End of the Year Tax Strategy - Charitable Planning

October 30, 2003

Tax season is looming, and the right time to be thinking about reducing your tax burden is NOW. Grumbling about your tax situation when you meet with your accountant in early 2004 won’t change the fact that the government takes a significant portion of your resources. There are several options available to reduce taxes owed, and one underutilized technique is charitable planning.

One popular means to make a gift to charity is with life insurance. In this area, a charity is named as the beneficiary and also assigned irrevocable ownership and control of the policy. An old, paid up and mostly forgotten policy would provide an appreciated gift to a charity. Even a policy on which future premiums are due may be appropriate if you also gift appreciated securities that the charity can sell tax-free to pay the premiums. Alternatively, a charity can apply for a policy on your life, of which the premiums may be paid with appreciated securities. Gifting appreciated securities also provides an added benefit of capital gains tax savings, as the charity sells the securities, not you, and you simply receive the income tax benefits.

Another potential tax savings method is the donation of an automobile, antique, piece of art or valuable item to a charity. This must be coordinated under the guidance of professional counsel however because there are stringent rules for this type of gift. For example, the item must have been held for at least a year and a day, and an appraisal may be necessary.

Charitable Trusts also provide a haven for wealthier taxpayers. Stocks or other assets of appreciated value, such as real estate, put into a Charitable Remainder Trust (CRT) may be sold tax-free, and you may be paid an annuity for a number of pre-determined years. Your gift tax is deductible, and you receive a check monthly or quarterly for yourself, and possibly for your spouse and/or child.

Whenever you make a gift to a charity, it results in a win/win situation. You receive associated tax benefits and the charity receives a financial support that facilitates their continued existence. Now is the time to consider a charitable opportunity if you wish to receive the benefit for tax year 2003. This area of estate planning is often technical, however, so it is strongly recommended that you seek professional guidance while evaluating your options.

Hyman G. Darling, Esquire, is Chairman of Bacon & Wilson Law Firm’s Estate and Planning and Elder Law Department. His expertise includes all areas of estate planning, charitable planning, probate and elder law. He can be reached at 413-781-0560 or hdarling@bacon-wilson.com.

by: Hyman G. Darling, Esq.

Loomis Advantage - The Newsletter of Loomis Communities
Fall 2003