Michigan Estate Planning Blog

Checking Out Charities

Giving charitably can be a tough thing. You want to make sure your money goes as far as it can. A lot of donors choose smaller charities with less overhead to help ensure their money is used as intended and to the fullest extent. However, if you’re thinking small, it’s worth ‘digging deeper’, and not just into your pockets. No, dig deep into the charity and make sure it is as you want it to be. The good thing about a large charity is that it’s fairly well established. For example, it has the power to complete its goals and likely it has a history that is readily examinable. The reason not to give to a big charity is that your money also will go towards funding all the bureaucracy and red-tape that have made the charity big in the first place. This can mean few dollars actually advance the charitable cause. Conversely, smaller charities can be more efficient, but may lack those same assurances, unless you’ve done your research. Depending on your charity of choice, the local history might indicate the effectiveness of the charity. As to its value, you always can check its progress against its mission statement. What are they trying to accomplish? Do they know? How do they do so? In addition, don’t be too bashful to ask “who’s in charge” and what they do with the donations? To help guide you through the process, try various services like the Charity Navigator ratings system, or GuideStar to determine how charities use their funds. In the end, giving to a smaller charity may be that much more rewarding, and with all your research you might end up giving your time, too. Indeed, work first-hand can be a good way of learning and for giving back as well. Heading into the Holiday season, with Thanksgiving at our doorstep and carolers not far behind, it’s as good a time as any to start your research and your charitable donations.

Charitable Giving Delayed… Is Not Charitable Giving Denied

It’s pretty impressive to top the Chronicle of Philanthropy’s list of America’s 50 most generous donors, but it just defies the imagination to make the list 5 years after passing away. Still, that’s the story of 2011 and the late Ms. Margaret Cargill. This fact was swiftly picked up here, in a recent Forbes article, and as it turns out the reason for such successful giving can be traced back to some complicated estate planning and finance work. Cargill is a name that, depending upon your exposure to agribusiness, is either an utter unknown in the discussion of wealth (the media is infatuated with Mark Zuckerberg these days) or an utter no-brainer. And Cargill is synonymous with massive agribusiness, having topped the list of America’s Largest Private Companies for all but two of the last 24 years. The late Margaret Cargill was heir to the fortune. At her death, Ms. Cargill left all of her shares of Cargill stock to be split between two charity foundations, the Anne Ray Charitable Trust and her own Margaret A. Cargill Foundation. But don’t forget, Cargill is a private company, albeit a large one, and that makes the stock rather difficult to value and liquidate. The trust and the foundation sat idly by until a fortuitous moment when Cargill sold its shares in another company, a public company called the Mosaic Company, which gave them the opportunity to exchange private Cargill stock for public stock that could be liquidated to the tidy sum of $6 billion (that process hasn’t quite finished up, but they’re counting it for 2011 anyhow). It’s important to remember these kinds of limitations when it comes to assets in either estate planning or charitable giving. Ms. Cargill’s wealth was essentially locked up in private stock and so, despite the inefficiencies of doing so, that is what she gave when it came time to bequeath and give that wealth away to charity. Luckily, however, Ms. Cargill did her charity work through the powerful intermediaries of charitable trusts and foundations, which were in a position to make such gifts work. At least there’s next year for Paul Allen, George Soros, and Michael Bloomberg, the next three (living) names on the list of millionaire donors, but 2011 belongs to Ms. Cargill.

