Martha sat in her attorney’s office describing her plans for the distribution of her estate.

“Well, let’s see now. I want to leave the crystal to my sister Harriet. I should do something for my brother Charles, although he’s so successful he really doesn’t need an inheritance from me. I’ll just leave him a token of my affection - perhaps the grandfather clock from my husband’s estate. I want to provide generously for my son, Tim, and my daughter, Julie,” Martha continued, “but I’m not sure it’s necessary, or even a good idea, to leave them all of my estate. We taught them to work hard and be self-reliant and nothing should change that.”

“Now there are three others I need to tell you about . . . and they are very unusual,” she added slyly. On hearing those words her attorney leaned closer and Martha went on: “Oh, yes. These people tell me they never have to pay income taxes. Not only that, I never have to pay gift taxes or estate taxes on anything I give to them. But here’s what is even more interesting: Whenever I make gifts to them, I get to write it off on my income taxes!”

Martha smiled at her attorney’s puzzled expression and finally confided that these “people” actually were several worthwhile not-for-profit organizations (including us). Increasingly, people like Martha are telling their advisers: “My children are grown, educated and on their own. I have given them a good start in life. I want to provide for them after my death but I don’t feel I need to leave my children everything. I would do them no favors by giving them an instant fortune. I’ve worked hard; I’ve been successful; life’s been good to me. Now I want to give something back. I want to do something for humanity. It’s a matter of my personal philosophy.”

For these individuals, their charitable beneficiaries - school, house of worship, health institution, social service organization, cultural foundation or others - may be every bit as important as the “natural” objects of their bounty. And if that’s the case, then some remarkable estate planning ideas are possible. Our staff would be pleased to help explore ways by which you can add immense personal satisfaction to your plans - plans that make the statement:

“I was here; my life was important . . . I made a difference.”

Occasionally one hears of a situation that evokes the thought: “This is what estate planning is all about!” Sylvia is a 77-year-old retired teacher who has always lived frugally. She has amassed, through purchase and inheritance, the sum of just over $620,000 in U.S. savings bonds (Series E and EE). Her estate, including the bonds, totals approximately $4,300,000. She’s unmarried, but has three brothers she wants to benefit. She also told her attorney she wants to provide for our future and other important organizations.

Sylvia’s attorney didn’t know the exact amount of unreported interest tied up in the savings bonds, but estimated that it exceeded $300,000. He explained to Sylvia that the bonds will be taxable in her estate or in the hands of family members who receive the bonds – meaning they will be subject to income tax on all accumulated interest. More than $80,000 would be lost in federal income taxes alone, assuming heirs are in a 30% tax bracket. If she were to die in 2009, part of the bonds’ value also would be subject to federal estate tax, since her total estate exceeds the $3.5 million currently sheltered by the estate tax credit.

Solution? Sylvia’s attorney suggested she establish a charitable remainder unitrust in her will and specify that the trust will be funded with the savings bonds. The trust would last for 20 years and make payments to her brothers (or to the children of any brother who dies prior to termination of the trust). Tax results?

“First of all,” her attorney explained, “there won’t be any income taxes on the savings bonds when they are cashed in by the trustee, because the unitrust is tax exempt. The interest on the bonds will be passed through to your brothers as part of their annual unitrust payments and taxed as ordinary income. But the trust doesn’t lose anything to tax. Furthermore, your estate is entitled to an estate tax charitable deduction. If the trust has a 6% payout, roughly 30% of the bonds’ value will be a deductible bequest ($180,000). That deduction will reduce estate taxes by $81,000. Sylvia liked the idea of reducing taxes, but was particularly pleased that her brothers would start receiving income from a larger asset pool. Most satisfying was her ability to provide $620,000 (or more) to worthwhile causes when the trust ends.

Create Deductions When You Convert to a Roth IRA

Starting next year, anyone with a conventional IRA can convert to a Roth IRA and guarantee that future withdrawals will be free of income tax – both for themselves and their heirs. (This year your adjusted gross income must be under $100,000 to make the switch.) Disadvantage? Funds transferred from traditional IRAs are treated as taxable income.

The decision to convert to a Roth IRA depends on a variety of factors, and you should consult your advisers. But you might find the timing right for a charitable gift that would offset, in whole or in part, the cost of converting to a Roth IRA. Annual donors might consider “bunching” four or five years of future gifts into one large contribution in the year of a Roth IRA conversion. Donors who have carryover deductions from past years’ gifts can use up more of their old deductions when they convert to a Roth IRA. And you might want to consider arranging a gift that pays you lifetime income – and provides a significant deduction. Your income can start immediately, or be deferred several years into the future, resulting in larger deductions.

Please call our office if you would like more information on planning for large charitable deductions – for any purpose.

Copyright © 2009 by R&R Newkirk. All rights reserved.

What is the Worst Tax You Can Imagine?

