December 4, 2009
Charitable Giving Deadlines for 2009; How to Open a Charitable Giving Account Online
The IRS deadline for including charitable gifts in your 2009 tax return is Thursday, December 31, 2009. Depending on how you plan to make your contribution (by check, stock certificate, etc.), you need to allow enough time for the contribution to be processed, so donít wait another day to get started if you plan to make the contribution deadline for 2009.
For a variety of reasons, you may want to consider using a charitable giving account to make your donations. You can make contributions through a charitable giving account that may be eligible for immediate tax deductions and then either let the money grow as an investment and donate to your favorite charities at a later date, or give to your favorite charities after you make the donation to your charitable giving account.
One of the key advantages to this type of charitable giving is if you own stock that has appreciated in value, you may be able to donate that stock to your favorite charity without incurring capital gains taxes.
One of the largest charitable gift funds is the Fidelity Charitable Gift Fund. For more information on their gift fund, go to the Fidelity Charitable Gift Fund website. Charles Schwab also has the Schwab Charitable Fund. For more information on their fund, go to the Schwab Charitable website. Bank of America has the Bank of America Charitable Gift Fund. For more information on their gift fund, go to the Bank of America Charitable Gift Fund website.
There are many charitable funds from which to choose. Check with your financial advisor for more information on which charitable giving account may be best suited to your situation.
You can open a charitable giving account online and find the information on how to make an immediate contribution. Here are links to open your own charitable giving account with the following companies:
Fidelityís Charitable Gift Fund: Fidelity Charitable Gift Fund website.
Schwab Charitable Fund: Schwab Charitable website.
Bank of America/Merrill Lynch: Bank of America Charitable Gift Fund website.
After your charitable giving account is open, there are a variety of easy ways to make contributions. You can contribute cash (via check, wire or electronic transfer), publicly traded stock, mutual fund shares, publicly traded bonds, and certain other types of assets. After your account is funded, you recommend how the assets should be invested. When you are ready, you make recommendations for grants to your favorite public charities.
Using a charitable giving account is an organized way to keep track of your charitable giving. You can track all your contributions online from one account and receive a single tax form to use with your tax filings. By using a charitable gift fund, you will have a variety of investment options so your donated assets can continue to grow tax deferred until they are granted to your favorite charities.
You can also name a charitable gift fund in your estate plan. Consult your financial advisor or estate planning attorney for more information on how to incorporate a charitable gift fund into your estate plan. Remember the deadline for 2009 and get started today.
For more information on using charitable giving to plan your legacy, visit our Legacy Planning page.
December 30, 2009
The Perfect Opportunity to Update Beneficiary Designations
As this year ends and we begin planning for 2010, we will begin receiving year-end financial statements and invoices for life insurance policy renewals. As we review our IRA and 401K balances, we may also be contemplating changes to retirement account contributions. When year-end account statements arrive, many of us will be calling our financial advisor to discuss investment performance or emailing our accountant with questions about tax returns. While the paperwork is in front of us and we are logging into accounts, this is the perfect time to update beneficiary designations.
As part of your estate plan, you may have intended to leave part of your IRA or 401K to your children or grandchildren. But often in the hurried process of rolling over accounts, transferring assets to a new broker, or changing jobs, the beneficiary designation is left blank. Another common estate planning mistake is leaving old beneficiary designations in place after a marriage, divorce, new child or death. Maybe you named a beneficiary on one account, but forgot to add it on another. With all the account information we have to review anyway this time of year, itís very easy to check beneficiary designations and get them in order.
You should check all of the following types of accounts to make sure you named at least one primary beneficiary and one contingent beneficiary: (1) bank; (2) brokerage; (3) IRA; (4) 401(k), 403(b), and 401(a); (5) annuity; (6) pension; (7) life insurance; and (8) safe deposit box. Often this can be completed online or by printing a beneficiary designation form or transfer-on-death form from your financial institutionís web site. At your bank, you can ask for a pay-on-death form to add your beneficiary designations. If you need help, call your broker, banker or retirement plan administrator.
