Salt Lake City Estate Planning

Charitable Giving Delayed… Not Denied

This Year's Most Generous Billionaire Philanthropist Has Been Dead Since 2006

It’s pretty impressive to top the Chronicle of Philanthropy’s list of America’s 50 most generous donors, but it just defies the imagination to make the list 5 years after passing away. Still, that’s the story of 2011 and the late Ms. Margaret Cargill.

This fact was swiftly picked up here, in a recent Forbes article, and as it turns out the reason for such successful giving can be traced back to some complicated estate planning and finance work.

Cargill is a name that, depending upon your exposure to agribusiness, is either an utter unknown in the discussion of wealth (the media is infatuated with Mark Zuckerberg these days) or an utter no-brainer. And Cargill is synonymous with massive agribusiness, having topped the list of America’s Largest Private Companies for all but two of the last 24 years. The late Margaret Cargill was heir to the fortune.

At her death, Ms. Cargill left all of her shares of Cargill stock to be split between two charity foundations, the Anne Ray Charitable Trust and her own Margaret A. Cargill Foundation. But don’t forget, Cargill is a private company, albeit a large one, and that makes the stock rather difficult to value and liquidate.

The trust and the foundation sat idly by until a fortuitous moment when Cargill sold its shares in another company, a public company called the Mosaic Company, which gave them the opportunity to exchange private Cargill stock for public stock that could be liquidated to the tidy sum of $6 billion (that process hasn’t quite finished up, but they’re counting it for 2011 anyhow).

It’s important to remember these kinds of limitations when it comes to assets in either estate planning or charitable giving. Ms. Cargill’s wealth was essentially locked up in private stock and so, despite the inefficiencies of doing so, that is what she gave when it came time to bequeath and give that wealth away to charity.

Luckily, however, Ms. Cargill did her charity work through the powerful intermediaries of charitable trusts and foundations, which were in a position to make such gifts work.

At least there’s next year for Paul Allen, George Soros, and Michael Bloomberg, the next three (living) names on the list of millionaire donors, but 2011 belongs to Ms. Cargill.

 Reference: Forbes (February 6, 2012) “This Year's Most Generous Billionaire Philanthropist Has Been Dead Since 2006”

Please visit the Charitable Giving section of our website to see how we can start arranging your charitable gifts today.

 

 

 

Savvy Givers Like Mitt Romney Give Strategically

If you’re wealthy, you set up your own private foundation. You get a deduction now, but you don’t have to give it all away right away. You can do it in a much more leisurely way.

It’s hard to comment on the recent outpouring of information about presidential hopeful Mitt Romney and his tax records.

First, since he is a potential presidential candidate, there are political ramifications, as he is a wealthy individual there are ideological (if not also political) ramifications, and as he is a Mormon who practices tithing there are theological ramifications. That said, and whatever your opinions on the man are, it’s hard to deny that he is a very real life example of some serious charitable giving at work.

As reported by BusinessWeek (and a thousand other places besides), the Romneys gave about $7 Million dollars to charitable causes over the past two years. Interestingly, their giving wasn’t just a matter of simply writing a check (although, granted, a great deal of it was by cash donation). No, the Romneys make use of their own charitable organization. If you, too, are a serious donor, then this may be a worthwhile strategy to consider.

As an individual giving to charity you are somewhat limited, especially when it comes to the tax year and claiming deductions. By using a charitable organization as a conduit you can give during a given tax year, take the deduction from your personal taxes, and then, as a leader in the charitable organization, still work to grow that gift and take the time to make it do the most good. Likewise, you can lead others and implore them to your causes. (Think Bill and Melinda Gates Foundation.)

Of course, starting a foundation and maintaining it are often difficult tasks, even though they don’t have to work on such a grand scale as the famous examples. As far as tax advantages, a similar benefit can still be wrought from a form of pooled charity trust, set up by a charity or investment company and able to grant you a tax deduction on your gift in the current year while waiting to pool resources and do the most good.

Still both approaches are elaborate ways of practicing your charitable giving and either may just be the right method for you. Be sure to consult with appropriate legal and tax counsel to determine the appropriate method for your objectives.

