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Help Us Give Back to You
– and to those who matter most!
The ideas and opportunities presented in this newsletter are offered in the spirit of inspiring and refining your own thinking about tax and estate matters — after all, everyone wants to preserve more of what their hard work has acquired, both for themselves and the family and friends they value most.
Downstate's Office of Philanthropy can help you to explore the possibilities: we offer a wide range of planned giving opportunities that provide donors with an assortment of desirable tax and estate planning benefits.
Contact us today to learn more about how helping Downstate is really helping yourself!
Main Office: 718.270.4418
Please Note: The information presented here is not intended as financial or legal advice. For financial advice, please consult appropriately licensed financial planning experts. For legal advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income tax include federal taxes only. Individual state taxes and/or state law may impact your results.
Money and You
More Money for You - and the Ones You Love!
Edition No. 2 — Fall 2012
This quarterly Tax and Estate Planning Newsletter is brought to you by Downstate's Planned Giving Advisory Board. Read on to learn more about significant opportunities that may benefit yourself and those you love most.
Featured Gift Opportunity: Charitable Bequests
Charitable bequests are by far the most popular kind of planned gift – they are also one of the easiest to establish.
What Are The Benefits of Charitable Bequests?
Whatever form the charitable bequest takes – a specific dollar amount, a particular asset, a certain percentage of the available estate or the estate residue – when properly executed, the donor should benefit from a charitable deduction for estate tax purposes.
Please note, however, that an improperly made charitable bequest can both defeat your charitable intentions and result in a denial of the charitable deduction which increases the taxable estate.
Advantages of Certain Testamentary Gifts
Some types of assets are better suited for bequests -- vs. of giving them as lifetime gifts -- since the asset transferred as a bequest can generate greater tax advantages for the estate or the beneficiaries.
(1) Tangible Personal Property
A lifetime charitable gift of tangible personal property can be limited under federal income tax rules. The amount of the deduction depends on the related-use rule, which requires that the property be put to a use related to the donee charity's tax-exempt purpose. If this test is not met, the donor's deduction is limited to his or her cost basis in the property.
A testamentary gift of tangible personal property does not depend on a related-use rule. The decedent's estate qualifies for a full estate tax charitable deduction based on the property's fair market value. Thus, a bequest of tangible personal property could be more beneficial than a lifetime gift.
(2) Ordinary Income Property
Ordinary income property is property that would not produce long-term capital gain if sold at its fair market value. Examples of this sort of property include inventory, copyrights, artistic works held by the artist, and recaptured depreciation property. Any lifetime gift of ordinary income property must be reduced by the amount of any gain that would have been classified as ordinary income (or short-term capital gain) had the property been sold for its fair market value on the date of the gift.
A testamentary gift of ordinary income property qualifies for an estate tax charitable deduction based on fair market value. Thus, a bequest of ordinary income property has a significant advantage over a lifetime gift of such property.
(3) Depreciated Property
Property that has experienced a loss in value may be particularly appropriate for a charitable bequest, since heirs cannot benefit from a step-up in basis. Indeed, an individual heir's basis would "step-down" to the property's fair market value at death. Thus, if the donor has a choice in the type of asset to give to charity, leaving the basis-challenged depreciated property would be preferable to the asset of equivalent value that has appreciated.
(4) Property Comprised of Income in Respect of a Decedent (IRD)
Income in Respect of a Decedent (IRD) is income earned during life, but not included in gross income prior to death. Important examples of IRD include qualified retirement plan accounts, traditional IRAs and savings bonds.
When IRD items are bequeathed to charity, they not only qualify for the estate tax charitable deduction, but also negate the adverse income tax consequences of IRD for the recipient because of the charity's tax-exempt status. Since non-IRD items can be bequeathed to individual beneficiaries without the same income tax consequences, it is often a sound tax strategy to leave IRD assets to charity and non-IRD assets to individuals.
(5) U.S. Savings Bonds
There is another important reason to make a charitable bequest with savings bonds besides avoiding the IRD problem – virtually the only way to donate U.S. savings bonds is through a charitable bequest. The U.S. Treasury Department restricts the lifetime conveyance of U.S. Savings Bonds (Series E, EE, H and HH).
A gift may be made only by (a) cashing in the bonds and donating the proceeds to a charitable organization, or (b) having the bonds reissued to the trustee of a revocable living trust in which the grantor is the income beneficiary and a charitable organization is the remainder beneficiary following the grantor's death. Treasury restrictions also prohibit a donor from naming a charitable organization as a bond's "co-owner" or death beneficiary.
But U.S. savings bonds can be bequeathed to charity at the bond owner's death. The owner's estate is entitled to an estate tax charitable deduction for the full value of the bequeathed bonds. When the charity redeems the bonds, it will owe no income tax on any accrued interest because of the charity's exempt status.
The accrued interest would be taxable to a non-charitable recipient as income in respect of a decedent.
U.S. savings bonds must be directly bequeathed to charity to escape the deferred income tax. A general charitable bequest, satisfied by these bonds in the discretion of the executor will not qualify.
Remember to Consider Downstate
As you and your advisors capably plan for the future, please remember to consider how a planned gift to Downstate can benefit both you and your loved ones -- while ensuring that Downstate's world-class excellence in education, research, patient care will continue far into the future.