This is also a great time to get your questions answered about whether you named the right beneficiaries based on your estate planning objectives. Perhaps you named your estate or living trust as beneficiary on some accounts, but arenít sure if this is correct. Maybe you wanted to leave part of your estate to your alma mater, church or favorite charity, but arenít sure about the tax advantages of naming a charity as a beneficiary. You may have questions about the tax ramifications of leaving part of your IRA to your kids. Since you will probably be talking to a tax preparer or financial advisor anyway, use it as an opportunity to get these questions answered.
December 8, 2009
December is a Great Time to Gift Stock to Your Children
There are many reasons to gift stock to your adult children. Perhaps you want to get your son or daughter interested in investing. Maybe you want to help your adult child through some financial difficulties or with a major purchase. You may want to reduce the size of your estate as part of an estate planning strategy to lower your estate taxes and take advantage of your annual gift exclusion amount. In todayís market, it may be you canít stand to look at the stock in your portfolio any longer!
Whatever your reason for wanting to gift stock to your children, December is a perfect time as the end of the tax year approaches. Before you make your benevolent gesture, you should thoroughly research how the gift of stock affects your taxes and those of your child (who is referred to as the donee).
If the stock has increased in value since you bought it, you can give it away without paying capital gains taxes. When the donee receives the stock as a gift, he or she does not pay income taxes or gift taxes on the gift. If any gift taxes are owed, they are owed by the donor, the individual that gives the gift. In 2009, the amount the donor can give to any individual without paying federal gift tax is $13,000 (known as the annual gift tax exclusion). In 2009, a married couple can give up to $26,000 to any individual without owing any federal gift tax. If the child to whom you will be gifting stock is younger than age 14, be aware the kiddie tax may apply to the childís unearned income (dividends, capital gains, interest, etc.) above a certain amount. Before making any gift that may be taxable, be sure to consult your tax advisor. Also, before making any gift, consult your tax advisor to determine whether you will need to file a gift tax return and for information on gift splitting if you are married.
After you decide you want to gift the stock, you must transfer title to the stock to your son or daughter. There are two ways to do this, depending on how you currently hold title to the stock.
If you have a physical stock certificate, you will need to properly endorse the certificate and sign it over to the donee. All registered owners of the stock must endorse the certificate exactly as their name appears on the certificate. (A stock power form may also be used). The ownerís signature must be guaranteed with a medallion signature stamp which should be available from your investment firm, bank or other financial institution. If your child is a minor, you will need to follow special rules applicable to minors owning stock, such as having the stock held by a custodian. Do not sign the stock certificate without assistance from a stockbroker, financial advisor, or banker. It is very important you properly endorse the certificate to ensure the change in title is effective. It is easy to make a mistake when signing a stock certificate, so do it in the presence of a professional that can assist you.
If you hold the stock in your brokerage account and do not have a physical stock certificate, you will need to get your adult son or daughterís brokerage account number, brokerage firm name, and the exact name on their brokerage account. You will need to give this information to your brokerage firm and fill out their form for transferring title to the stock. The brokerage firm can move the stock from your brokerage account to theirs. If your son or daughter does not currently have a brokerage account, they will need to open one so the stock can be transferred. The easiest way to facilitate the transfer is to have their account opened at the same brokerage firm where you hold the stock. If your child is a minor, discuss with your financial advisor how you can open a custodial account to hold the shares for your child. See our page on Gifts to Minors UTMAs for more information.
When you gift the stock, you should give the donee detailed information regarding your purchase of the stock so they can retain it for their tax records. You should provide them your cost basis for the stock, the date you purchased it, the value of the stock on the date of the gift, and your holding period. If you purchased the shares on multiple dates rather than in a lump sum, you should also provide the donee a record of all of dates of purchase, the number of shares purchased on each date, and your cost basis in the shares. In order to avoid giving the gift of a tax return nightmare, itís essential you provide the donee all information necessary for his or her tax filings, including copies of any trade confirmations or other supporting documentation.
The donee will owe tax on the difference between the donorís cost basis and the value of the stock when the donee sells it, including reinvested dividends. Thus, the donee pays the capital gains tax due for appreciation of the stock during the time it was owned by the donor and the donee. For more information on taxes that may be owed by the donee, consult a tax advisor. More information is also available at www.irs.gov.