 Reference: Forbes (February 6, 2012) “This Year's Most Generous Billionaire Philanthropist Has Been Dead Since 2006”

Savvy Givers Give Strategically

It’s hard to comment on the recent outpouring of information about presidential hopeful Mitt Romney and his tax records. First, since he is a potential presidential candidate, there are political ramifications, as he is a wealthy individual there are ideological (if not also political) ramifications, and as he is a Mormon who practices tithing there are theological ramifications. That said, and whatever your opinions on the man are, it’s hard to deny that he is a very real life example of some serious charitable giving at work. As reported by BusinessWeek (and a thousand other places besides), the Romneys gave about $7 Million dollars to charitable causes over the past two years. Interestingly, their giving wasn’t just a matter of simply writing a check (although, granted, a great deal of it was by cash donation). No, the Romneys make use of their own charitable organization. If you, too, are a serious donor, then this may be a worthwhile strategy to consider. As an individual giving to charity you are somewhat limited, especially when it comes to the tax year and claiming deductions. By using a charitable organization as a conduit you can give during a given tax year, take the deduction from your personal taxes, and then, as a leader in the charitable organization, still work to grow that gift and take the time to make it do the most good. Likewise, you can lead others and implore them to your causes. (Think Bill and Melinda Gates Foundation.) Of course, starting a foundation and maintaining it are often difficult tasks, even though they don’t have to work on such a grand scale as the famous examples. As far as tax advantages, a similar benefit can still be wrought from a form of pooled charity trust, set up by a charity or investment company and able to grant you a tax deduction on your gift in the current year while waiting to pool resources and do the most good. Still both approaches are elaborate ways of practicing your charitable giving and either may just be the right method for you. Be sure to consult with appropriate legal and tax counsel to determine the appropriate method for your objectives.

Reference: BusinessWeek (January 24, 2012) “Romney Tax Returns Show $7 Million in Donations Over 2 Years

Charitable Giving – A Family Affair

Financial skill is far from an inherited ability: it is learned. So, too, with charity. The drive to give (and the know-how to do so well) is often taught rather than genetic. A novel idea, then, is to begin the family charity tradition. During the recent holiday season, an article in Reuters addressed this matter. When it comes to charity, to include beginning a family charity tradition, there should be no “seasonal” limitation. In other words, there is no time like the present. Giving to charity, whether in modest gifts or in larger ones, can be a family activity and a lesson to your children with just a bit of foresight. For example, let your children choose where to give and, perhaps, teach them why you give as you do. Just as important as why you give, consider teaching your children “how” to give. How do you give efficiently or to effect the greatest gain? How do you understand the financial decisions that go into process in the first place? Of course, it’s bound to be a learning experience for you, too, and you might find that it’s a difficult one. For a bit of advice, check out the original article.

Reference: Reuters (December 23, 2011) “How to create a family charity tradition”

Charitable Giving – A Family Affair

Financial skill is far from an inherited ability: it is learned. So, too, with charity. The drive to give (and the know-how to do so well) is often taught rather than genetic. A novel idea, then, is to begin the family charity tradition. During the recent holiday season, an article in Reuters addressed this matter. When it comes to charity, to include beginning a family charity tradition, there should be no “seasonal” limitation. In other words, there is no time like the present. Giving to charity, whether in modest gifts or in larger ones, can be a family activity and a lesson to your children with just a bit of foresight. For example, let your children choose where to give and, perhaps, teach them why you give as you do. Just as important as why you give, consider teaching your children “how” to give. How do you give efficiently or to effect the greatest gain? How do you understand the financial decisions that go into process in the first place? Of course, it’s bound to be a learning experience for you, too, and you might find that it’s a difficult one. For a bit of advice, check out the original article.

Reference: Reuters (December 23, 2011) “How to create a family charity tradition”

