Tuesday, June 17, 2014

Summertime is a good time to refresh gift planning ideas

Charitable Trusts

As interest rates change, certain types of trust gift planning change.
Charitable Remainder Annuity Trusts: These trusts pay an annuity to the donor or another person for a set term, with the remainder going to a charity.  The donor gets an up-front deduction for the value of the charities remainder interest, which is larger when a higher interest rate is used.
Charitable Lead Annuity Trusts:  These trusts pay an annuity to a charity for a set term, with the remainder passing to the donor or someone such as a family member.  The donor gets to claim an up-front deduction for the present value of the charities annuity interest, which decreases as interest rates rise. Grantor-retained annuity trusts, where the person who sets up the trust gets an annuity for a set term are also hurt by higher rates.  Any balance left after the term expires goes to whoever the grantor originally named. Higher rates boost the potential gift tax bill.

Other Gifting Strategies

Do not waste the annual gift tax exclusion of $14,000: 
You can give up to $14,000 each to a child, grandchild or other person free of gift tax and it does not count against your “life-time” exemption.  If you’re married, your spouse also can give $14,000, doubling the tax free amount.
The 2014 “life-time” estate and gift tax exemption is $5,340,000.  You will not owe any gift tax on gifts over $14,000 as long as you do not use up your $5.34M exemption.
Pay a Donee’s tuition or medical costs directly:
The payments made directly to the educational institution or medical facility do not count against the $14,000 annual gift tax exclusion.
Give Appreciated Assets When Donating to Charity:
The appreciation escapes capital gains tax and you get to deduct the full value if you’ve owned the asset for over a year.
Keep Receipts and Records for Personal Property Donations:
Donations of gently used household items, clothing, furniture, etc. can add up to a substantial sum.  Keep a list of the items donated and note the condition of the item (e.g. excellent, good, fair).   An acceptable value for most items donated is 15% to 25% (or more) of the original cost.

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