Also, remember a gift of stock to your child is not tax-deductible. While you may be able to claim a deduction for a gift of stock to a qualified charity in some circumstances, gifts of stock to your children do not qualify for a deduction.
Giving the gift of stock can be a useful part of your estate plan. For more information on effective estate planning strategies, see our Estate Planning Page.
December 13, 2009
Why Should I Write My Last Wishes?
It is extremely difficult for your family and friends to plan funeral services and arrange the final disposition of your remains while they are grieving and coping with your passing, especially if it was sudden or unexpected. If they donít know your preferences on funeral services, a final resting place, etc. and are required to make these decisions within a short time frame, it only adds to their grief.
Despite how easy it is to document your last wishes, few Americans do. Try to bring it up in conversation with your partner, parents or friends, and you will rarely get a straight answer about what they want to happen when the time comes. If you press them, you may be met with suspicion. At the very least, you are likely to be put off.
In fact, it is surprising how many couples spend as many as 40 years or more together, yet never share their last wishes with one another. You may have no idea whether your partner wants to be cremated or buried. Some couples may discuss part of their wishes, but not the full details. For example, a husband may express a preference for cremation, but does not mention where he would like his ashes spread. After his death, his wife, not knowing what to do, keeps the ashes and agonizes for years about where to scatter them.
With parents and children, the communication gap is even greater. Many adult children with senior parents have never heard their parents utter a single word regarding their memorial preferences. Perhaps it is something the parent hasnít thought about or maybe doesnít know how to talk about it. The adult child may be concerned about what to do if placed in the situation of having to bury a parent, but is too uncomfortable to ask the parent his preferences, thinking it inappropriate. After the parent dies, the parentís final wishes are unlikely to be honored because they were never communicated. The child may bear a heavy burden wondering if he let his parent down by making the wrong choices about funeral services, burial, and other final arrangements.
While some individuals make decisions easily, others find it very hard to make such personal and permanent decisions for another person. Unable to make these choices, they may let someone else that was not close to you make the decision for them. This could be someone whose beliefs and views are entirely opposite yours. If you have any preferences about your final resting place and the journey you take to get there, take a few minutes now to write them down. More importantly, tell someone what you want!
To download and print a free Memorial Preferences Planner that allows you to specify all your wishes regarding your final arrangements, visit our Last Wishes page. For a list of best-selling books on how to plan your final arrangements, visit our Funeral Planning Books page.
December 26, 2009
Estate Tax Update
For 2009, the federal estate tax exemption is $3.5 million per individual. If the combined gross assets and prior taxable gifts of an individual dying in 2009 exceed $3.5 million, the federal estate tax rate is 45 percent.
The current estate tax law was passed in 2001 and eliminated the federal estate tax for an individual dying in 2010. Therefore, the federal estate tax rate for estates of those dying in 2010 is currently 0 percent, regardless of size of the estate. While the federal estate tax is scheduled to temporarily disappear in 2010, under the existing law it will reappear in 2011 and will be steep. In 2011, the federal estate tax rate is currently scheduled to be 55 percent on estates of $1 million or more per individual. If the 2011 exemption amount remains unchanged, it will affect many more estates than in the current decade.
However, experts predict changes to the federal estate tax exemption for 2010, 2011, and beyond may be just around the corner. Congress is expected to pass some form of estate tax legislation in early 2010, which could be retroactive to January 1, 2010.
While the outcome of federal estate tax legislation for 2010 and beyond is unclear, an experienced estate planning attorney can still help you develop a strategy. Also, you should evaluate the state estate taxes and/or inheritances taxes that may be applicable to your estate. Depending on the laws of your state, the impact of state taxes on your estate could be significant.
If you are the owner of a small business, itís important to be aware of the federal estate tax exemption amount, especially with changes looming. Some small businesses will exceed the federal estate tax exemption and a hefty estate tax bill could threaten the continuing operation of your business.
With federal estate tax rates in the range of 45 to 55 percent for 2009 and 2011 respectively, if your estate is likely to exceed the exemption amount, you should consult an estate planning attorney or tax advisor to determine how to avoid these high tax rates through proper planning.