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.
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.
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).
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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