TAX CONSIDERATIONS IN MAKING GIFTS TO UNITED WAY OF THE OZARKS
This article is intended to suggest to you some possible alternative methods you might follow in making gifts to United Way of the Ozarks ("United Way"), which can result in tax savings to you or to your estate. When income tax and estate tax savings are considered, the actual cost to you or to your estate is reduced without making any reduction in the benefits provided to United Way.
CONTRIBUTIONS DURING LIFETIME
A. Contributions To United Way Are Deductible. If you contribute to United Way, and if you itemize your deductions, (as opposed to electing to take the standard deduction), then you are permitted to deduct the amount of your contribution for state and federal income tax purposes. Generally, contributions to United Way are permitted to be deducted up to 50% of the contributor's "contribution base" for the year that the contribution is made. In the event that the contribution exceeds the 50% limitation, then it is permissible to carry forward any unused portion of the contribution so that it can be deducted in future years, up to a total of five years.
B. Tax Rates For Year 2002. The amount of the income tax benefit to you will depend upon your income tax bracket. The federal tax rates for the year 2002 are as follows:
|Married||$0 -||$12,001 -||$46,701 -||$112,851 -||$171,951 -||Over|
|Single||$0 -||$6,001 -||$27,951 -||$67,701 -||$141,251 -|
|In addition, the State of Missouri imposes a tax
on one's income. Income is taxed at the state level at the rate of
Six Percent (6%) on amounts of taxable income which exceed the sum
of $9,000.00 and at a lesser rate on amounts up to $9,000.00.
C. Gifts In Kind. Typically, when contributions are made, individuals think in terms of contributing money. An alternative to that, however, is a contribution in kind. By contributing "property," rather than money, it is oftentimes possible for United Way to benefit more than the actual cost of the contribution to you, when the amount of income tax savings is taken into account.
Here is how the tax savings works when contributions are made in kind:
If you are the owner of an asset which has appreciated in value over the years, such as shares of corporate stock, and if you were to sell those shares in order to obtain funds to give to United Way, then you would have to pay tax on the gain (which would be the difference between your original cost of the shares, compared with the amount you received from the sale of them). On the other hand, if you were to contribute the shares themselves to United Way, you would be entitled to receive a tax deduction for the full value of the shares as of the date of the gift without being taxed on any of the gain. Then, United Way could sell those shares at their fair market value and pay no tax on the gain for the reason that United Way is a tax-exempt entity. As a result, United Way would receive the benefit of the full value of the shares, and you would have an income tax deduction for the same amount. The amount of gain attributable to the appreciation of the corporate stock would not be taxable either to you or to United Way.
When making contributions in kind, the general rules are as follows:
G. Durable Power Of Attorney. A number of individuals may desire to make monthly or other periodic contributions to United Way for the rest of his or her lifetime, but might be concerned that some future incapacity or disability might prevent that desire from being carried out. If so, a durable power of attorney might be appropriate. Under Missouri law, it is possible to have a power of attorney which is "durable." A "durable" power of attorney means that an agent designated in the power can have the authority to act for an individual even if that individual were to become totally incapacitated or disabled (formerly referred to as becoming "incompetent"). The Missouri statutes governing durable powers of attorney require that the agent be specifically authorized to make gifts, in order to have the authority to do so.
CONTRIBUTIONS AFTER DEATH
A. Federal Estate Tax. There is a federal tax which is based upon the total value of one's assets which he owns as of the date of death and which exceeds the amount that is exempt in the year of death. The assets which are considered in determining whether the federal estate tax applies include virtually every asset in which the decedent owned any interest as of the date of his death. Whether one's estate is subject to the federal estate tax depends upon the year of death. During the following years, the amounts exempt are as follows:
|Year Of Death||Amount Exempt|
|2010||All is exempt|
- Any debts owed by the decedent are deductible and any costs and
expenses of administering the estate may be deductible.
- Assets left to a surviving spouse are deductible. This deduction
is referred to as the "Marital Deduction."
- Bequests left to charitable or religious organizations are
deductible. Therefore, all bequests to United Way are deductible!
B. State Death Taxes. The Missouri inheritance tax was repealed effective January 1, 1981. Therefore, there is no longer any Missouri inheritance tax. There is, however, a Missouri estate tax, which is equal to the amount allowed as a credit on the federal return for any taxes payable to a state. If the amount of the federal estate tax is reduced as a result of charitable contributions, then there is a corresponding reduction in the amount of the Missouri estate tax.
