YOU JUST GOTTA ASK: Gifting & Legacy Edition


This is the second of a three-month series, “You Just Gotta Ask!” Real-life stories about whyyou always get in front of an expert (and start asking questions) before making major financial decisions.

Grandma, Don’t Gift Your Home!

Grandma Joan was 86 years old, single, and living alone. When her health began declining,she moved to a senior living facility and o!ered to gift her now-empty home to her son, Charles,so he could live nearby. Delighted, Charles took ownership of the home and moved in – thanking grandma for the generous gift. One year later,Grandma Joan passed away. Shortly after,Charles took a job outside the state, sold the home, and moved.

Upon filing his annual tax return, a Madrona CPA reviewed taxes owed from the property sale. Charles owed $357,000 in taxes on Grandma’s house!

Our CPA explained: Grandma purchased the home for $250,000, 55 years ago, and Charles sold the property for $1,750,000, after closing costs. It was simple math, 23.8% long termgains tax (including the NIIT) was now owed on the $1,500,000 growth, totaling $357,000 to Uncle Sam.

If Grandma Joan and Charles had simply consulted an expert, they would have learned that real estate gets a 100% tax “step-up” at death. Grandma Joan could have structured her gift to Charles as a legacy (post-mortem) rather than a gift during her lifetime and the bill could have been near ZERO. The lesson: don’t gift appreciated real estate to a loved one at the end of your life.

If You’re 70½, Don’t Write a Check to Charity!

When working on Greg and Sandy’s financial plan, they asked me to incorporate church tithing and donations to several local charities,totaling $45,000. Knowing their ages, 73 and71, I asked how they were sending funds. Greg responded, “I write a check each year!”

No, do not write a check to charity.

If you are over 70½, and have tax-deferred retirement accounts, you should considera Qualified Charitable Distribution, a QCD.Normally, distributions from traditional IRA accounts (or 401k, TSP, 403b, etc.) are taxable when withdrawn. With a QCD, however, the IRS allows the distributions to become tax-free when paid directly to an eligible charitable organization(up to $105k for individuals and $210k for a married couple over age 70½in 2024).

If that’s not reason enough, an IRA distribution that qualifies for QCD treatment is not included in taxable income. The charitable contributionis therefore not treated as an itemized deduction. This allows the taxpayer to claim the standard deduction that they otherwise would have forgone. As a result of structuring the charitable contribution as a QCD, the taxpayer has lowered their Adjusted Gross Income (AGI),potentially reducing the amount of Social Security benefits that are subject to incometax, as well as Medicare Surcharges on Parts B and D.

Microsoft Stock, A Gift with a Cost

Mom and dad gifted their daughter, Jennifer,$1 million in Microsoft stock that they had purchased 30+ years ago. Jennifer thought she received $1 million dollars – not even close!

Mom and dad should have asked an expert how to strategically gift assets/stock while alive,versus which to leave as a legacy post-mortem.As it turned out, the Microsoft Stock was justa small part of mom and dad’s portfolio, which included considerable cash, and less appreciated

assets, that would have been preferable to gift.Asking for an analysis could have saved the family up to $200,000 in taxes.
These stories are examples of why “You Just Gotta Ask!” an expert before making major financial decisions. Madrona Financial canhelp by providing answers to questions suchas, “What are my blind spots?” or “This is important to me; how do I get this right?”

Growing Your Wealth with Danielle Meister.

For over 30 years, Madrona Financial & CPAs has been helping individuals and families improve their financial well-being by giving them experienced advice on public and alternative investments, real estate, insurance,taxes, executive compensation, business succession strategies, advanced gifting strategies, legacy planning, and more. Danielle and her sta!have o#ces in Park City and Cottonwood Heights, Utah, while Madrona is headquartered in Washington State.

DISCLOSURES: The information, suggestions, and recommendations included in this material is for informational purposes only and cannotbe relied upon for any financial, legal or insurance purposes. Madrona Financial Services will not be held responsible for any detrimental reliance you place on this information. It is agreed that use of this information shall be on an “as is” basis and entirely at your own
risk. Additionally, Madrona Financial Services cannot and does not guarantee the performance of any investment or insurance product.Insurance products are o!ered through Madrona Insurance Services, LLC,a licensed insurance agency and a”liate of Madrona Financial Services.Madrona Insurance Services and individual advisors a”liated with Madrona Insurance Services and Madrona Financial Services receives commissions on the sale of insurance products. Clients are not requiredto purchase insurance products recommended or to otherwise implement financial advice through Madrona a”liates. When we refer to preparation and filing of tax returns, tax returns are prepared and filed by our wholly-owned sister company Bauer Evans, Inc. P.S., a licensed certified public accounting firm. Madrona Financial Services, LLC is a registered investment adviser with the SEC. Our registration with theSEC or with any state securities authority does not imply a certain levelof skill or training. Madrona Financial & CPAs is a registered tradename used singly and collectively for the a”liated entities Madrona Financial Services, LLC (“Madrona”) and Bauer Evans, Inc., P.C. (“Bauer Evans”). Investment advisory services are provided through Madrona.CPA services are provided through Bauer Evans.