Rabbi Hillel said, “If I am not for myself, who will be for me? But if I am only for myself, who am I? If not now, when?” Unless your clients are planning to spend all their money before they go, or they want to donate their estates to Uncle Sam, estate and charitable planning are critical. In spite of the uncertain and ever-changing tax laws, there are some significant benefits to be obtained by planning now! Below is a handy checklist to use for your reference.
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Donating Appreciated or Depreciated Property
- Consider giving appreciated property to a charity instead of cash. Your client will get a deduction for fair market value, and avoid paying tax on the capital gain.
- Depreciated investment assets should be sold first, and the cash donated to charity. That way your client will get the benefit of the capital loss.
Charitable Donation of IRA-Required Minimum Distribution
- IRA owners can donate their 2011 required minimum distribution, up to $100,000, tax-free. To be eligible, they must be at least 70-1/2 years old, required to take annual distributions, and make the donation directly from the IRA. The distribution income won’t be taxable, nor is the contribution a deductible donation. This strategy can be beneficial if your client would otherwise be making a comparable gift with after-tax dollars. This provision is scheduled to expire after 2011.
Timing of Larger Charitable Gifts
- Consider whether larger charitable contributions should be made in early 2012 instead of 2011 to maximize the tax benefit.
- Year-end charitable contributions can be made using a credit card, but the gift must be processed and charged to the card by December 31 to be deductible on the 2011 tax return. Similarly, checks to charities must be written and postmarked by December 31 for a 2011 deduction.
Charitable Giving As Part of an Overall Estate Plan
- Incorporate charitable contributions within a comprehensive long-term estate plan strategy, taking into account the various tax- and cash flow-efficient ways to structure charitable gifts. With the large disparity between required payouts and current applicable Federal rates, certain charitable giving structures have become more difficult – for example, charitable remainder trusts. Be sure to bring up these vehicles and possible solutions and alternative to your clients.
Develop or Update a Long-Term Estate Plan
- Understand your clients’ goals and the effect of Federal and state (if applicable) estate taxes. Consider working with your clients’ other professionals to build plans that address cash flow, business, and family needs as well as charitable wishes.
- After the client has developed an estate plan, confirm that the assets are properly titled and the beneficiary designations are correct.
I acknowledge Moss Adams LLP for providing much of the content in this article from its Year-End Tax Planning Guide: 2011 (http://www.mossadams.com/mossadams/media/Documents/Publications/Wealth%20Services/WSG111005-Year-End-Tax-Planning-Guide-2011.pdf).
Any tax advice contained in this article, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax-related penalties that may be imposed on the taxpayer under the Internal Revenue Code or applicable state or local tax law of (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.