Donor-Advised Funds For The Savvy Philanthropist

There has been a lot of interest this year in “donor-advised funds (DAF),” as a savvy tool for charitable giving. As we head further into the season of giving (and, with it, year-end tax planning), and 2012 thereafter, it might be a perfect time to consider establishing your own DAF. As a recent Reuter’s article asked, “do donor-advised funds make sense?” They certainly do from a tax standpoint, as you receive a charitable deduction upon giving to the fund, just as you would for giving directly. You then gain the ability to “advise” the fund, along with the other investors, toward worthy charities as you discover them. The final say comes down to the fund directors themselves, and the other investors may have opinions that vary from your own. It does mean that you can give large amounts of money to charity without already having formulated a specific and exhaustive plan regarding to whom and how much you wish to give. That said, with some DAFs, there may be other detractions, like the administrative costs. After all, these funds are overseen by the major money-management companies and they will charge fees for the service, usually in relation to the amount of your gift. As the thought goes, being charged for a money-manager to make more money for you is one thing, but to be charged from the money that was to go to a good cause might just be something else entirely. There certainly are those would be philanthropists who don’t like the practice for this reason. Local “community foundations” are an excellent alternative to the DAFs managed by the for-profit major money management companies. Their fees typically are much lower and the local community itself benefits by being, well, local. As with anything financial, it is best to do your own due diligence before proceeding. For more reading you can check out the New York Times article from a little while ago written by a Boston College Professor, Ray Madoff: “Tax Write-Off Now, Charity Later”

Reference: Reuters (December 5, 2011) “Charitable Giving:  Do Donor-Advised Funds Make Sense?”

Charitable Giving Expectations

‘Tis the Season of giving. However, before you begin making serious contributions to a charity, it’s important to consider your expectations of the charity itself. If you don’t know already them, now’s the time to figure them out. A recent Wall Street Journal article reviews the problem many donors face when evaluating their charities. For example, do you expect business-like efficiency from a charity? Many people do. And, it makes sense, too. You are donating your money to see some good done and want to know the good that comes from your gift. Right? Where’s the return on investment? However, some charities don’t operate that way, and others simply can’t. Some donors actually worry that any charity so focused on deliverables and business-like efficiency will simply get in the way of its charitable purpose. Do you know where your thoughts lie? It’s an important debate for philanthropists, large and small. The Wall Street Journal article considers both perspectives. In the end, it’s an important matter for you to resolve regarding your own giving decisions. Knowing your expectations will help you choose wisely and ensure that you are happy with your donation.

Reference: The Wall Street Journal (November 28, 2011) “Should Philanthropies Operate Like Businesses?”

Checking Out Charities

Giving charitably can be a tough thing. You want to make sure your money goes as far as it can. A lot of donors choose smaller charities with less overhead to help ensure their money is used as intended and to the fullest extent. However, if you’re thinking small, it’s worth ‘digging deeper’, and not just into your pockets. No, dig deep into the charity and make sure it is as you want it to be. The good thing about a large charity is that it’s fairly well established. For example, it has the power to complete its goals and likely it has a history that is readily examinable. The reason not to give to a big charity is that your money also will go towards funding all the bureaucracy and red-tape that have made the charity big in the first place. This can mean few dollars actually advance the charitable cause. Conversely, smaller charities can be more efficient, but may lack those same assurances, unless you’ve done your research. Depending on your charity of choice, the local history might indicate the effectiveness of the charity. As to its value, you always can check its progress against its mission statement. What are they trying to accomplish? Do they know? How do they do so? In addition, don’t be too bashful to ask “who’s in charge” and what they do with the donations? To help guide you through the process, try various services like the Charity Navigator ratings system, or GuideStar to determine how charities use their funds. In the end, giving to a smaller charity may be that much more rewarding, and with all your research you might end up giving your time, too. Indeed, work first-hand can be a good way of learning and for giving back as well. Heading into the Holiday season, with Thanksgiving at our doorstep and carolers not far behind, it’s as good a time as any to start your research and your charitable donations.

