San Diego Estate Planning Lawyer Blog

The new tax relief act signed by President Obama in December (Tax Relief, Umemployment Insurance Reauthorization, and Job Creation Act of 2010) restores a provision that expired in 2009 which allows donors who are at least 70 ½ years old to make a tax free gift to charities from their IRAs. Before this provision was restored, money transferred from a traditional IRA to a charity would be included in the donor’s taxable income for the year. Here is how it works:

1. You must be at least 70 1/2 years old.
2. Your gifts must be made outright from a traditional IRA or a Roth IRA.
3. The amount rolled over from your IRA will be excluded from your gross income.
4. You may distribute any amount up to $100,000 per year per donor. Therefore a husband and wife could each make donations of up to $100,000, so that a couple together could donate a maximum of $200,000.
5. The transfer must go to qualified charities.
6. Your IRA rollover will count toward your minimum distribution requirement.
7. There is no federal income tax deduction for the IRA rollover gift.

One of the advantages is that donors who want to benefit a charity can do this without having to liquidate an asset and without having to recognize the income. The new tax-free rollover option may be especially appealing to:
1. Donors who do not itemize their deductions.
2. Donors required to take minimum withdrawls from their IRAs but don't need the income.
3. Donors already giving their %0% deduction limit.
4. Donors for whom additional income will cause more of their Social Security to be taxed.

There are many ways to become involved in charitable giving. The estate planning lawyers at Scott C. Soady, A Professional Corporation can explain the various types of charitable trusts that you may want to consider. You can also give gifts to charities as part of your own revocable living trust.

It is estimated that 70% of Americans make charitable donations in some form. It could be yearly donations to their favorite charities or it could be in the form of making a charity the beneficiary of their trust. American Association of Retired Persons (AARP) has some tips for donating to charities:

1. Avoid scams. If you are called on the phone by a charity, ask that they send you printed material so you can authenticate their organization. Be cautious about email solicitations and be aware of names that may sound like charities but in fact are not. If you want a gift to be tax deductible, make sure the entity is a qualified charity you can claim as a tax deduction. Never provide a credit card over the phone unless you have initiated the call. Checks are preferable rather than a credit card and dont use cash.

2. You can get information about a charity such as how much of your donation will go to administrative and marketing costs and how much to the charity’s purpose. In general reputable charities spend less than 35% on administrative costs. Two websites that review charities are Guide Star and Charity Navigator. Charity Navigator evaluates the financial health of over 5500 charities according to organization efficiency and organizational capacity as well as listing their annual revenue and what they spend their donations on.

3. If you are including charities in your trust, make sure to specify whether you want the gift to be used for a specific purpose or for general use. You can also provide that the charity must be a qualified charity and if it doesn't qualify at the time your death as a 501(c) charity, an alternate charity is specificed or another non-charity beneficiary. Some charities are heavily donated to such as hospitals and universities. Harvard University, for example, has $25 billion dollars in endowments. A less known but still worthy charity may be worth looking into. There are over 1 million charities in the United States alone.

If you would like to incorporate charitable giving in your estate plan, call us. In addition to making charities the beneficiaries of your trust, we also can draft other charitable giving trusts such as a charitable remainder trust or a charitable lead trust or other ways to fulfil your charitable goals.

Donating used cars has become an extremely popular way to reduce your taxes and benefit a charity. There is a lot of competition among charities to receive your donation of vehicles. Here are some tips to donating your car to charity:

First make sure the charity you are considering is a recognized non-profit charity, also known as a 501 (c)(3) organization. Some charities ask for donations of cars but do not have the 501 (c)(3)status which means your donation will not be tax deductible. You can find out if an organization is a qualified charity by looking on the IRS website.

Next make sure that the charity has a program to handle donation of vehicles. To maximize the amount of benefit to the charity, the charity should be able to handle the transaction without a “middle man.” If there is a “middle man” or intermediary, then find out what percentage of the donation the charity will receive.

