www.union.plannedgifts.org
BEFORE IT'S TOO LATE... Last Minute Charitable Moves
for 2007
Posted November 2007
The last grains of sand are sifting through the 2007 hourglass but there still is time for last minute charitable moves to save taxes and position yourself for the future. Consider some of these strategies before the remaining days of this year slip away.
Protect Stock Gain: Time to Get Off the Roller Coaster? The market went on a wild ride throughout 2007 with surges that pushed the Dow Jones Industrial Average to record highs and gut-wrenching retreats that shook the confidence of even the most seasoned investors.
Five years of sustained growth have left many investors holding highly appreciated investments but wondering how deep the next dip will go—and how long it will last. If you want to capture the full value of your hard-won appreciation without giving much of it back in capital-gain tax, consider using long-term appreciated securities to fund your charitable giving.
EXAMPLE—Phyllis B has seen the value of her portfolio double in the last five years. The wide swings of 2007 have left her pondering, however, if it is time to lock in her gain on some of her biggest winners.
Phyllis, who is in the 35 percent tax bracket, makes an annual gift of $25,000 to . This year she decides to fund her gift with one particular stock that has increased five-fold in the 20 years she has owned it. She will be able to take a charitable income-tax charitable deduction for the full $25,000 value of the stock and avoid capital-gain tax on the $20,000 appreciation. RESULTS:
| Income-Tax Savings ($25,000 x 35 percent) Capital-Gain Tax Savings ($20,000 x 15 percent) |
$8,750 $3,000 |
| TOTAL SAVINGS | $11,750 |
Convert Low-Yielding Investments to a Source of Income. Creative charitable planning not only can allow you to lock in gain and reduce or eliminate capital-gain tax, it also can allow you to increase your spendable cash flow.
EXAMPLE—Bill T, 70, is retiring at the end of this year. He would like to use the value in some highly appreciated, non-income producing stock investments to supplement his retirement income, but he does not want to pay a large capital-gain tax.
Bill, who is in the 28 percent tax bracket, decides to contribute stock he purchased for $50,000 that is now worth $200,000 to in exchange for a charitable gift annuity that will pay him $13,000 a year for the rest of his life. In addition to the new source of income, Bill will get a substantial income-tax deduction and avoid tax on a significant portion of his gain. Better yet, any gain he does recognize will be spread over the balance of his life expectancy along with a substantial amount of tax-free income. RESULTS:
| ANNUAL INCOME | $13,000 |
| TAX-FREE PORTION | $5,255 |
| CAPITAL-GAIN PORTION | $1,752 |
| INCOME-TAX DEDUCTION | $88,546 |
| TAX SAVINGS ($88,546 x 28 percent) | $24,792 |
Following are representative one-life and two-life charitable gift annuity rates:
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Get a Major Deduction with No Change in Lifestyle. Many friends of intend to leave their homes to us at their deaths. If you are planning such a gift, you may benefit from a planning strategy that will produce a major charitable deduction for you right now.
You give us the right to have your property at your death—known as a remainder interest—and retain the right to live there for the rest of your life. You continue to use, enjoy, and maintain the property just as you always have.
The deduction is based on several factors, the most important of which are the age or ages of the donors and the value of the property.
EXAMPLE—David and Sheila, both 82, want us to have their home, which is worth $500,000, when they are gone. They decide to transfer a remainder interest to us now to generate tax benefits. The gift generates a deduction of more than $251,000 and saves more than $88,000 in their 35 percent tax bracket.
A deduction is available for a gift of a remainder interest in a personal residence or farm. We would welcome the chance to discuss how this strategy might work for you.
Please contact us if we can be of any assistance in this process.