C. Consider A Bequest To United Way In Your Will Or Trust. If individuals just thought about it, many would want their estate, or a portion of it, to go to charitable purposes, such as to United Way. Possibly you might want to consider United Way as an alternative or contingent beneficiary in your will or trust. For example, if you, your spouse and children were all deceased, then it might be your desire to leave a significant portion of your estate to United Way. Or, after the death of both you and your spouse, it might be your desire to leave a certain amount or a percentage of your estate to United Way, with the balance to be left to children or perhaps to others.
Of course, you can make provision for United Way only if you so provide in your estate plan at the time you have it prepared or at the time you have it reviewed and revised.
D. Income In Respect Of A Decedent ("IRD"). IRD can be an ideal type of asset to leave to charitable organizations. Basically, IRD is an asset which is inherited from a decedent and which would have constituted some taxable income to the decedent had the decedent received it before death. When IRD is received by the beneficiary of an estate, then the beneficiary will be required to include all or a portion of it on his tax return for the year it was received. Some examples of IRD assets are retirement plans, installment notes, savings bonds and annuity contracts.
Since all or a part of IRD assets will potentially constitute taxable income to the recipient, that income can be tax-exempt if left to a tax-exempt entity, such as United Way. By designating United Way as the beneficiary, not only is the value of the asset itself deductible in its entirety for estate tax purposes, but also any income which would otherwise be taxable escapes taxation.
E. Transfers That Avoid Probate Administration. There are a number of ways where gifts can be left to United Way, after your death, without the necessity of any probate administration. Some of the methods are as follows:
- Revocable Living Trust. A revocable living trust is used as a
substitute for a Will. The difference is, however, that upon your
death, the various assets which have been held in trust can pass to
the designated beneficiaries without the need for any probate
administration. On the other hand, assets which are transferred by
means of a Will are subject to probate administration.
- T. O. D. (Transfer On Death). This is a means which can be used to
register certificates of title to automobiles, trucks, boats,
trailers, and other similar vehicles and assets. Upon the death of
the owner, the title and ownership to the asset will pass
automatically to the designated beneficiary.
- P. O. D. (Payable On Death). This form of registration is used
most commonly with bank accounts and deposits and also with U. S.
Government bonds. Again, when the owner dies, ownership is payable
on death to the designated beneficiary or beneficiaries without the
need for probate.
- Non-Probate Transfers Law Of Missouri. This set of laws became
effective in 1989 in the State of Missouri. They greatly expand the
types and kinds of assets which can be registered so that an owner
can continue to have full and unrestricted ownership of the asset
for life, but, in the event of death, the asset will pass, without
probate, to the intended beneficiary.
A type of a non-probate transfer that has become popular is what is referred to as a "beneficiary deed." By the use of a beneficiary deed, one can exercise 100% ownership of his real estate during the rest of his lifetime, including the right to sell it, rent it or otherwise deal with it. But, in the event of the death of the owner, title to the real estate will pass to the designated beneficiary without the need for any probate administration. Beneficiary deeds must be recorded in order to be effective.
- Joint Tenancy. A very common form of joint ownership is a joint
tenancy with right of survivorship. In the event of the death of one
joint owner, the survivor succeeds to sole ownership of the asset.
For technical legal reasons, owning property with United Way in the
form of a joint tenancy is probably NOT advisable.
- Conveying Property But Retaining Life Estate. Another possible
means by which property may be transferred to United Way without
probate would be to deed the property to United Way, but reserve a
life estate in yourself. Under this form of conveyance, you would
continue to have full use and possession of the property for the
rest of your lifetime; but, in the event of death, United Way would
become the sole owner. Unlike a beneficiary deed, this form of
conveyance is normally irrevocable.
The information in this article consists only of some of the general rules and is not intended to be an exhaustive discussion of the tax and estate planning laws as they relate to contributions to United Way. As a result, there may be some special rules or exceptions which might apply to your specific situation.
Therefore, in planning your contributions to United Way, and in planning your estate generally, you should confer with your tax and estate planning professionals. Hopefully, this article will be of some benefit to you and will provide some ideas which might be of assistance to you in your future planning. It is entirely possible that there may be some techniques available which will prove to be beneficial not only for you and your family but also for United Way.
Neale & Newman, LLP
Attorneys at Law
1-130 Corporate Centre
P. O. Box 10327
Springfield, MO 65808
Telephone (417) 882-9090