: It really is. And there's a lot of. A lot of tools that have been, I think, uh, used widely throughout the community. And we're helping helping people bring those to other communities as well. And I think a big part of that comes from sharing the knowledge. So I wanted to thank you, Ashley, for coming on the podcast and helping to share your knowledge on these topics and spread the news.

Speaker B: Thank you so much Gina. It is my pleasure to be here.

Speaker A: Thank you to all of you for tuning in and listening. Go make it worth it. Thanks for joining us for Law Talk with the Flock by Guzman Law Firm. We hope you feel energized and ready to soar past your goals, become a Flock fan and subscribe to our podcast. Learn more@groozmanlaw.com.