Reference: The Wall Street Journal (October 30, 2011) “Dig Deeper When Checking Out Smaller Charities”

Charities Hoping for an Uptick in Giving

Have we bounced back from the Great Recession or are we still languishing (and due for another fall backwards)? This is a hot topic in political and economic circles, let alone around kitchen tables. It’s also a question of importance in the world of philanthropy. As the Chronicle of Philanthropy reports, America’s biggest charities are expecting modest growth in 2011, but face challenges in rebounding from the 2008 tumble. One way the Chronicle charts the world of charitable giving is through the Philanthropy 400, tracking the largest 400 charities. Think of it as the Forbes 400 of charities. Out of these 400, the expectation is that charities will see a modest median rise of 4.7% by the end of 2011. That is good news because this will be a net rise over 2010 growth, when charities were able to gather up an additional median gain of 3.5%. Nevertheless, those charities are still below 2007 levels and much of the gains have been in the form of donated medicine, food, and services rather than monetary funds. The Chronicle counts the 400 as a barometer of the charitable world. As such, it is a reminder of the many needs out there. The article also charts some patterns in charities of interest to the savvy philanthropist. There is a bit of promising news for the charitably inclined, too, as headway has been made on the worldwide malaria problem, with charitable organizations at the forefront of vaccine development. However, these charities need more funding to eradicate the disease.

Reference: The Chronicle of Philanthropy (October 16, 2011) “America’s Top Fund-Raising Groups Face Big Struggles”

The Joys Of Giving (Privately Or Publically?)

The recent passing of Steve Jobs has, for many admirers, raised anew the question of anonymous giving: is it better to give without taking credit? As a recent Reuter’s article points out, whether for Jobs or for the average donor, there are some important considerations to bear in mind. Jobs was famous for a great many accomplishments, not the least of which was being a self-made entrepreneur who transformed a garage-sized company into a titanic icon. As a result, he was a powerful force in business and popular culture alike. He also is famous for not being a charitable giver, quite unlike his Microsoft foil, Bill Gates. However, that raises the very real possibility that he did give to charity, perhaps in death, if not also in life… but he did so in secret. Indeed, it wouldn’t have been terribly hard, especially for one who has proven himself to be a private person. But why would Jobs (or you) elect to give anonymously? There are multiple sentiments supporting “quiet” giving. Whether you are bashful and wish to avoid undue accolades, or you simply want to avoid further solicitation, privacy is of considerable importance to many donors. Another basis supporting anonymous giving is religious tradition, as evident in traditions as disparate as Judaism and Buddhism. In the end, giving without recognition and fanfare holds an undeniably powerful pull and is the right choice for many. Nevertheless, there remains at least one consideration favoring the public giver, as pointed out in the article. Although giving privately provides an opportunity to do good in the world, giving publicly provides an opportunity for others to witness good being done in the world. In short, it provides a generous role model to the world. Either way, private or public, it’s clear that thinking about how to give can be as important as thinking about to whom. Whether Jobs gave privately is his own business. If he gave privately it’s because he wanted it that way. The question remains, however, how do you want to give?

Reference: Reuters (October 10, 2011) “Steve Jobs and Giving Anonymously”

CRTs – More Benefits Of Giving And Receiving

Sometimes, giving an asset to charity doesn’t mean you can no longer enjoy benefits from it. Yes, it’s true. And, the magical legal tool that affords this wonder is the “Charitable Remainder Trust (CRT).” Recently, Reuters cast another spotlight on this powerful tool with an eye to the future. A CRT, as many of you may be aware, is a specific type of irrevocable trust set up to give an asset away to charity at the time of death, but to allow you to receive income from the asset for your lifetime, another’s lifetime or even a period of years. The CRT allows you to do good, receive an income, and avoid some hefty taxes. As Reuter’s puts it: “In essence, the trust takes advantage of the tax-exempt status of the nonprofit it benefits.” The important thing about the CRT these days, at least as far as taxes are concerned, is the future. The returns on a CRT are similar to any investment in accordance with the market. And, with the market as it is, that’s not great. It follows then that the tax reduction might not be that great either. But many taxpayers are concerned about increased taxation in the future. President Obama already has called for further taxation with the new idea of the so-called Buffet Rule, not to mention the closing of Bush-era tax cuts and stricter estate taxes. For as many in Congress as are calling for tax reduction there are those calling for tax increases… and the super-committee might be turning the latter direction. If the Bush-era tax cuts expire, and in particular if the capital gains tax rises back up to 24% instead of 15%, the CRT will be quite the advantageous machine. In the end, a CRT is an irrevocable trust. It can’t be undone once it is created. More background and insights can be gleaned in the original article. Whether a CRT is right for you and your circumstances will require competent legal counsel. As always, look before you leap.

