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    Category Archives: Charitable Deduction

    Using Life Insurance for Charitable Gifts

    This article is provided by Paul Glowienke, Financial Advisor with Northwestern Mutual

    The greatest advantage of a gift of life insurance is that a donor can make a substantially larger gift to charity by using life insurance than by giving any other asset. Relatively modest annual premiums mature into a substantial death benefit at the donor’s death. This is further enhanced when a charity owns the policy because of the income tax charitable deduction the donor receives.

    The donor’s gift (cash to pay premiums) essentially costs less. For example, for a donor in a 30% tax bracket, a gift of $2,500 really costs $1,750 after factoring in the income tax charitable deduction.

    The gift of an existing policy can be relatively “painless” to the donor in several respects. The transfer is simple; all that is required to complete the transfer is a change of ownership form. Absent a loan on the policy, the donor does not recognize income no matter how large the gain. In addition, if the donor does not intend to use the policy as a source of cash, a gift of a policy is not often perceived as a “loss” of an asset.

    A charity-owned life insurance policy requires less administration by the charity than many other assets, like real estate or business interests. In addition, the charity can easily take advantage of cash values in the policy before the donor’s death by using loans or withdrawals. Both the cash value buildup and the death benefit are generally income tax-free to the charity.

    The death benefit, whether from a policy owned by the charity or with the charity as beneficiary, is received by the charity without reduction for estate or income taxes and is not subject to the delays and expenses of probate. The death benefit is less likely to be contested by the donor’s beneficiaries than other assets.

    Congress encourages charitable contributions by providing income tax deductions for gifts to charity. In order to take advantage of these deductions, a donor must meet certain requirements and is subject to certain limits:

    • If giving an existing policy, the amount deductible is the lesser of the donor’s basis in the policy or the policy value.
    • If giving cash, the amount of cash given is the amount deductible.
    • If the gift is to a public charity, the deduction is limited to 50% of the donor’s AGI. Public charities are generally organizations that receive their funding from government and the general public. Some examples of public charities are schools, churches, hospitals, charities for disease prevention or cure, and charities that benefit the community.
    • If the gift is to a private foundation, the deduction is limited to 30% of the donor’s AGI. Private foundations are generally organizations that receive their funding from a small number of donors, often members of the same family.
    • Deductible amounts not used in the current year because they exceed AGI limits may be carried forward for the next five years.
    • The donor must obtain a contemporaneous written acknowledgment from the charity for any contribution (cash or non-cash) of $250 or more.
    • If the amount of the charitable deduction claimed is more than $5,000, the donor must also obtain a qualified appraisal.

    It is vitally important that you check with your financial advisor and your CPA when considering gifting or creating a life insurance policy that will benefit your favorite charity. It is a sophisticated way for you to become a voluntary philanthropist.

    **Article prepared by Northwestern Mutual with the cooperation of Paul Glowienke. Paul Glowienke is an Insurance Agent with Northwestern Mutual, the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, Wisconsin, and its subsidiaries. Paul Glowienke is a Registered Representative of Northwestern Mutual Investment Services, LLC, a subsidiary of NM, broker-dealer, and member FINRA and SIPC. Paul Glowienke is based in Newport Beach, CA. To contact Paul Glowienke, please call 949-863-5803, email at, or visit**

    10 Tips for Charitable Giving This Holiday Season

    According to a recent Forbes article, Americans donated more than $316 billion to charity last year – and most of that came from individuals.  Holidays are a traditional time of giving, and not just because we like to get in those year-end tax deductions!tax

    Forbes provided 10 tips for getting the most out of your charitable giving this year:

    1.  Be sure to itemize.  The IRS requires that you itemize your charitable deductions each year on your 1040 so be sure to keep careful records.

    2.  Get a receipt.  If you are giving property, be sure you get a written receipt from the organization and that it lists the items you have donated.  If you are giving cash you need a receipt as well – either from the charity or a cancelled check or credit card receipt that includes the name of the charity.

    3.  Choose wisely.  Not every charity is recognized by the IRS as an exempt organization.  You can check by name at the IRS Exempt Organizations Select Check website.

    4.  Remember payroll deductions.  If you give via a payroll deduction, your employer should furnish you with a record of your annual deduction.

    5.  Deduct value of incentives.  If you receive something in exchange for your donation – even a coffee mug or a t-shirt – you are required to deduct the value of that item from the value of your donation.

    6.  Consider giving appreciated assets.  You can receive a double benefit if you donate an appreciated asset like stock or real estate.  If you have owned the asset for at least a year, you can deduct the fair market value and avoid paying any capital gains tax.

    7.  Understand what you can deduct.  If you provide services to a charitable organization, you can deduct things like mileage or supplies, but you cannot deduct your time.

    8.  Document gift value.  Non-cash items need to be documented in terms of the item’s condition in order to assess a fair market value.  If your donation is worth more than $500, the IRS requires a written appraisal for fair market value.

    9.  Be aware of limits.  Many people are not aware that there are limits on charitable contributions, which are tied to your adjusted gross income (AGI).  If you give more than 20 percent of your AGI, then you may run up against these limits, which vary according to the gift (cash, non-cash items, appreciated assets).

    10.  Give by year-end.  You will only receive deductions for those items or cash you give during the calendar year, so be sure you make your donation by Dec. 31.  If you gift via check or credit card, you will receive the deduction as long as they are recorded by Dec. 31 – even if you don’t pay the credit card or the check isn’t cashed until 2014.

    If you would like more information about protecting your assets, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for an Achieve Your Dreams Planning Session, but I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call your Newport Beach Trust and Estate Attorney today at 949.718.0420 to schedule a time for us to sit down and talk.

    Charitable Deductions Require Strict Compliance with IRS Rules

    Sometimes, fancy appraisals can defeat the IRS. Sometimes, though, taxpayers end up fighting over deductions they thought were secure. Sometimes they get into trouble because they are too aggressive in their valuation or in how they apply valuation discounts. Sometimes, though, even people who are behaving reasonably trip over some technical rule and end up not qualifying.

    If a board game has rules that are difficult to follow, then you can choose to stop playing. However, when it comes to the IRS and the massive volume of federal tax code rules, you can’t just play a different game. The rules are the rules, even if you are seeking some sort of charitable deduction from the IRS.

    Recently there have been a number of unfortunate stories about charitable deductions gone awry. Are you familiar with Rothman, et al. v. Commissioner? Forbes analyzed the case in an article titled “Façade Easement: No (Qualified) Appraisal, No Tax Deduction.” In Rothman, the rules in question concerned non-cash charitable donations, in this case a façade easement, and the central role of professional appraisal.

    Easements, quite generally, are ways of preserving types of real property from development. A façade easement, in particular, is used to protect historic city property from, well, becoming another Starbucks. The gift of such an easement to a charity – one that has preservation as its goal – is still charitable, but only when it is appraised properly.

    In Rothman, the easement was made, donated and even appraised. However, the donation failed because the appraisal failed the mandated standards. The appraiser did multiple things wrong by not being clearly qualified, not disclosing credentials and not correctly specifying the easement. Furthermore, the appraiser failed to identify the appraisal as one prepared for income tax purposes, and the appraisal wasn’t even made within the proper time frame. These are just a few of the poorly-followed protocols in this situation.

    It’s sufficient to say a very significant potential charitable deduction (i.e., $18.5 million) was lost because someone didn’t follow the rules and may have been cutting corners.

    Contact Meier Law Firm to your charitable goals and options.

    Reference: Forbes (June 14, 2012) “Façade Easement: No (Qualified) Appraisal, No Tax Deduction

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