Maximize Your Impact with Your 2021 Charitable Giving

Q. My dad and I enjoy running races. In the coming weeks, there aren’t any races coming up for the causes we care most about, so we were hoping to go on our own and donate to them ourselves. Are there any rules we should know about when it comes to charitable giving in the 2021 tax year? Also, what if my mom needs Medicaid in the next three to five years? Thanks for your help!

A. Congratulations on your races, and kudos to you and your father on your desire for charitable giving.

With the holidays just around the corner, now is an ideal time to begin thinking about year-end charitable planning. If you are looking to make the season brighter for others, there are some things you can do this year to make the most charitable impact with your dollars.

The following are specific opportunities for giving in 2021 to keep in mind to maximize your impact at the close of the year:

• CARES Act provisions have been extended through 2021, allowing individuals who do not itemize to claim a deduction of up to $300 and couples to claim up to $600 for cash contributions to charity. Note that the $300 limit is per person — $600 for a married couple filing jointly. This deduction is available for cash gifts to public charities. Keep in mind, however, that the Tax Cuts and Jobs Act of 2017 made a few notable changes that are still impacting giving strategies today. TCJA doubled the standard deduction and reduced and limited many itemized deductions. As a result, many taxpayers no longer itemize their deduction, which means that they cannot take advantage of the tax benefit of making a charitable donation other than the allowable above-the-line deduction previously mentioned.
• Your retirement assets also are a great resource for charitable giving if you are over 70½ years of age. The Qualified Charitable Distribution (QCD) is a good strategy for charitable giving for individuals who are able to take advantage. The QCD allows anyone over the age of 70½ with an IRA to donate up to $100,000 per year tax-free from their IRA to charity. To take advantage of this, it doesn’t matter if you itemize or claim the standard deduction.
• This year, you can elect to suspend the gift percentage limitation on your charitable income tax deduction for cash gifts to public charities, which is typically limited to 50 percent or 60 percent of your adjusted gross income. The CARES (Coronavirus Aid, Relief and Economic Security) Act created the opportunity to deduct up to 100 percent of adjusted gross income (AGI) for gifts made directly to public charities. This window is closing in 2021, so now may be the time to make such gifts, if desired.
• Contribute appreciated stock. Donors can also help themselves — while helping others — by making charitable gifts in another tax-efficient way — by donating appreciated stock. Donors will receive a charitable income tax deduction for the full appreciated value of the gift of stock, subject to AGI limitations, while permanently avoiding embedded capital gains that may otherwise trigger costly tax liabilities in the future, because when the charity sells the stock, it will not have to pay any capital gains tax.
• Consider charitable bequests. If you are updating or revisiting your estate plan, this could present an important opportunity for you to evaluate how your charitable goals, and the organizations you support, may fit into your lasting legacy.

Charitable Giving and Medicaid Eligibility

For those who are charitably inclined, it’s important to keep Medicaid eligibility requirements in mind. This is especially important for those similar to your mother, who may need nursing home care within the next five to ten years. Here are some things you should know:

• Five-year rule: Medicaid presumes that all gifts made in the five years prior to filing for Medicaid were made in contemplation of applying for Medicaid. Individuals seeking eligibility for long-term care Medicaid benefits must disclose all gifts made by the individual or his or her spouse within the prior five years.
• Small gifts: If you have a history of giving small weekly or monthly gifts to a charity, some Medicaid agencies will not construe those to be disqualifying gifts. For instance, in Virginia, these types of regular gifts are not penalized so long as they are under $4,000 per year, and there was a regular pattern of making these gifts for at least three years prior to applying for Medicaid.

Does this potential risk of a Medicaid penalty suggest that all giving should cease? Not necessarily. For more details about this, please see our resource page, “Medicaid: The Perils of Gifting FAQ.”

We Can Help with Year-End Planning, Financial Planning, and Medicaid Asset Protection Planning

Whether you’re close to retirement, retired, employed, or recently unemployed, it is important to protect your quality of life and your golden years with estate planning, long-term care planning, and financial planning.

Besides being a Certified Elder Law Attorney, I am also an experienced retirement planning advisor and long-term care financial advisor, and I offer comprehensive financial planning services through my affiliation with Protection Point Advisors.

As always, if you or a loved one are nearing the need for personal care or already receiving personal care, or if you have not done Long-Term Care Planning, Estate Planning, Financial Planning, or Incapacity Planning (or had your planning documents reviewed in the past several years), please call us to make an appointment for an initial consultation:

Fairfax Elder Law Attorney: 703-691-1888

Fredericksburg Elder Law Attorney: 540-479-1435

Rockville Elder Law Attorney: 301-519-8041

DC Elder Law Attorney: 202-587-2797