Reference: BusinessWeek (January 24, 2012) “Romney Tax Returns Show $7 Million in Donations Over 2 Years”

Please visit the Charitable Giving section of our website and contact us today to schedule an intial consultation.

 

Charitable Giving – A Family Affair

We have continued and adjusted our family giving rituals over the years, and I have learned a lot about how to do it right.

Financial skill is far from an inherited ability: it is learned. So, too, with charity. The drive to give (and the know-how to do so well) is often taught rather than genetic. A novel idea, then, is to begin the family charity tradition.

During the recent holiday season, an article in Reuters addressed this matter. When it comes to charity, to include beginning a family charity tradition, there should be no “seasonal” limitation. In other words, there is no time like the present.

Giving to charity, whether in modest gifts or in larger ones, can be a family activity and a lesson to your children with just a bit of foresight. For example, let your children choose where to give and, perhaps, teach them why you give as you do.

Just as important as why you give, consider teaching your children “how” to give. How do you give efficiently or to effect the greatest gain? How do you understand the financial decisions that go into process in the first place?

Of course, it’s bound to be a learning experience for you, too, and you might find that it’s a difficult one. For a bit of advice, check out the original article.

Reference: Reuters (December 23, 2011) “How to create a family charity tradition”

 

 

IRS Tips On Charitable Contributions

As individuals and businesses rush to make charitable contributions at this busy time of year, the IRS has issued several tips as reminders of tax law provisions that have taken effect in recent years. 

If you’re considering making last-minute charitable contributions before the end of the year, consider these tips from the IRS:

Charitable Contributions for Certain IRA Owners. If you are over age 70-1/2 and own an IRA, remember you can make a direct transfer tax-free of up to $100,000 per year to an eligible charity. Created in 2006, this provision expires at the end of this year.

Clothing and Household Items. Remember to get a qualified appraisal of clothing and household items if you plan to claim a deduction of more than $500. Household items include furniture, furnishings, electronics, appliances and linens.

Monetary Donations. Be sure you have a bank record or a written communication from the nonprofit that shows the name of the charity, the date and the amount of your contribution. If you want to deduct your donation of $250 or more, you must receive acknowledgment from the charity.

Go online to AdvisorOne for more tips and reminders.

Also, we would be happy to help you plan your year-end charitable gifts, or set you up with a long-term charitable giving plan using a private foundation, donor-advised fund, or other charitable giving structure.  Call, e-mail us, or visit our website pages for charitable giving for more information.

Donor-Advised Funds For The Savvy Philanthropist

Is using a third party a better way to donate your charitable dollars?

There has been a lot of interest this year in “donor-advised funds (DAF),” as a savvy tool for charitable giving. As we head further into the season of giving (and, with it, year-end tax planning), and 2012 thereafter, it might be a perfect time to consider establishing your own DAF.

As a recent Reuter’s article asked, “do donor-advised funds make sense?” They certainly do from a tax standpoint, as you receive a charitable deduction upon giving to the fund, just as you would for giving directly. You then gain the ability to “advise” the fund, along with the other investors, toward worthy charities as you discover them.

The final say comes down to the fund directors themselves, and the other investors may have opinions that vary from your own. It does mean that you can give large amounts of money to charity without already having formulated a specific and exhaustive plan regarding to whom and how much you wish to give.

That said, with some DAFs, there may be other detractions, like the administrative costs. After all, these funds are overseen by the major money-management companies and they will charge fees for the service, usually in relation to the amount of your gift. As the thought goes, being charged for a money-manager to make more money for you is one thing, but to be charged from the money that was to go to a good cause might just be something else entirely. There certainly are those would be philanthropists who don’t like the practice for this reason.

Local “community foundations” are an excellent alternative to the DAFs managed by the for-profit major money management companies. Their fees typically are much lower and the local community itself benefits by being, well, local.

As with anything financial, it is best to do your own due diligence before proceeding. For more reading you can check out the New York Times article from a little while ago written by a Boston College Professor, Ray Madoff: “Tax Write-Off Now, Charity Later”

Reference: Reuters (December 5, 2011) “Charitable Giving:  Do Donor-Advised Funds Make Sense?”