Reference: Reuters (Sepetember 30, 2011) “Charitable remainder trusts: how the wealthy give it away and get it back”

Charitable Giving Statistics – The Million Dollar List

In addition to a spirit of charity, information about the object of such giving is essential. A gift can have greater impact when it is intentionally given to effect an outcome. Interestingly, The Center on Philanthropy at Indiana University recently released the Million Dollar List, an interesting tool for empowering the philanthropist and the nosy alike. This list is a compilation of all available information on publicly-announced gifts of $1 million or more. It is further organized by several metrics and into various charts. The list enables searches by state, organization type, and even individual donors. Browsing through the list you can see hard data on what fields are underrepresented and which ones are overrepresented, as well as geographical patterns. As a result, you can even take cues from some rather famous philanthropists. Not surprisingly, Warren Buffet and the Gates family top the list, but that doesn’t mean that there aren’t some interesting statistics. For example, 70% of all reported gifts are made by individuals (rather than by corporations), some 6,780 of the gifts were made by individuals who made just one gift at or above $1 million. Those individual donors make up only 11% of the gifts, but make up nearly 40% of the dollar amount. Go ahead and play around with the list tools for yourself. While you are at it, Forbes has an article with some more insights. It’s nice to see gifts working in black and white, and to get a better appreciation for how charity works on such a large scale.

Reference: Forbes (October 5, 2011) “Look Who’s Making (And Receiving) $1 Million-Plus Gifts”

GIVING AND RECEIVING: THE CHARITABLE GIFT ANNUITY

Remember the good old days, you know, when you could invest in a certificate of deposit (CD) and the bank would actually pay you something called “interest” on your deposit? No, really, I kid you not. Obviously, I am being a bit factitious, but you get the point. It is hard enough to make money these days, let alone accumulate wealth. Let’s say you are retired and are looking for a place to put your money to work. And, you need more of a return on that money than the banks are paying on their CDs. Also, you are intending to leave a bequest from your estate to support your favorite charity. Here is a win-win idea to consider, especially if you are charitably-inclined – invest in a charitable gift annuity. Recently, none other than The Wall Street Journal ran an article on this very subject, entitled “Earning income by Making a Gift.” Here is how it works: Give the money to your favorite charity… instead of to your favorite bank. However, you may “give and receive” when you make the gift to charity in exchange for a charitable gift annuity. Ultimately, you’ll be giving what remains of that charitable gift to the charity at the time of your death. However, in the interim, you’ll receive a fixed and predictable stream of income over your lifetime. The most important detail is that the “annuity rate” is determined by your age, rather than national interest rates. That means a couple at age 65 would receive around a 4.7% yield and a couple at age 75 would get 5.7% (individuals at age 65 and 75, respectively, would receive even higher yields at 5.3% and 6.5%). Further, the money is tax friendly. The yield is largely tax-free and the initial chartable donation offers a sizable upfront tax deduction. Some savvy life insurance planning can even replace the value of the asset contributed to the annuity for your loved ones. How? With the increased return on your money via the charitable gift annuity, you may find enough left over to pay the life insurance premiums. A charitable gift annuity can help you support yourself, provide for your heirs (via the life insurance “wealth replacement”), and your favorite charity, all in one fell swoop. Nevertheless, it can be a little tricky. Ensure that your charity can support a charitable gift annuity. Not all can. Look before you leap is good advice here. Check out The American Council on Gift Annuities website (acga-web.org.), but remember two important caveats. First: a charitable gift annuity locks you into that rate for your lifetime. So, what is competitive now may not be should national interest rates rise and the yield will no longer be as competitive. Some regard this as unlikely, especially in the short term (i.e., Ben Bernanke, Chairman of the Federal Reserve Bank has said interest rates will be suppressed for another two years). Second: if the charity itself could suffer economic hardship and thereby be unable to meet their annuity obligations and cease payments. This is a real possibility. Charitable gift annuities are not backed by the government like CDs. Clearly, then, if a charitable gift annuity is right for you, then it will take some research and proper planning to pull off well.

