Giving is abundant during the holiday season. Each year, American consumers spend thousands of dollars on purchasing gifts for family, friends, and co-workers. For example, one year, the average shopper spent a total of $906 on gifts. In past years, due to Americans’ generosity, the Toys for Tots Campaign was able to distribute 19 million toys to 7.5 million needy children.
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 2007 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, some gifts to individuals may have estate tax saving incentives. For example, a taxpayer is permitted an annual gift tax exclusion amount of $12,000 per individual. If the taxpayer is married, the taxpayer and spouse are permitted an annual gift tax exclusion amount of $24,000 per individual. Removing $24,000 from a taxable estate could save as much as $10,800 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.
Mr. Ronald “Chip” Morrison, Jr. is a Board-Certified Specialist in Estate Planning and Administration by Louisiana Board of Legal Specialization and a member of the American Academy of Estate Planning Attorneys. He has been engaged in Louisiana trusts and estate law for the last 16 years. He can prepare an estate plan for you that achieves your goals of passing your assets to whom you wish. For more information or to attend an upcoming seminar, please call our office at (504) 831-2348, or contact us through our website.