 

 

Charitable Giving Expectations

So what should you expect of your charities? Businesslike efficiency? Or something more intangible, less-easily defined?

‘Tis the Season of giving. However, before you begin making serious contributions to a charity, it’s important to consider your expectations of the charity itself. If you don’t know already them, now’s the time to figure them out.

A recent Wall Street Journal article reviews the problem many donors face when evaluating their charities. For example, do you expect business-like efficiency from a charity? Many people do. And, it makes sense, too.

You are donating your money to see some good done and want to know the good that comes from your gift. Right? Where’s the return on investment? However, some charities don’t operate that way, and others simply can’t.

Some donors actually worry that any charity so focused on deliverables and business-like efficiency will simply get in the way of its charitable purpose.

Do you know where your thoughts lie? It’s an important debate for philanthropists, large and small. The Wall Street Journal article considers both perspectives.

In the end, it’s an important matter for you to resolve regarding your own giving decisions. Knowing your expectations will help you choose wisely and ensure that you are happy with your donation.

Reference: The Wall Street Journal (November 28, 2011) “Should Philanthropies Operate Like Businesses?”

 

Checking Out Charities

"You often just don't know what you're going to end up with if you donate" to smaller charities, says Ken Berger, president and chief executive officer at charity evaluator Charity Navigator. You may not know "whether or not [the charity] is truly well-meaning … and whether [it] is really vetting and thoughtfully finding the greatest need out there."

Giving charitably can be a tough thing. You want to make sure your money goes as far as it can. A lot of donors choose smaller charities with less overhead to help ensure their money is used as intended and to the fullest extent. However, if you’re thinking small, it’s worth ‘digging deeper’, and not just into your pockets. No, dig deep into the charity and make sure it is as you want it to be.

The good thing about a large charity is that it’s fairly well established. For example, it has the power to complete its goals and likely it has a history that is readily examinable. The reason not to give to a big charity is that your money also will go towards funding all the bureaucracy and red-tape that have made the charity big in the first place. This can mean few dollars actually advance the charitable cause.

Conversely, smaller charities can be more efficient, but may lack those same assurances, unless you’ve done your research. Depending on your charity of choice, the local history might indicate the effectiveness of the charity. As to its value, you always can check its progress against its mission statement. What are they trying to accomplish? Do they know? How do they do so?

In addition, don’t be too bashful to ask “who’s in charge” and what they do with the donations? To help guide you through the process, try various services like the Charity Navigator ratings system, or GuideStar to determine how charities use their funds.

In the end, giving to a smaller charity may be that much more rewarding, and with all your research you might end up giving your time, too. Indeed, work first-hand can be a good way of learning and for giving back as well.

Heading into the Holiday season, with Thanksgiving at our doorstep and carolers not far behind, it’s as good a time as any to start your research and your charitable donations.

Reference: The Wall Street Journal (October 30, 2011) “Dig Deeper When Checking Out Smaller Charities”

 

 

Gift Tax In The Crosshairs of Obama's Super Committee

Rumors are circulating that the Super Committee may be planning to cut Gift Tax Exemptions from $5,000,000 to $1,000,000. The really scary part of the rumors is that the change may have an effective date of November 23, 2011.

With the Super Committee in a deadlock over its tremendous task, the rumor mill is alive and well. What do those with their ears to the ground hear coming? It might be that our gift tax exemptions are in the “crosshairs.”

The most recent source of the rumor has come from none other than Peter Reilly at Forbes, who is himself referencing Dean Mead’s blog. In its search for a solution to close the budget gap, the Super Committee might whack our new Gift Tax exemption from $5 million all the way down to $1 million. Not only that, but there is reason to fear that it will have an effective date of November 23, 2011!

That may be the case and maybe it won’t be. After all, the rushed budget deal last December did include a retroactive estate tax law, but it also gave people the choice to use the 2010 law or the retroactive one. Accordingly, we might expect such a concession even if an effective date of November 23, 2011, has been posted.

