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Best Way To Donate Money

By WealthTrust Arizona

Effective estate planning involves more than deciding how you want your assets to be distributed after you pass away. You must also determine how much you want to give to others while you are still alive. If you plan cautiously, so you do not outlive your assets, giving to others allows you to reduce the amount of your taxable estate and provide advance assistance to your beneficiaries.

There are two easy ways you can give gifts without being subject to the gift tax. One is to pay the medical or educational expense for another person. You may spend an unlimited amount of money toward such bills if you give the money directly to the institutions where the expenses were incurred. You may also give up to $13,000 each year in cash or assets to as many people as you would like. If you give more to an individual in a calendar year, you must file a gift-tax return. The excess amount will be applied toward the lifetime gift-tax exclusion, which is $5.12 million in 2012. If at any point your gifts exceed that amount, you must pay taxes on the excess. The top tax rate on gifts is declining having fallen to 35% in 2010.

Gifts which you give within three years of death which exceed the lifetime gift-tax exclusion will have an impact on the amount of money you may leave your heirs free of federal estate taxes. For example, if you were to give away $100,000 more than your lifetime exclusion within three years of your death, your estate-tax exemption would be reduced by the same amount – $100,000.

Another consideration: if you decide you want to invest in a 529 college savings plan for a beneficiary, those contributions will be treated as gifts. You may contribute as much as $65,000 in one year – $130,000 with your spouse – but you should know that amount will be treated as if it had made in $13,000 installments over five years. This means you cannot give any more tax-free money to that beneficiary during that five-year period. If you were to pass away before that five-year period ended, part of the money you gave would be included in your taxable estate – the $65,000, minus $13,000, for each year you were alive.

Another way to reduce your estate is through judicious use of charitable donations. When you invest in community foundations and charitable gift funds, your donations can reach beyond your death. Charitable gift funds allow you to make a tax-deductible donation and grow your investment tax-free, then direct a contribution in your name to any nonprofits you choose, whenever you like. Community foundations are regional charities which accept donations of as little as $5,000 in stock, cash or property. Foundations invest their money, pool their gains and allocate grants, usually to local non-profit agencies which you have designated or to a cause you support.

There are also a couple of charitable trusts you might want to consider. In a charitable lead trust, a charity receives the income and your heirs get the principal, while with a charitable remainder trust, your heirs get the income and the charity gets the principal.


DISCLOSURE: WealthTrust Arizona is a fee based investment advisory firm that specializes in integrating portfolio management with estate planning for high net worth individuals and families. Services include portfolio management, estate planning, asset and lifestyle preservation, taxation concerns, access to trust and estate documentation preparation, business succession planning and more. The professionals at WealthTrust -Arizona are frequently sought out by the national media such as The Wall Street Journal, Forbes, New York Times, CNBC, BloombergRadio, and others to share their thoughts on matters that impact our clients.

Given the recent events impacting investors and their financial security, we would welcome the opportunity to provide a second opinion for anyone who would like to have a check-up on their investments, financial plan or estate plan. If you know of anyone who may have a concern with their current advisor or current investment portfolio, we encourage you to share our contact information with those that could benefit from a complimentary review.

Advisory services offered through WealthTrust Arizona, a registered investment advisor. WealthTrust Arizona does not engage in the trust business in the state of Arizona or in any other jurisdiction. Not FDIC insured. Not bank guaranteed. May lose value, including loss of principal. Not insured by any state or federal agency.


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