It seems like natural disasters are daily occurrences. While reading the newspaper over breakfast, we learn of a wildfire in Arizona. While driving to work, we hear of a drought in Africa and an epidemic in Southeast Asia. A hurricane in North Carolina, a flood in Missouri, a tornado in Oklahoma, an earthquake in California – we feel empathetic for the victims, but often feel powerless to help. We are too far to fill sandbags and not close enough to the victims to lend a helping hand or a shoulder to cry on.

There are countless wonderful charities that provide assistance to stricken communities. The American Red Cross has disaster relief services specifically targeted for the victims of such traumatic events. Doctors Without Borders provides desperately needed medical care to sick children and adults without regard to geopolitical boundaries or ability to pay. Americans are known for their generosity in times of tragedy. There are ways to give while simultaneously saving taxes or providing for your own family. In our own community there is the Vera French Community Mental Health Center that offers invaluable care to those who are trying to deal with life’s tragedies.

Once you have decided that you want to help, the next step is determining the best way to do it. You could give cash outright. While this is the easiest and most common method, for larger donations, this typically is not the best method for the donor.

A simple but effective way to leverage your giving is to give appreciated property. You can get a deduction for the full fair market value of the property. If you were to sell the asset, normally you would pay 15 percent of the gain to the IRS. Let’s say you decide to give a stock you paid $500 for, which is now worth $3,000. If you sold it, you would pay capital gains tax on the gain of $2,500, for $375 in tax. After taxes, you would have $2,625. However, if you contribute the property itself, you get a charitable deduction for the full $3,000. In other words, you get a deduction for the gain on which you never paid taxes.

You can contribute the asset to a Charitable Remainder Trust. With a Charitable Remainder Trust, you contribute property to a trust and you receive a fixed dollar amount or a fixed percentage of the value of the trust each year. At the end of a period, based on your life or that of a family member, or at the end of a term up to 20 years, the property goes to the charity you selected. While this does not provide the charity with an immediate benefit, you get a current income tax deduction for the value of the interest that eventually goes to charity. You can continue to control how the assets are invested. If you contribute appreciated assets, the gain is not immediately taxed to you upon the sale of the asset.

The reverse of a Charitable Remainder Trust is a Charitable Lead Trust. In this arrangement, you contribute assets to a trust that pays an income stream to the charity first and later pays out to you or your family. This is a way to reduce the estate or gift taxes on assets passing to your family.

There are many other ways to benefit charity, too. Once you decide that you want to help out, a qualified estate planning attorney, one whose practice focuses on estate planning, can help you help others by tailoring a plan to maximize your goals and the tax benefits when giving to charity.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Estate planning can seem like a matter of moving assets around and creating financial instruments that allow for their transfer after your death, and of course this is a large and important part of the process Some clients with charitable goals for their legacy feel may the need to do something for those less fortunate or a casue that is important to them or their family.

There are a number of different charitable giving vehicles that your estate planning attorney can explain to you and one of these is the charitable remainder unitrust or CRUT. With the CRUT you appoint a trustee and then select a charitable beneficiary. You must also select a non-charitable beneficiary who will receive income distributions from the trust that must equal at least 5% and no more than 50% of the fair market value of the trust each year. In most cases you as the grantor will choose to assume this role. You can be this incoem beneficiary.

At the end of the term of the trust, which can be for the lifetime of the grantor or any period of time in the trust agreement, the charitable beneficiary will must receive the balance of the trust assets which must be at least 10% of the fair market value of the original contribution into the trust.

From a tax perspective you gain a charitable deduction based on IRS rules, and you also reduce the overall value of your estate by the value of the assets that are placed into the trust. So the charitable remainder unitrust is a win for you from a tax perspective, it can provide you with income for life, and in the end it ultimately benefits the charitable organization of your choosing.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Countless people make charitable contributions each year. Some people give cash. Some people give their old car, others the very shirts off their backs. Some give shares of stock, and others give their time.

The rules vary as to how and whether each type of gift is deductible.

A gift of your time or services, while laudable, is not deductible. However, you can deduct out-of-pocket expenses incurred in a charitable endeavor, if they are: 1) unreimbursed, 2) directly connected with the services, 3) incurred only because of the services you gave, and 4) not personal, living, or family expenses.

