Smart
Ways to Give
by Janet Hill
When it comes to your assets, you may be able to hold on to them longer
by giving them away.
Of all the techniques available for maximizing wealth,
giving it away can be the most effective. If that sounds like
an oxymoron, consider that once you've set aside an ample amount
for a comfortable retirement, built your dream house, and helped
your kids get started with their lives, the assets
that remain in your estate in excess of $1,500,000 ($3,000,000
million combined with your spouse) are destined to benefit a single
cause: the IRS. You can name all the charities, friends, and family
in your will that you want, but they will share your generosity
only after federal estate taxes (that can range from 45%
to 70% on certain retirement assets) are paid. No wonder many
Americans choose to initiate a giving strategy during their lifetime. There are
many smart ways to give—and you don't have to be a Rockefeller
or a Kennedy to make them work for you.
Giving Guidelines
Generally speaking, you can give as much as you want
to a public charity or private foundation and receive a tax deduction
for some or all of it. Giving to individuals, however, requires
more restraint. You can give away up to $1,000,000 during your lifetime—the maximum the IRS lets you pass
on tax-free. Plus, you can give away $11,000 a year ($22,000 combined
with your spouse) to any individual free of gift tax. You can
give the money outright, or you can put it in a custodial account,
which is easier and less costly to administer than a trust. There’s
no limit to how much you can give away if you write a check directly
to an educational or medical institution.
However, a successful giving strategy typically involves
more than the simple act of passing out checks.
If you seek to reduce the size of your estate, are currently
saddled with appreciated assets that would trigger a substantial
capital gains tax if you sold them, or if your goal is to transfer
interest in a business or real estate to your heirs and ensure
that they have sufficient funds to pay the estate tax, a giving
strategy can help you achieve your goals. Here are some of the
things you can do:
·
Make a charitable
gift of appreciated assets and create a lifetime stream of income.
If you have a modest gift in mind—the minimum is usually around
$5,000 and something less than $50,000—you can make a gift to
a pooled income fund (sponsored by a charity or an investment
company that allows you to designate the charitable beneficiary)
that will sell the donated shares with no tax liability, then
pay you a fixed income for life, based on the value of your donation.
Because there are no capital gains tax due on the sale of your
assets, the charity receives a larger donation and you have the
opportunity to create more income than if you sold the securities
yourself.
·
If you have a larger
gift in mind, you can establish a charitable remainder trust.
The benefits are the same as with a pooled income fund. However,
there are trust and legal fees that must be paid each year. There
are variations on the charitable remainder trust, but the concept
is the same: you can remove assets from your estate and preserve
some interest in them for your own benefit or the benefit of your
heirs.
·
If giving to your
children and grandchildren is your goal, you can create an irrevocable
trust or trusts to receive a variety of assets (stock options,
real estate, the family business) and use a combination of your
annual gift exclusion limit and your lifetime federal estate and
gift tax exemptions to make your gifts. No matter how much your
gifts grow over your lifetime, the trust assets will pass on estate
tax free to your heirs.
Planning is the Key
No matter whether your giving is charitable or personal
in nature, planning is the key. In fact, it can be the difference
between preserving your wealth for the benefit of future generations
and forcing it onto Uncle Sam. The rule of thumb, of course, is
that the larger your estate the more you'll require expert advice.
However, even a modest estate can benefit when you understand
the smart ways to give.
Janet Hill is a financial consultant practicing in Salt Lake
City, Utah. She offers investment and wealth management services
as a Registered Representative of Commonwealth Financial Network
- a member firm of the NASD/SIPC. She can be reached at janetellen@meridianmagazine.com
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