By Sheryl Rowling
SAN DIEGO — Remember what 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 you’re planning to spend all your money before you go, or you want to donate your estate 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 your handy checklist! Be sure to consult with your financial advisor and CPA for help.
Donating Appreciated or Depreciated Property
- Consider giving appreciated property to a charity instead of cash. You’ll get a deduction for fair market value, and you’ll avoid paying tax on the capital gain.
- Depreciated investment assets should be sold first, and the cash donated to charity. That way you’ll get the benefit of the capital loss.
Charitable Donation of IRA-Required Minimum Distribution
- You can donate your 2011 required minimum distribution, up to $100,000, tax-free. To be eligible, you 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 to you, nor is the contribution a deductible donation. This strategy can be beneficial if you 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.
- You can make year-end charitable contributions using your credit card, but the gift must be processed and charged to the card by December 31 to be deductible on your 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 your 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. If you’re interested in exploring these vehicles and possible solutions and alternative, be sure to consult your CPA, financial advisor and estate attorney.
Develop or Update a Long-Term Estate Plan
- Understand your goals and the effect of Federal and state (if applicable) estate taxes. Consider working with a CPA and financial advisor in conjunction with your attorney to build a plan that addresses your cash flow, business, and family needs as well as your charitable wishes.
- After you’ve developed an estate plan, confirm that your assets are properly titled and the beneficiary designations are correct.
- Gain an understanding of how changing federal and state estate tax laws will affect you. Legislation passed in late 2010 temporarily reinstated and modified the estate and generation-skipping transfer tax retroactive to the beginning of 2010 and modified the gift tax beginning in 2011:
- Every estate will have an exemption of $5 million per person and a top rate of 35 percent through 2012, including full step-up for all estate assets.
- For 2011 and 2012, there may be opportunities to use a deceased spouse’s unused estate tax exemption.
- Many states have their own estate tax, and in many cases, the exemption amounts are lower than the federal amounts. Don’t overlook gifting and estate planning opportunities as they relate to applicable state inheritance tax.
I acknowledge Moss Adams LLP for providing much of the content in this article from its Year-End Tax Planning Guide: 2011 . You may also visit www.mossadams.com to stay abreast of any late-breaking tax changes that might affect you or your business.
Disclaimer: 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 or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
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Sheryl L. Rowling, CPA/PFS, partner of Moss Adams Wealth Advisors LLC, has been providing tax, financial planning and investment advice since 1979. She may be contacted at sheryl.rowling@sdjewishworld.com