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Legacy Matters
BlogsPublications | June 4, 2020
4 minute read
Legacy Matters

Estate and Tax Planning Ideas for a COVID-19 Economy – Part 2

The first blog in this series titled, “Estate and Tax Planning Ideas for a COVID-19 Economy – Part 1,” offered strategies for use in a depressed market to make impactful gifts to your family. In this follow-up blog, we explore how depressed values in the markets and current low interest rates have created some excellent opportunities to generate potentially significant tax savings, especially for those that are charitably-inclined. The four planning tools described below could help the tax situations for many clients.

  1. Supercharge charitable planning to public charities
    The Coronavirus Aid, Relief and Economic Security Act (CARES Act) enacted in March allows taxpayers to deduct charitable contributions up to 100% of their adjusted gross income (AGI) for “Qualified Charitable Contributions” made in 2020. This limit was increased from 60% of AGI for 2020 only, but will create an additional reason to make large gifts to meet the increased needs of charitable organizations responding to the COVID-19 pandemic.
    • Qualified Charitable Contributions are defined as cash gifts to charitable organizations other than private foundations, supporting organizations and donor-advised funds. However, unlike the 60% of AGI limit under prior law, the 100% of AGI limit takes into account gifts of property subject to the 20%, 30% and 50% limitations.
      • As an example: If an individual contributes property in kind with a value equal to 25% of AGI to a public charity and cash equal to 75% of AGI to a public charity, then the individual may deduct the full 100% of AGI.
    • Note that taking full advantage of the 100% of AGI contribution limit will completely offset your taxable income for 2020. However, if the 2020 gift is an acceleration of gifts that would have been made in future years, a portion of the contribution may reduce taxable income exposed to taxation in lower tax brackets than would have been the case if the gift was made in a future year.
      • For example, a married couple will receive an average federal tax savings of approximately 20% on charitable contributions that reduce the last $326,600 of taxable income. They may consider deferring a portion of the contribution or adopting another strategy, like a Roth conversion, to maximize the tax benefit of the charitable contributions. 
  2. Consider making Qualified Charitable Distributions from an IRA
    Individuals with IRAs should also consider a “Qualified Charitable Distribution” (QCD) from their IRA. The QCD rules allow IRA holders over age 70 ½ to direct up to $100,000 to a charitable organization from their IRA. The QCD rules, like the new 100% of AGI rules under the CARES Act, require that the IRA funds be directed to charities other than private foundations, supporting organizations and donor-advised funds.
  3. Convert a traditional IRA to a Roth IRA
    Because a Roth IRA account is funded with after-tax dollars, income tax is not owed on distributions from the account, and the assets can grow tax free. Plus, Roth IRAs do not have a minimum distribution requirement during your lifetime. Conversion from a traditional IRA to a Roth IRA may make sense in the current environment because:
    • The conversion is a taxable event for you and is based on the fair market value of your traditional IRA. Because the asset values of many investments have declined, the income taxes on the conversion will be lower than they would have been several months ago. Another benefit ─ as the market recovers, any increase in the value of the assets in the account will be free from income tax when distributed.
    • Conversion to a Roth IRA can benefit the beneficiaries of your IRA after your death. The new SECURE Act rules require beneficiaries (other than your spouse) to empty your retirement accounts and pay all of the income tax due on your retirement assets within 10 years of your death. One consequence of accelerated distributions from a traditional IRA is that the distributions each year will be larger and may push beneficiaries into a higher tax bracket for each of those years. Because distributions from a Roth IRA are not taxable, distributions will not impact their income taxes.
    • It may maximize the CARES Act tax benefit of charitable contributions.
      A Roth conversion has many moving parts, so you should carefully analyze the merits of a conversion with your tax and investment advisors to determine whether it is appropriate for you.
  4.  Harvest tax losses
    Take advantage of depressed securities and use the opportunity to sell them at a loss to offset capital gains on other portfolio assets. (Tax-loss harvesting also can apply to the assets in your grantor trust.)

Take advantage of current tax planning opportunities

Now is a good time to explore planning ideas that are effective in the midst of a market downturn. These tax planning opportunities may offer tax efficiency for your situation. For more information on wealth planning strategies for individuals and families, please contact your Warner estate planning attorney, Jay Kennedy in our Tax Group (248.784.5180 or or our Private Client and Family Office Practice Chair, Mark Harder (616.396.3225 or