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  • vitorcunha

    Corliss Law Group Estate Planning Law Corporation: Giving to Charity? Watch Out for These Tax Traps

    4 years agoReply
    To give is divine. To err while giving is human.

    For many donors eager to nail down tax deductions, contributing to charity can be as simple as writing a check. But tax laws often can be surprisingly tricky. While there are many tax-smart ways to donate, it can also be easy to make costly mistakes.

    The mistakes run the gamut. Many thorny problems, for instance, stem from uncertainty over how to value gifts. Other donors stumble because they don't pay attention to the fine print on such long-cherished techniques as giving stock to charity. And still others trip over paperwork issues, such as getting proper acknowledgment for gifts on a timely basis.

    Many generous donors "have learned their lessons the hard and expensive way," says Victoria Bjorklund, a charitable-giving consultant and a retired partner at the law firm Simpson Thacher & Bartlett LLP.

    How can donors avoid these traps? It may help to keep in mind the following (seemingly) simple ideas—as well as a few common errors to avoid:

    Give Away Your Winners
    This is an especially good year to consider giving securities that are worth far more than you paid for them. Stock prices this year have surged, and 2013 brought higher taxes for many investors.

    This "could be a great strategy," says Justin T. Miller, national wealth strategist at BNY Mellon Wealth Management's office in San Francisco.

    In a typical case, you give a qualified charity shares of publicly traded stock that have risen sharply in value and that you have owned for more than one year. You deduct the fair market value of the stock—and you don't owe a capital-gains tax.

    If you donate appreciated stock you've held for a year or less (considered "short term" gains), you generally can deduct only your cost "basis"—that is, your cost for tax purposes—not market value.

    Don't make the mistake of donating securities that are worth less than your tax cost. Instead, sell those losers, donate the proceeds to your favorite charity and use your capital losses to trim your taxes. Capital losses can offset capital gains on a dollar-for-dollar basis.

    If losses exceed gains, deduct net capital losses of as much as $3,000 a year—$1,500 if married and filing separately from your spouse—from wages and other ordinary income. Carry over additional losses into future years.

    Get It In Writing
    One common error is making a gift of $250 or more and neglecting to get an acknowledgment from the charity saying whether or not you received something in return, such as free tickets. Even if you didn't get anything, make sure the charity says so—and gives you a description of any property you gave.

    If you did get something in return, the acknowledgment typically must include a good-faith estimate of the value. Rules can vary depending on several factors, such as the size and type of your gift. See IRS Publication 526.

    Don't wait to get the receipt until you're audited years later. You need "contemporaneous" receipts, Ms. Bjorklund says. Be sure to get a proper receipt by the date you file your return for the year you make the contribution—or the due date, including extensions, for filing the return—whichever is earlier.

    "The IRS pays a lot of attention to substantiation requirements," says Eileen Donahue, director of planned giving and senior philanthropic adviser at Yale University.

    If you get something in return for a gift, you typically can deduct only the amount of your gift that exceeds the value of that benefit.

    Nail Down Value
    Problems can crop up with valuing donations of a wide variety of noncash items such as shares in a family business, real estate, conservation easements, paintings, antiques and many other items. "It is very easy to make major mistakes," says Carolyn M. Osteen, a consultant to the Ropes & Gray LLP law firm and co-author with Martin Hall, a Ropes & Gray partner, of a book on tax aspects of charitable giving.

    For instance, she says, "many donors make mistakes being overly aggressive on valuations." That can lead to painful and expensive battles with the IRS.

    Other donors stumble because they didn't follow the rules on getting an expert appraisal from a qualified appraiser, Ms. Osteen says. There are strict rules on when you need an appraisal, what must be in it and the qualifications to be an appraiser. (See IRS Publication 561 at

    The rules can be tricky even with donations of some household items. For example, you must include with your return "a qualified appraisal of any single item of clothing or any household item that is not in good used condition or better, that you donated after August 17, 2006, and for which you deduct more than $500," the IRS says in Publication 561.

    The bottom line: If you are making a significant gift requiring an appraisal, consider hiring a reliable tax pro to walk you through the fine print.
  • vitorcunha

    Who Really Needs an Estate Plan? By Corliss Law Group Estate Planning Law Corporation

    4 years agoReply

    The answer and the reasons are not what you probably think, mainly because there is a misconception by many that estate planning is about death, you know transferring property when we die. It does involve that, but it is much, much more.

    A good estate plan helps you to organize your life around the things that are the most important to you. It is about protecting your assets, providing security for your family and helping you to accumulate wealth toward your retirement. It is about providing for your children when they are young and beyond, providing for you and your spouse during health, in retirement and during any years that you may need care. Those are things we all need, even if we don’t yet have a lot of property.

    So the answer to the Question of “Who Really Needs An Estate Plan?” is Everyone!

    Wills. A simple estate plan might involve just a simple Will. A Will is a legal document that tells those you leave behind who you want to take care of your children, who you want to be your conservator if you become unable to take care of yourself and who you want to receive your property on death.

    Probate. In general most people know that Probate is public and expensive, and something to be avoided. Many have the misconception that if they have a Will, they can avoid probate. That is not true. In fact a Will only becomes effective on death and it has to be probated to be effective. So if a will doesn’t avoid probate what does?

    Trusts. A Trust avoids probate so long as it is funded. While a Will is only effective on death, most Trusts are effective when they are set up and funded. They are effective now, not later on death and if properly established can avoid probate, but even Trusts have their problems. One of the biggest mistakes I see with Trusts is that they are often not funded and a trust is only effective for property that is in the Trust.

    The lesson is really that a Trust and the estate plan that it is a part of are not static; they are in fact dynamic and should be monitored annually to make sure that all the property they are to control is in fact placed in them and also to make sure that there has not been any changes in the lives of the Trustors (the ones who set up the trust). Since a good plan aligns with the family needs, goals and objectives, it must be adjusted as the goals and objectives of the family change and as the laws change.

    Trusts are workhorses. They manage not only the property of the Trustors, but they designate who is going to be on your “team” if anything happens to you. For example, statistically if you are a 40 year old male, the risk of a disability of 90 or more days before you turn 65 is 43%.[i] Such disability may also include a loss of capacity, or the ability to make decisions on your own behalf. Having a clear set of instructions in place in the event that happens and having someone to immediately step in and take over until you recover, is very important. A revocable living Trust can do just that.

    Health. An estate plan includes a whole list of documents, some of the most important of which are your health related documents. Where a Trust governs who makes property decisions for you in the event your are unable to do so for yourself, you must have an Advanced Health Care Directive (California) or a medical power of attorney and HIPPA waivers, to appoint a medical agent to direct your treatment and care if you are not able to do so yourself.

    Summary. Those are just some of the basic elements in a foundational estate plan. Beyond the basics there are many more advanced issues involving minimizing transfer and income taxes, charitable planning and gifting, private foundations, family business structures, and assuring that the legacy of your life (including your property, your values, your beliefs, etc.) are preserved and passed on to your chosen heirs.
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