The Case of the Embarrassed Attorney

Being a member of the legal profession is no guarantee of having an effective, up-to-date estate plan.  Phil and Audrey were married while he was in law school, and their family eventually grew to include two children.  As responsible parents, they each made wills that included guardianship provisions and trusts to protect their youngsters, “just in case the worst should happen.”

Time marched on, and before Phil and Audrey knew it, their daughter was grown, flown and a married woman with a child of her own.  Their son, now 24, was still living at home while attending law school.   He was talking to Phil one day about his trusts and estates class and was curious to examine his dad’s will, “just to see what a real will looks like.”

As his son began to read the old document, a smile crossed his face and he finally asked:  “Gosh, Dad, it says here that after you and Mom are gone, Sis and I have to go to live with Uncle Tom and Aunt Mary.  What’s up with that?!”

Phil laughed and agreed that the guardianship provision was obsolete and had to go.  Phil also resolved to start reviewing his estate plans on an annual basis, to avoid future embarrassment and more serious problems that can happen when wills go out of date.  “What works for me is to review our documents the same day as we file our income tax returns,” Phil observed.  “That way I can get death AND taxes out of the way all on the same day!”

Note:  When changes are needed in your own estate plan, we hope you will consider another helpful change:  adding or augmenting your thoughtful bequest to our future.

 


 

Taking Charitable Giving to the Next Level

Investors who own marketable securities – stocks and bonds – that have gone up in value have a tremendous opportunity to increase their support for worthwhile organizations.  By giving stocks instead of writing a check you can receive a charitable deduction based on the full fair market value of the stocks, not just what you paid for them.  The stocks must have been held long-term (more than one year) in order to deduct the “paper profit.”  For example:

Emily gives $500 a year to an organization, and the gift qualifies her for membership in the “Wonderful Person Club.”  Emily would like to join the “Really Wonderful Person” donor club, which requires a $1,000 contribution. 

Emily happens to own securities worth $1,000 that she bought 15 years ago for only $200.  If Emily sells the stock she will have a capital gain to report of $800 and a capital gains tax to pay of $120 (15% x $800).  So the stock is really worth only $880 to Emily ($1,000 minus the $120 capital gains tax burden). 

But if Emily contributes the stock, her organization will keep the entire $1,000 free of capital gains tax.  And Emily will receive an income tax charitable contribution deduction for the full $1,000, which saves her taxes totaling $280 in her 28% tax bracket.  It is fair to say that her $1,000 gift will actually cost her only $600 ($880 – $280 of taxes saved). 

 



Options in Planning Charitable Bequests

You have many options and strategies when it comes to leaving a legacy from your estate plan.  An outright charitable bequest can be:

  1. A specific dollar amount.

  2. A specified property (specific bequest) – “my blue Chevrolet” (but note that this bequest would fail if the car you own at death is a red Ford).

  3. A particular kind of property (general bequest) – “100 shares of stock in XYZ Corporation.”  The executor could go out and purchase appropriate shares, if necessary.

  4. A percentage of the net value of the estate.

  5. The residue of the estate (whatever is left after fulfilling other bequests) - a percentage of the residue of the estate.

Note that state and federal estate tax charitable deductions are available only for amounts actually passing to charity.  Death taxes and expenses recovered from a charitable bequest will reduce the amount charity receives and the available deduction. 

 



Can Charitable Gifts Benefit Particular Deserving Persons?

As a general rule, a gift to an individual, even if the individual is involved in charitable work, will not qualify as a charitable contribution for tax purposes. As the Tax Court has said, “Charity begins where certainty in beneficiaries ends, for it is the uncertainty of the objects and not the mode of relieving them which forms the essential element of charity.”

The IRS ruled, for example, that a contribution to a church’s scholarship fund would not be deductible if the donor suggests that the church use the funds to pay the college tuition expenses of the minister’s daughter.  It would be treated as a gift to the daughter, not a deductible contribution, said the IRS, citing a ruling that requires that charity have full control of contributed funds.

Are there any exceptions to the above rule?  It appears that the mere expression of a desire that donated property be used for the benefit of one or more designated individuals will not jeopardize the donor’s charitable contribution deduction, so long as the recipient organization has full control over the donated property and discretion as to its use, so as to ensure that the property is used to carry out the organization’s exempt purposes.

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The materials contained on this website are intended only to show some ways by which you can make a charitable gift or bequest and thereby minimize federal tax liabilities, as authorized by the Internal Revenue Code. All examples are of a general nature only and should not be applied to your specific situation without first consulting your attorney or other advisers.