When you transfer title to the charity, make a copy of the transfer document and notify the DMV of the transfer. Also it is a good idea to remove the license plates.

Get a receipt for your donation. The amount of the tax deduction is no longer the fair market value of the car. Your deduction will be determined after your car is sold and you get a receipt for the amount the car sold for. Also to receive a tax deduction for a car worth more than $500, you will need to fill out a IRS form 8283 when you do your taxes. If you are donating a car worth more than $5000, an appraisal is necessary to accompany a completed IRS form 8283. (c)(3) organization.

The IRS publishes a guide to donating your car which you can view online. If you want additional information about how to incorporate charities into your estate plan or how to reduce your taxes, contact us at Scott C. Soady, A Professional Corporation.

Several years ago researchers felt that by mid century there would be a big inheritance boom, somewhere between 41 trillion and 136 trillion dollars handed down from parents to children. Now things are different and not solely because of the economy. Here are some reasons why you may receive a smaller than expected inheritance:

1. Your parents are spending it all. Not intentionally maybe, but with the high cost of living, medical care, and long term care, their nest eggs may not be what they used to be. Nursing home costs can run as high as $60,000 a year or higher in some areas and long term health care may be too expensive.

2. Seniors are living longer. The National Center for Health Statistics said in 2004 that males who are 65 could live to be 82, females to 85. As seniors live longer, they consume more of their wealth.

3. Bigger families. Baby boomers come from families that were larger than today’s families. Parents of children born between 1946 - 1964 had an average of 3.5 children, thus leaving a smaller piece of the pie to be inherited by each child.

4. Some of the wealth of seniors today comes from sources that terminate upon death- pensions, social security, and some annuities.

5. Reverse mortgages and the economy now make it easier to drain a home’s equity. Today with the popularity of reverse mortgages, homeowners can tap into the equity in their homes and the pace is picking up with the problems in the economy.

6. The “Warren Buffet” philosophy. Warren Buffett, the world’s second richest man, believes that kids should get “just enough money to feel they could do anything but not enough to do nothing.” He intends to give most of his money to charity including the Melinda and William Gates Foundation.

7. Charitable giving seems to be on the rise in the last 50 years, particularly among the rich. As an example, last year billionaire Barron Hilton announced he was giving 97% of his estimated $2.3 billion estate to charity.

Even if you are not going to be receiving much of an inheritance, you should still talk to your parents or grandparents about their estate and be sure they have planned ahead by creating a living trust with powers of attorney and health care directives. Probate can be expensive and without a trust, an estate of more than $100,000 will have to be probated. For assistance with an estate plan, contact us at Law Office of Scott C. Soady, A Professional Corporation.

If you have substantial assets, you may want to consider making a gift before the end of the year. The annual gift exclusion does not carry over into the next year, so you will lose your annual exclusion if you don’t use it before the end of 2008.

In 2008 you can make gifts up to $12,000 per person to as many people as you want with no gift tax. A single person could make a $12,000 gift to as many individuals as he or she wants. A married couple together could give $24,000 to any one individual. So for example, a married couple could each give gifts of $12,000 to their 3 children ($72,000 in total) or to their 2 grandchildren ($48,000 total), etc. You can give cash, stocks, bonds, real property, partnership interests; just make sure the gift is of a “present interest”, i.e. one they can use now as opposed to sometime in the future.

In addition to the annual gift tax exclusion, you can make tax-free gifts by paying the tuition and medical expenses for relatives or even friends. Gifts such as these have no monetary limitation. Send the money for tuition directly to the school. Payments for books or room and board do not qualify nor does giving the money directly to the student to pass on to the school.

You can also pay unlimited medical bills if you make the payments directly to the health care provider and the medical expense is one that would qualify for an income tax deduction. You can also pay medical insurance premiums for another person.

Lastly, remember that gifts to charity are never subject to gift or estate tax. If you need help with any end of year gift strategies, contact us at Law Office of Scott C. Soady, A Professional Corporation for a free in-house consultation.