|By Hembree Brandon|
|Penton Business Media|
Want to keep some of your hard-earned money from going to the tax man when you die, and accomplish some good at the same time?
You can accomplish both goals as a part of your estate planning by making gifts of money or other assets to your church, your alma mater, or your favorite charities.
“There are ways to combine charitable deductions and estate tax exemptions to limit, or in some cases even eliminate, money going to the government,” says
While tax laws can be “really bizarre,” he says, the government actually encourages post-death charitable giving by eliminating restrictions imposed on charitable deductions against income taxes.
There are no limits based on the type of recipient or the type of gift, and there is no need for a five-year carry forward for such gifts.
“The result — basically a limitless charitable deduction,” Hobson says. “The creative combination of the estate tax exemption and the limitless charitable deduction may result in large estates passing to family members and charities totally tax free.”
For example, with the
In 2010, when there was no estate tax, the heirs could have received the entire
One tool that may be used for giving, Hobson says, is the charitable remainder trust, which can give the creator(s) an immediate income tax deduction, shelter assets from capital gains taxation, and pay an income to them for life.
At the death of the creator(s), the remainder of the trust passes to charity.
An example of how such a trust could be used:
If they were to sell the farm for
If they give the farm to a charitable remainder trust, they could save
After the 14-year life expectancy of the two 75-year olds, assuming an average annual appreciation rate of 4 percent and income of 2 percent, at their death there would still be
Caveats to such a trust, Hobson notes, is that it is irrevocable, cannot be amended, and heirs are left out. However, he points out, the additional income generated by the trust would allow the couple to build an estate outside the trust for their heirs, or to buy insurance to provide for heirs. The increased income flow also enables lifetime gift giving.
Retirement savings, such as IRAs, can also be included in estate planning to benefit charity and reduce or eliminate tax liablities,
“Retirement savings held at death are hit with a double whammy: estate tax based on the value at date of death and income tax on assets as they are consumed. Instead, these savings can be an ideal post-death charitable gift.”
An example: Farmer Jones died and left an estate of
With the estate tax exclusion, no tax would be levied on the
If, on the other hand, the beneficiary of the
“Donating an IRA to a charity can also reduce taxes, increase the amount going to heirs, and help a good cause in the process,” Cole says.
Stocks, land, and other assets that have attained a substantial increase in value can also be donated directly to a charity, he notes, thus avoiding capital gains taxes and taking a full deduction of the value of the assets.
“This has potential for significant savings,” he says.
Cole emphasized that IRAs, life insurance, or other assets with beneficiary designations need to be reviewed frequently, and updated as life situations change, in order to insure that they are distributed according to one’s wishes after death.
“This is something you have to be proactive about,” he says.
|Copyright:||© 2012 Penton Media|