Thomas M. Boles, 33°, G.C. Director of Development 1761 East Woodcrest Avenue La Habra, California 90631-3260 Tel . 562-691-4227; Fax 562-691-5327

Earl E. Ihle, Jr., 33° Director of Major Gifts 1733 Sixteenth St., Washington, DC 20009–3103 Tel. 202-232-3579, Ext. 143, Fax 202-387-1843 Or call 800-486-3331, Ext. 143 council@srmason-sj.org

This month, we are privileged to have a guest contributor, Ill. Robert R. Lyons, 33°, G.C. Bro. Lyons received the Scottish Rite's highest honor, the Grand Cross, at the recent Biennial Session (see photo below). Rob is a member of the firm Watkins, Meegan, Drury, and Company, L.L.C., in Bethesda, Maryland. The Grand Cross is a richly deserved recognition. For years Rob has given the Council the benefit of his expert tax advice as a service to our Order. He has assisted many Valleys in a variety of financial matters. In addition, his church and hospice work are examples of selfless dedication to very worthy causes. We are honored that he is contributing the following article.

Charitable giving is a strong tradition in this country. Yet sometimes individuals who are close to retirement are reluctant to give as much to charity as they had previously since they are concerned about having ample income to see them through their later years. Also, they want to pass assets on to their children. Proper planning can put these concerns to rest.

There are many different ways a person can pass wealth to a charity. Estate planners, however, often overlook the options available for gifting of retirement assets. This is because retirement plan assets present a thorny problem in estate planning due to the complicated tax issues involved. Outright gifting of retirement assets during a client's lifetime is not normally done since any amount gifted will be taxable income to the donor in the year the gift is made.

Ill. Robert R. Lyons, 33°, G.C., is congratulated by the Grand Commander during the 1999 Biennial Session.

Unlike other investments, tax-advantaged vehicles, such as retirement plans, do not receive an increase of value upon death of the participant. Therefore, when heirs inherit these assets, they will have to pay income taxes on any monies taken out of the plan. The only exceptions are non-deductible contributions to plans. If certain criteria are met, however, a beneficiary may be allowed to take distributions from the plan over a period of years or even his or her lifetime. This can allow for decades of income tax deferral and permit compound earnings to continue. However, if the client has not planned properly, the beneficiary must receive the proceeds in a lump sum in the year following the client's death and report as ordinary income the entire account balance on his or her income tax return. If that balance is large, as much as 45% can be taken off the beneficiary's inheritance just through the payment of income taxes. This does not account for any estate or generation-skipping taxes that may be due.

In planning for the continuation of retirement plans, the client's choice of one or more beneficiaries is very important. Many clients want part of their retirement plans to pass to charity, but they also may want to have multiple noncharitable beneficiaries for a single plan. Planners should be careful in naming both charitable and noncharitable beneficiaries for the same retirement plan. This could adversely affect the income tax consequences to the noncharitable beneficiaries. Since a charity has a life expectancy of zero for tax calculation purposes, the planner can utilize two options.

The first option is to name the client's surviving spouse as the primary beneficiary and the charity as the secondary beneficiary. At the death of the client, the surviving spouse can disclaim some or all of the assets and the remaining assets can then transfer to the charity. However, a second, much clearer, approach can be utilized. Separate retirement accounts can be established with the spouse or children as beneficiaries, and a separate account for the charity as beneficiary. At the death of the client, the separate accounts would then pass to their respective beneficiaries. This would lead to the client's monies staying in the family for an extended amount of time. Younger heirs also are able to maximize their income deferral based on their own life expectancy.

Charitable planning can be used to address issues that arise in planning for a distribution from qualified plans also. Clients often wish to have assets bequeathed in trust to protect the assets and heirs. This can result in complications in their estate plan. For example, a surviving spouse cannot use his or her children's younger life expectancies in calculating minimum distributions from retirement plan assets when a living trust, rather than the surviving spouse, is named beneficiary. Benefits would have to be distributed over the life of the spouse. However, if the benefits are paid outright, the spouse can roll the assets over into an IRA and designate the children beneficiaries.

If a client does wish to utilize a trust, there are many different types that can be used in estate planning. One of the most commonly used trusts is the charitable remainder trust. Generally, if a trust is the plan beneficiary, assets are retained in the retirement plan account and distributions are paid to the trust to defer income tax. However, the one exception to this rule is the charitable remainder trust (CRT). A CRT is a trust that enables clients to retain an income interest in an asset and to gift the remainder interest to a charity. Since a CRT is a tax-exempt entity, assets can be distributed to it outright. A second advantage of a CRT is that the CRT's payout can be stretched over both the spouse's lifetime or the children's remaining lives, up to a maximum of 20 years. There are many specific payout rules that need to be followed to avoid tax problems. You should consult with your estate planner and tax accountant to ensure the CRT works as originally set up.

As you can see, charitable planning provides flexibility to achieve a host of client goals, including personal, estate, and insurance as well as tax benefits. Planning for charitable giving is far more complex than many realize, but the rewards can be substantial.

The current offer of a free Comprehensive Estate and Financial Review is an excellent way to identify the best financial path for you. The review is an individualized report and will serve as a valuable tool to plan for your personal financial goals. Fill in and fax or mail the coupon below to receive a free Comprehensive Estate and Financial Review.

Ill. Thomas M. Boles, 33°, G.C. (left in photo) has worked extensively in fund-raising for children's programs throughout our Fraternity. For more information on planned giving, call Bro. Tom at 562–691–4227 (Fax 562–691–5327) or the Scottish Rite Foundation, Southern Jurisdiction, U.S.A., at 202–232–3579, ext. 143. Ill. Earl E. Ihle, Jr., 33°, is our development team's Director of Major Gifts. He has been a member of the Fraternity for 25 years and served in 1978 as Master of Lafayette Lodge, No. 111, Baltimore, Maryland. He is also a member of Boumi Shrine Temple in Baltimore, the York Rite, and a dual member of the Scottish Rite Valleys of Baltimore and Washington, D.C. You can reach Bro. Ihle toll free at 1–800–486–3331, ext. 143.