Reference: The Wall Street Journal (September 17, 2011) “Earning income by Making a Gift”

CHARITABLE GIVING – THE BATTLE BETWEEN PRIVATE CHARITY AND GOVERNMENT CHARITY

There’s a lot of commotion surrounding President Obama’s jobs bill, and for good reason, but not all of it is positive. Small businesses, for one, are lukewarm since their concern is less for tax-breaks and more for actual revenues. But the biggest detractors so far may just be charities and those that give to them: the bill proposes eliminating some of the deductions for charitable giving amongst high earners. The jobs bill comes out to a $447 billion price tag, and much of it would be paid for by limiting the tax deductions for charitable giving amongst top earners making $200,000 a year or more. Currently, these earners can deduct 35 cents on the dollar, but if the bill passes as written that rate would drop to 28 cents. In fairness, this simply equalizes things so that top earners have the same deductions as lesser earners, but in the end it also effectively limits total donations to charity and makes a favored practice of many top earners that much more difficult. Indeed, the amount of money in question, 7 cents for every dollar, adds up to the staggering amount of $467 billion over 10 years, according to White House estimates. If you give to charities of your own selection, then this will be an important development to follow for the sake of your charities of choice and to anticipate your upcoming tax liabilities. Learn more about giving to charitable causes on the Charitable Planning Practice Center on our website. While you’re there, be sure to sign up for our free monthly estate planning e-newsletter, too.

Reference: The Wall Street Journal (Spetember 13, 2011) “Why Obama’s Jobs Bill Could Be Bad For Charity”

CHARITABLE GIVING / QCD’S

You may have read about Qualified Charitable Distributions (QCDs) that can be made directly from your IRA. QCDs have gotten a lot of press this year as a tax-savvy strategy to support your favorite charity -- an opportunity that will expire at the end of this year unless Congress acts (and we’ve all seen how swiftly they act) to lock in the benefit. If you have reached age 70-½ you have to begin taking required minimum distributions from your qualified retirement accounts. Some people don’t really want – or need – these taxable distributions. Well, you can’t get around taking them (thus the name “required minimum distributions”), but if you are charitably-inclined, you can get around paying the tax. Your QCD can satisfy your distribution requirement, but there is no tax if the distribution is made directly to an IRS-approved charity. The gift also works to help reduce the size of your taxable estate. There are a few important caveats. As outlined in a recent Smart Money article, your QCD must meet all of the following tax-law requirements: 1. It must be distributed from your retirement account, and you must be at least age 70-1/2 to use this strategy. 2. The distribution must be made directly by the IRA trustee to the IRS-approved charity. If the distribution check is made out to you personally, it will not qualify. 3. You cannot receive any benefits that would be subtracted from the donation – it must meet the normal tax-law requirements for a 100 percent deductible donation. This means you can’t receive anything in return for your donation, such as tickets to events, etc. 4. Your distribution must be otherwise taxable. 5. There is a $100,000 limit on total QCDs for any individual. If you are married and both you and your spouse have IRAs, then each of you is entitled to a separate $100,000 limit, for a combined total of $200,000. Once again, the current tax laws that allow for QCD’s are only guaranteed until the end of this year. If this is a strategy that appeals to you, be sure to get qualified professional advice before making any gift of retirement assets.

