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When Investments Are Depressed, Give it Away!

H Craig Rappaport

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I was having a conversation with a wealthy individual this week and after we were done talking about how much money he had lost in the markets I suggested that perhaps he should give some of what he has left away. He looked at me like I was from outer space.

During periods of difficult markets, it may seem superfluous to speak of giving wealth away, whether planning for beneficiaries, charities or other potential recipients. But this is one of the areas in which difficult markets can help in the process of transfer to a greater effect than in more bullish times.

One aspect of difficult market years is that it provides some relief in that transfers of wealth to younger generations are made much easier. Whether giving wealth away to trusts, charities or other people, a depressed value can help to minimize taxes and other administrative problems associated with building an estate plan.


  •  Gifts of securities held by your broker on your behalf are not considered completed until the position is credited to the donee's account. If the security is held in registered form in the name of the owner, the gift is not completed until the registered owner has formally changed on the corporate books.

  •  Gifts of cash are not considered to have been completed until the check is paid by the bank on which it is drawn, not when the check is given to the donee. A client can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. An individual can give $12,000 per person per year (a married couple can provide separate gifts of $12,000 each for a maximum total of $24,000 in 2008) to an unlimited number of individuals without incurring gift taxes but cannot carry over unused exclusions from one year to the next.

  •  Given that 2008 has been a difficult year for market returns, now may be the right time to consider the rescission of gifts made earlier in the year when their values may have been substantially higher. A rescission is always easier to accomplish during the year in which the gift was given and may now allow for more securities to be gifted than when the prices were higher.

  •  Taxpayers should check with their tax advisors regarding the advantages, disadvantages and process of gift rescission and whether it may be a useful strategy to employ given their tax situation. h Transfer & Gifting

    Direct Charitable Contributions from an IRA

    For taxpayers who are age 70½ or older and who own IRAs (or Roth IRAs), charitable gifts can now be made from their retirement accounts, paid directly by the IRA trustee, achieving important tax savings.

    As part of the Emergency Economy Stabilization Act of 2008, Congress has extended the charitable donation incentives through 2009, limiting the amount allowed to $100,000 per taxpayer from either IRAs or Roth IRAs per year, excluding the amount from distributions to taxable income. A married couple can donate $200,000 per year. If the purpose of the charitable intention is to maximize donations without paying any additional tax, then donations for 2008 must be made by the end of the year. Afterwards, a second donation can be made in 2009. All donations must be paid directly to the charity from your IRA/Roth IRA trustees, who must then provide detailed written substantiation (receipts) to prove the donations were made and are eligible for treatment.

    Also, please note that assets in 403(b) plans, 401(k) plans, pensions and other retirement plans are ineligible for this tax-free treatment.

    Charitable Contributions

    The timing of charitable contributions can have an important impact on year-end tax planning. Charitable contributions should be timed so as to obtain the maximum tax benefits for the year. If a taxpayer plans to make a charitable contribution in 2009, he or she should consider making it this year instead if speeding up the deduction would produce an overall tax savings (e. g. , because the taxpayer will be in a higher marginal tax bracket in 2008 than in 2009).

  •  On the other hand, a taxpayer who expects to be in a higher bracket in 2009 may wish to consider deferring their contributions.

  •  In making any sizeable charitable contributions, the contributions should be made, to whatever extent is possible, in appreciated capital gain property that would result in a long-term capital gain, if sold. That way, a deduction generally is obtained for the full value of the property, such as shares of stock, etc. , while any regular income tax on the appreciation in value is avoided. One caveat to this deduction is that for tangible property this favorable treatment is only available if the donated item is related to the exempt purpose of the donee charity.

  •  An additional consideration is that gifts made with short-term capital assets are limited only to a deduction equal to the purchase price of the asset.

    This is a very emotional time for individuals when it comes to the discussion of money. But if you plan to make gifts to family or charities, it is wise to put emotions aside and let the figures do the talking. With that in mind, make sure you have a professional help with these decisions. Mistakes can be costly.

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