Place your favorite charity on your holiday gift list
It’s that time of year. Time to celebrate the holidays, spend time with the family, and take stock in our lives. But it’s also year end – time to consider giving back to our community – in time for this tax year. With the economy turning around, if you believe the indices and prognosticators, it is time to consider charitable contributions.Local groups, like the Truckee Tahoe Community Foundation, are in a position to help. The foundation assists in a range of areas, from youth programs and the arts to animal care, to education and the environment, to local nonprofits working with the needy. $1.1 million into communityThe Truckee Tahoe Community Foundation shepherded more than $1 million into our community last year. $1.1 million! There are many other charitable organizations worthy of your contribution – the Boys & Girls Club, Tahoe Forest Hospice and the Tahoe Truckee Excellence in Education Foundation, just to name a few.Through properly planned charitable bequests, you can preserve and transfer wealth to your family, and at the same time make a huge difference in a small community with your philanthropy. Your contributions to local organizations go further than to your well-funded alma mater (to expose my bias). Social capitalWhen we die, the government gets a chunk – too much. The trick is to convert the part of your estate that Uncle Sam normally gets, some call it “social capital,” into contributions that improve your community – and save taxes while you’re doing it, and it’s not necessarily a situation where the family gets the money or it goes to charity. Through good planning everyone wins except Uncle Sam.What’s surprising is that charitable contributions aren’t just for the rich. The income tax breaks are significant – deductions of up to 50 percent of adjusted gross income, which looks pretty decent compared to estate taxes as high as 60 percent.Whether your motivation is passion for the community or avoiding taxes, there is a plethora of estate planning tools at your disposal.Charitable toolsAs we discussed last month, a simple will is one means of disposing of your property. It is easy to name a charity as a beneficiary. In fact, 80 percent of all planned gifts come from wills. There are even more creative vehicles like charitable remainder trusts, unified credit trusts, life insurance trusts, family limited partnerships, generation skipping transfer trusts and more.Here’s how a charitable remainder trust works. You have appreciated stock that if you were to sell would create a huge capital gains tax. So you give stock to a charity. If you need cash flow, keep the income from the stock for yourself during your lifetime. You get a tax deduction at the fair market value of the stock less the value of any income you keep. Or do the same with appreciated real estate. You could consider funding an irrevocable life insurance trust (ILIT), perhaps funded by the contribution, for your kids, which would then pay upon your death outside of your estate, as a substitute for the cash given to the charity. When properly funded and administered, ILITs are a great way to accomplish charitable and family objectives. You avoid paying capital gains tax, create an income for your life and dramatically reduce estate taxes, while making a sizable donation to your favorite charity rather than the IRS. It beats two other options: leaving the stock (or real estate) to your kids and paying merciless taxes, and when they sell, paying taxes again, or selling the stock and leaving the money to your kids and paying taxes twice.Senior’s tax tipHere’s the all-time tax tip for seniors, but you’ve got to hurry. The Katrina Emergency Relief Act of 2005 allows anyone over 59 to make unlimited gifts to charity (in 2005) from an IRA, 401(k), 403(b) or other qualified retirement fund. For example, you can, donate to the Truckee Tahoe Community Foundation and deduct the full amount from your taxable income for 2005. Like everything else, the hardest step is the first. Call the Truckee Tahoe Community Foundation at 587-1776 or your favorite charity, or confer with an expert. Don’t just think about it. Merry Christmas. Jim Porter is an attorney with Porter • Simon, with offices in Truckee, South Lake Tahoe and Reno. He is a mediator and was the governor’s appointee to the Bipartisan McPherson Commission and the California Fair Political Practices Commission. He may be reached at email@example.com http://www.portersimon.com. This column is a reprint of a previous Law Review.
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