Reference: SmartMoney (July 20, 2011) “Making Charitable Donations from Your IRA”

ESTATE PLANNING / GRATs

July offers a GRAT opportunity to make some strategic estate planning moves. The IRS just published the applicable federal rates (AFR) for July: • Section 7520 Interest Rate: 2.4% • Applicable Federal Mid-term, Annual Rate: 2.0% These rates continue to slide, and are set now at historical lows. These low rates make certain estate planning opportunities much more attractive, to include: • loans to family members • installment sales to grantor trusts • grantor retained annuity trusts (GRATs) and • charitable lead annuity trusts (CLATs). A recent article in Forbes focuses primarily on the GRAT opportunity for savvy planners. As Forbes writes, GRATs are particularly attractive now, with low AFRs, under-valued assets (particularly real estate) and the ability to create a GRAT with a term as short as three years. Here’s why the low rates make GRATs such a good deal. The idea with a GRAT is to transfer an appreciating asset into a trust for a set number of years, say three years. After the three years, any appreciation over the applicable federal rate goes to your heirs, free of estate and gift tax. So, if you own rapidly appreciating assets, particularly if they are currently under-valued, and you anticipate the three-year appreciation to exceed the low AFR, then this strategy could result in some GRAT tax savings.

Reference: Forbes (June 28, 2011) “A GRAT Opportunity: Taking Advantage of Low July 2011 AFRs”

TAX PLANNING / CHARITABLE DONATIONS

Giving to charity can be a very noble thing and to many of us it comes quite naturally, unfortunately it’s also rather easy to give incorrectly, at least as far as taxes are concerned. To prevent a simple but all too common mistake, the Wall Street Journal offers a mantra: “Get the letter. Get the letter. Get the letter.” If you are making a donation of more than $250, the charity must properly acknowledge your donation before the IRS will, and that means a letter. Indeed, the IRS is surprisingly literal about this and refuses to bend or accept other means of proof, even when people go out of their way to offer alternatives. You must have a letter written by the charity that clearly delineates the amount of the donation. Further, the letter also must affirm that no goods or services were rendered or, if there was an exchange, the letter must itemize and deduct the cost of those goods and services from the overall donation. When comes to any tax deduction, charitable or otherwise, remember the IRS likes to have hard answers and cold facts. Laura Peebles, a director at Deloitte Tax in Washington summed it up for the WSJ, “If you don't have the correct paperwork, there's no way to fix the problem.”

Reference: The Wall Street Journal Online (June 11, 2011) “One Easy Way To Lose That Charitable Deduction”

SMALL BUSINESS / BUSINESS AUTO TAX BREAK

You might be surprised to learn that the new tax law actually rewards business owners for purchasing large, gas-guzzling vehicles for business use. Surprised? Me, too. But, according to a recent article in the Wall Street Journal, that is the case. If you are a small business owner who uses a vehicle in your business – especially a large one – you should take note of this new tax break. The new rules apply to vehicles purchased after Sept. 8, 2010 and before January 1, 2012. So, if you’re in the market to purchase a vehicle for your business, you’ll want to crunch some tax numbers first. Here are some tips to consider: • Business Use. Remember, unless the vehicle is used 100% for business, expenses are not fully deductible. The IRS is quick to question claims of 100% business use of a car. • Depreciation deductions. This year Congress is running a large “bonus depreciation” on cars weighing more than 6,000 pounds, such as the Cadillac Escalade and Nissan Armada. Taxpayers may deduct 100% of the car’s cost in the first year – subject to the personal use disallowance, of course. Additionally, if this deduction creates a loss, the loss may be carried back to generate a refund. The new law also gives greater depreciation deductions in years two through six for cars costing more than $30,625. • Tax Breaks for Fuel-Efficient Cars. There are still substantial tax breaks for purchasing a fuel-efficient car. Let’s not forget that all taxpayers (not just business owners) are eligible for a dollar-for-dollar tax credit up to $7,500 for “plug-in electric motor vehicles” like the Chevy Volt. If you are a business owner planning to purchase one of these vehicles, experts say you should take this credit first, and then figure depreciation based on the remaining purchase price. As always, don’t let the “tax tail wag the dog,” when it comes to purchasing a car for your business. Consider your true business needs, costs, and then consult with qualified counsel to help you crunch the tax numbers. If a small, inexpensive, fuel-efficient car is what you really need, then purchasing something larger and more expensive just for the tax advantage probably will not make sense. However, if you need a heavier, more expensive vehicle to accomplish your business goals, then you won’t want to miss out on the tax breaks. Link: http://online.wsj.com/article/SB10001424052748704681904576319301584731990.html?mod=WSJ_Taxes_Taxes_2 From The Wall Street Journal Online (May 14, 2011) “The New Tax Breaks for Business Autos

