...Financial Matters: With Gerald Loftin

When it comes to your assets, you may be able to hold
onto them longer by giving them away.

Of all the techniques available for maximizing wealth, giving it away can be the most effective. If that sounds like an oxymoron, consider that once you've set aside an ample amount for a com-fortable retirement, built your dream house, and helped your kids get started with their lives, the assets that remain in your estate in excess of $1,000,000 ($2 million combined with your spouse) are destined to benefit a single cause: the IRS. You can name all the charities, friends, and family in your will that you want, but they will share your generosity only after federal estate taxes (that can range from 37% to 80% on certain retirement assets) are paid. No wonder many Americans choose to initiate a giving strategy during their lifetime. There are many smart ways to give - and you don 't have to be a Rockefeller or a Kennedy to make them work for you.

Giving Guidelines

Generally speaking, you can give as much as you want to a public charity or private foundation and receive a tax deduction for some or all of it. Giving to individuals, however, requires more restraint. You can give away up to 1 million during your lifetime - the maximum the IRS lets you pass on tax-free. Plus, you can give away $11,000 a year ($22,000 combined with your spouse) to any individual free of gift tax. You can give the money outright, or you can put it in a custodial account, which is easier and less costly to administer than a trust. There's no limit to how much you can give away if you write a check directly to an educational or medical institution. However, a successful giving strategy typically involves more than the simple act of passing out checks.

If you seek to reduce the size of your estate, are currently saddled with appreciated assets that would trigger a substantial capital gains tax if you sold them, or if your goal is to transfer interest in a business or real estate to your heirs and ensure that they have sufficient funds to pay the estate tax, a giving strategy can help you achieve your goals. Here are some of the things you can do:

1. Make a charitable gift of appreciated assets and create a lifetime stream of income. If you have a modest gift in mind -the minimum is usually around $5,000 and something less than $50,000 - you can make a gift to a pooled income fund (sponsored by a charity or an investment company that allows you to designate the charitable beneficiary) that will sell the donated shares with no tax liability, then pay you a fixed income for life, based on the value of your donation. Because there are no capital gains tax due on the sale of your assets, the charity receives a larger donation and you have the opportunity to create more income than if you sold the securities yourself.

2. If you have a larger gift in mind, you can establish a charitable remainder trust. The benefits are the same as with a pooled income fund. However, there are trust and legal fees that must be paid each year. There are variations on the charitable remainder trust, but the concept is the same: you can remove assets from your estate and preserve some interest in them for your own benefit or the benefit of your heirs.

3. If giving to your children and grandchildren is your goal, you can create an irrevocable trust or trusts to receive a variety of assets (stock options, real estate, the family business) and use a combination of your annual gift exclusion limit and your lifetime federal estate and gift tax exemptions to make your gifts. No matter how much your gifts grow over your lifetime, the trust assets will pass on estate tax free to your heirs.

Planning is the Key

No matter whether your giving is charitable or personal in nature, planning is the key. In fact, it can be the difference between preserving your wealth for the benefit of future generations or forcing it onto Uncle Sam. The rule of thumb, of course, is that the larger your estate the more you'll require expert advice. However, even a modest estate can benefit when you understand the smart ways to give.

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