It was four days before Christmas and Marianne was completing her last minute shopping. As she pulled her car into the mall parking lot, she quickly ran a list through her head: video game for grandson, photo frame for Aunt Sue, crystal vase for daughter-in-law. Upon opening the door to her favorite department store, her eyes fell on a beautiful Christmas tree.
The tree towered over the nearby jewelry cases and it shimmered with tinsel. Drawn to the tree, Marianne soon saw construction paper ornaments tied with ribbon that hung from the branches. Each ornament listed the name of a child and a gift request. Marianne paused and then began to remove the colorful decorations. Emily, Matthew, Isabelle, Nathan. Armed with ornaments, Marianne smiled and began to shop.
In addition to purchasing presents for family and friends, many individuals choose to make charitable donations. Gifts made to organizations that qualify as 501(c)(3) not-for-profit public charities are eligible for income tax deductions. Charitable contributions made in 2015 may be eligible as an income tax deduction so long as there is substantiating documentation. All cash contributions must be substantiated with either a copy of the taxpayer’s bank record reflecting the donation or there must be a written communication from the charity stating the charity’s name, date of contribution, and amount of contribution. Non-cash contributions must be substantiated with a receipt or with written communication, as described above, from the charity.
For those persons with taxable estates (estates over $5.43 million in 2015), some gifts to individuals may have estate tax saving incentives. For example, a taxpayer is permitted an annual gift tax exclusion amount of $14,000 per individual. If the taxpayer is married, the taxpayer and spouse are permitted an annual gift tax exclusion amount of $28,000 per individual. Removing $28,000 from a taxable estate could save as much as $11,200 in estate taxes. That amount would be multiplied with each additional individual who receives a gift.
If an individual is interested in making substantial or multiple charitable gifts, he can set up a Charitable Remainder Trust (CRT) or a Charitable Lead Trust (CLT). With a CRT, the donor can continue to receive distributions from the trust property and at the end of a term of years, or lifetime, the remaining property is transferred to the named charitable beneficiary in the trust. By using a CLT, the charitable beneficiary receives distributions from the trust property for a term of years and once the term has ended the remainder is transferred to a non-charitable beneficiary.
Due to the complexity of charitable trusts, it is best to consult an estate planning attorney in order to maximize tax savings.
The holidays inspire generosity in all of us. A qualified estate planning attorney can help you determine the best manner to make your substantial gift.