ESTATE PLANNING / CHARITABLE GIVING

The idea of giving to charity would seem to be a simple, but the simple methods aren’t always the best ones. Sometimes a bit of financial finesse can go a long way, helping both your charity of choice and your own finances. I refer to that as “doing well by doing good.” If you want to be a tax-savvy philanthropist, consider using a time-honored strategy known as a “charitable remainder trust” (CRT). The Times-Herald Record recently offered a crash course in their article, “Protecting Your Future: Trust option for leaving assets to charity.” A CRT allows you to give assets to charity in a tax-savvy manner that may even provide an income stream that helps both you and your charity. When the CRT is established, the assets you’ve chosen to donate are transferred to the trust. The charity you’ve chosen is the trustee, and manages the assets. They may pay you and/or your beneficiaries a portion of the income generated by the trust either for a certain number of years, or your entire life. At the end of the term, depending on the type of payout you’ve chosen, the charity receives the remainder of the principal in the trust. This strategy works best when the underlying assets are highly appreciated, and by donating them to charity you can avoid a significant capital gains tax. Of course, your family members may not be too happy to see those assets going to charity – so you may want to consider replacing their value for your heirs with life insurance. You can learn more about charitable trusts in the Charitable Planning Practice Center on our website, and in the September 2010 issue of our estate planning newsletters, “Charitable Opportunities.” Link: http://www.recordonline.com/apps/pbcs.dll/article?AID=/20110508/BIZ/105080322 From Recordonline.com of the Times Herald-Record (May 8, 2011) “Trust Options for Leaving Assets to Charity”

ESTATE PLANNING / CHARITABLE GIVING

According to some barometers, there has been a recent surge in charitable giving over these, the first few months of 2011. Apparently, a good number of people have figured out that now is a good time to give. As a recent article on InvestmentNews.com reports, “The Vanguard Charitable Endowment Program, the nation's second-largest, collected about $129 million during the first quarter, a 60% in- crease over the same period a year earlier. Donations out of the $4.8 billion fund totaled $87 million, a 31.2% increase from $66 million.” Why the sudden increase? The new tax deal reached in December makes 2011 and 2012 particularly attractive years for charitable giving. Conditions are ripe for estate reduction, and charitable giving is one of the best forms of estate reduction. There is something counter-intuitive to this giving season, though. If estate reduction is the motivation for charitable giving, and if you should be swayed into practicing it yourself, why is it important to do so now, with the estate tax exemption at an historic high ($5 million) and the rates at generous lows? You just cannot forget the fact that these conditions are temporary, and set to expire at the end of 2012. President Obama, speaking for most liberals, has already voiced his plans on lowering the Gift and Estate tax exemptions far below their current generous rates as well as increasing taxes on the wealthiest Americans. And with the recent (and long-overdue) focus on debt-reduction, wealth transfer taxes are quite likely to experience a resurgence of popularity in Congress. Experts are recommending that wealthy individuals and families make the most of the existing philanthropy-friendly tax provisions before they disappear. You can learn more about charitable giving in the Charitable Planning Practice Center on our website, and in the October issue of our e-newsletter, Charitable Opportunities.

Link: http://www.investmentnews.com/article/20110417/REG/304179975

 From InvestmentNews.com (April 17, 2011) “How tax changes are boosting gift fund donations”