If you make a contribution and receive something in return, you can deduct the value of the contribution to the extent it exceeds the fair market value of what you receive in return. For example, if you pay $80 for tickets to the Red Cross charity screening of Star Wars, the tickets would be deductible to the extent they exceed the normal ticket price for movie tickets.

Generally, the deduction for gifts of tangible personal property, such as cars, furniture, paintings, etc., is limited to the lower of your cost basis or the property’s fair market value at the time of the contribution. For example, if you pay $500 for a rare painting and it appreciates to $5,000 and you contribute it to the Kidney Foundation, it is deductible only to the extent of $500.

However, if the gift is related to the charity’s exempt purpose, you can deduct the full fair market value of the item, including your original cost basis and appreciation that would otherwise have been taxed as long term capital gain. For example, if you contributed the same painting to the National Gallery of Art, you could deduct $5,000 rather than the $500 you were allowed for contributing it to the Kidney Foundation.

It is also necessary to keep adequate records to substantiate your deduction. For non-cash contributions under $250, you must keep a receipt from the charity showing: 1) the name of the charity, 2) the date and location of the contribution, and 3) a reasonably detailed description of the property. For non-cash contributions of at least $250 but less than $500, you must get an acknowledgement from the charity that meets the above requirements and 1) is in writing, 2) contains a statement of whether the charity gave you anything in return for the contribution and, if so, its value, and 3) is obtained before the earlier of when your return is due or when you actually file it. If the contribution is over $500 but not over $5,000, you must meet the above requirements, your records must indicate: 1) how you obtained the property, 2) the approximate date you obtained or created the property, and 3) your cost or other basis of the property and whether you’ve held it more or less than one year. If the deduction is over $5,000 you must meet the same requirements above and you must also obtain a qualified written appraisal of the property.

For further information, you may wish to refer to Internal Revenue Service Publications 526 and 561, which may be obtained on their web site at www.irs.gov. This is a complex area. A gift of the same property to different organizations can result in different tax consequences. Improper documentation can jeopardize the deduction altogether. A qualified estate planning attorney can help you maximize the tax benefit of your charitable gifting.

In planning your estate, the best course of action is to seek the assistance of an attorney whose practice is focused in estate planning

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Over the summer Bill Gates and Warren Buffet issued a challenge to the nation’s richest individuals asking them to pledge that they will donate at least half of their fortunes to charity over time. Gates himself has promised to give away almost all of his wealth, and he has already given billions of dollars to the Bill & Melinda Gates Foundation over the last several years. He is certainly walking the walk, and indeed, many people want to make charitable giving a part of their legacies who don’t have the resources to start their own charitable foundations.

A great solution for “the rest of us” is the donor advised fund. With these vehicles you place assets with a donor advised giving program, and they can be housed in a for-profit financial services company, a community fund, or a public charity. Through a single donation into the fund you can make recommendations endowing grants to any number of charities, so efficiency is one of the great appeals of the donor advised fund.

From a tax perspective you can deduct the entire market value of the donation from your income taxes in the year you make the donation, but the grants do not have to be immediately endowed. So you could find that a year-end contribution to charity would behoove you as you were doing your taxes and make a single donation into the fund quickly and easily. In addition, appreciated securities placed into a donor advised fund are not subject to capital gains taxes.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

On December 17, 2010, the President signed into law The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This bill restores the IRA Charitable Rollover for 2010 and permits its use in all of 2011. The act is retroactive to January 1, 2010, so donors who previously made 2010 IRA rollovers will qualify.

The principal rules for direct transfers from an IRA to a qualified public charity are
1. The IRA owner must be 70½ or older

2. The transfer is for no more than $100,000 each year (A 2010 transfer qualifies for the required minimum distribution)

3. It must be to a public charity either outright or for a specific purpose, but may not be to a donor advised fund or supporting organization

4. The transfer is made directly from a custodian or trustee to the charitable organization

A very important potential 2010 benefit exists. Because Congress recognized that it is very late in the year, individuals who choose to make a qualified charitable distribution rollover from their IRA trustee to a charity may make their 2010 charitable gift during 2010 or in January of 2011.

Remember that this distribution is NOT considered a tax deduction.
However, any money transferred to a charity will not be considered taxable income and therefore will not be taxed.

Call us and we can help you with these issues and your IRA and charitable planning.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.