Nevertheless, this concern over the gift tax exemption has been growing for awhile and it may be a genuine concern after all. Why? The budget must be approved by Congress before Christmas and, as a result, the 2012 exemptions are still very much on the table.

So, even if you’re one who waits for the facts before making your moves, consider making your gifting moves ASAP. If you’ve been putting off some estate planning moves until 2012 (thinking you’d still have that $5 million gift exemption amount), then you might find yourself shut out from those plans. Remember: Tax law rewards the diligent.

Even if you’ve been pretty active in implementing your estate plan this year, you might have done so on the basis of next year. The question to ask yourself, then, is what this might mean to you?

Society at large is in the hands of Congress (and its authority to tax), but it’s not yet clear where they’re taking us.

Reference: Forbes (November 9, 2011) “Reduction in Gift Tax Exclusion May Have A November 23 Effective Date”

 

 

 

Charities Hoping for an Uptick in Giving

America’s big charities expect fund raising to rise in 2011, but the increase won’t come close to making up ground they lost in the downturn.

Have we bounced back from the Great Recession or are we still languishing (and due for another fall backwards)? This is a hot topic in political and economic circles, let alone around kitchen tables. It’s also a question of importance in the world of philanthropy. As the Chronicle of Philanthropy reports, America’s biggest charities are expecting modest growth in 2011, but face challenges in rebounding from the 2008 tumble.

One way the Chronicle charts the world of charitable giving is through the Philanthropy 400, tracking the largest 400 charities. Think of it as the Forbes 400 of charities. Out of these 400, the expectation is that charities will see a modest median rise of 4.7% by the end of 2011.

That is good news because this will be a net rise over 2010 growth, when charities were able to gather up an additional median gain of 3.5%. Nevertheless, those charities are still below 2007 levels and much of the gains have been in the form of donated medicine, food, and services rather than monetary funds.

The Chronicle counts the 400 as a barometer of the charitable world. As such, it is a reminder of the many needs out there. The article also charts some patterns in charities of interest to the savvy philanthropist.

There is a bit of promising news for the charitably inclined, too, as headway has been made on the worldwide malaria problem, with charitable organizations at the forefront of vaccine development. However, these charities need more funding to eradicate the disease. 

Reference: The Chronicle of Philanthropy (October 16, 2011) “America’s Top Fund-Raising Groups Face Big Struggles”

 

Gift Tax Return Gotcha

A new IRS gift tax compliance initiative responds to suspicions of widespread failure to file gift tax returns.

Surprise. It’s a big year for the IRS and they’ve been opening many new fronts in the drive to assert tax law compliance. One of the largest and most unique fronts the IRS has opened has been a far-reaching gift tax audit on real estate transfers. As a recent Forbes article reports, the battle is tough going for the IRS, too.

The IRS estimates that somewhere between 60% and 90% of taxpayers will fail to file a gift tax return, despite having engaged in activity that requires a filing. As a result, it’s clear this is neither a petty problem in the Service’s eyes nor is it merely chump change waiting to be claimed. The problem with enforcing the gift tax has been the inability to catch someone in the act.

Never fear, the IRS has found just the right tool in the form of land records maintained at the state and local levels. Why? These public records allow the IRS to independently track the movement of properties between persons that haven’t shown up in gift tax returns. Family homes are just the sort of thing to pass easily between family members. However, things are rarely that easy when the IRS gets involved and that is just what’s happening now.

The lesson to be learned, regardless whether you have transferred any land in the past, is to be aware and diligent. While there are many ways and means to accomplishing your wealth transfer goals, you have to use the right tools.

Alternatively, those taxpayers who have transferred property without due diligence to the IRS’s gift taxes (and anyone following this story) have a grand development to watch. The IRS needs the states’ compliance to make their plan work and, while this has meant a great deal of cooperation in much of the country, it has met with resistance in California. There the courts have bristled at the IRS’s attempts to demand records. Forbes has a story to tell in the original article and the question remains: Will State courts further mire the IRS’s great gift tax audit effort?

Reference:  Forbes (October 19, 2011) “The New Gift Tax Audits: IRS Identifies Non-Filers Using State Property Records”