“I have a GST problem” may sound like a plea for medical attention, but it’s actually a rare – and severe – financial challenge known as generation-skipping transfer tax. Most people never have to worry about GST tax, but here are some signs for caution:

• You plan to make a gift, during life or through your estate plan, to a person who is more than one generation removed from you. What does that mean? Your spouse is always in the same generation as you, even if he or she is significantly younger. A child or niece is only one generation removed from you, so gifts and bequests to these people do not involve a “skip.” But transfers to grandchildren, grandnieces and grandnephews, or to “greats” may trigger GST tax. Certain exceptions may apply; for example, where you transfer funds to a grandchild whose parent has passed away. And transfers to unrelated persons may trigger tax if they are more than 37.5 years younger than you. Ask your advisers for specifics.
• Your lifetime gift to a grandchild or other “skip” person exceeds the $13,000 annual exclusion from gift taxes. Any lifetime gift under $13,000 avoids both gift tax and GST tax.
• Your total generation-skipping transfers, during life or at death, exceed $3,500,000. It’s the $3,500,000 exemption, plus the $13,000 annual tax break, that get most Americans off the hook regarding GST taxes. Married people each receive an exemption, and currently can pass $7,000,000 to grandchildren and others.

If the exclusions and exemptions don’t cover your gifts and bequests, how bad is the tax bite? The current GST tax rate is 45%, and the tax applies to direct gifts and bequests and transfers in trust. Furthermore, the tax is in addition to gift taxes or estate taxes. That all adds up to the most severe tax in America. What can people do who face GST taxes? One idea was made famous by the estate plan of Jacqueline Onassis. When Mrs. Onassis died, several newspapers and magazines made note of the fact that she left the bulk of her estate to a charitable lead trust – an unusual estate planning arrangement that could mean substantial benefit for charitable causes, tremendous savings in federal transfer taxes – including GST tax – and eventual benefit for Mrs. Onassis' grandchildren, although ultimately the trust was never funded.

Interest rates for calculating charitable deductions for lead trusts are currently at some of the most favorable levels in history. Obviously, you should seek out the counsel of your professional financial and estate planning advisers. Note: The GST tax was scheduled to be repealed for one year only in 2010, along with the federal estate tax, but Congress is almost certain to reinstate both of these taxes for 2010 and later years.

Copyright © 2009 by R&R Newkirk. All rights reserved.

A Charitable Trust in Your Will?

A charitable gift from your will can be postponed until after the life of a person you wish to benefit – that is, a family member can receive lifetime income from the bequest property, and only later would any remaining funds be used to advance our programs. This plan can be accomplished by means of a charitable remainder trust or a bequest for a charitable gift annuity. Both techniques will produce estate tax charitable deductions. A “deferred bequest” can be made through any form of trust if an estate tax charitable deduction is not needed by your estate.

Why would our supporters be drawn to a “testamentary” charitable remainder trust or similar arrangement? A mother might want to leave something for our benefit at death, but hesitate for fear children might be disappointed if they did not receive 100% of her estate. Testamentary charitable remainder trusts let donors say to children: “You will receive everything from my estate, but as to part of it you will receive a lifetime income, with later benefit to a worthwhile cause.” A key selling point: potential tax savings for the family. For individuals who don’t have the estate tax marital deduction, testamentary trusts arguably can leave family members better off than if no charitable bequest had been made.

Testamentary charitable remainder trusts also offer the practical benefits of trusteeship for family members and others who need professional investment and money management. Additionally, donors may find testamentary charitable remainder trusts an ideal way to memorialize the life of a spouse, a family member or their own lives. Call our office for more details.

Copyright © 2009 by R&R Newkirk. All rights reserved.

Preparing for the Future

“Frank takes care of everything on the outside of the house – the yard, the garage and the car – and I do the cooking, housekeeping and bill paying.” - Betsy R.

Sound familiar? Frank and Betsy’s division of labors may not track 100% with the arrangements of other married couples, but oftentimes one spouse does end up being responsible for all the household bills and budgeting. Married couples need to ensure that both of them fully understand the financial side of their marriage. It’s just good estate planning to train the other partner so he or she can “carry on when the time comes.”

The “bookkeeper spouse” should maintain detailed records and instructions on family finances to help the other partner become self-sufficient, if need be. Self sufficiency may not always be possible if a spouse is not in good health. Many husbands and wives set up living trusts, or a power of attorney, that enable a third person to provide financial management if they become incapacitated.

Copyright © 2009 by R&R Newkirk. All rights reserved.

Charitable Remainder Trusts for Disabled Beneficiaries

The IRS has approved charitable remainder trusts that pay income to a legally incompetent child for life, but with payments going to a special needs trust established for the child.  The IRS also has approved a plan where the charitable remainder trust was payable to a trust for the lifetime of a child who was merely “financially disabled.”

The IRS has indicated that such arrangements are appropriate where the income beneficiary, by reason of a medically determinable physical or mental impairment, is unable to manage his or her own financial affairs.  The trustee of the special needs trust could have broad discretion as to how much income or principal would be paid to the beneficiary, and could take into account government benefits to which the beneficiary may be entitled.  Assets in the special needs trust could pass at the beneficiary’s death either to charitable or family beneficiaries.  Proceeds from the charitable remainder trust would be paid, of course, for our benefit or to any qualified organization.

Copyright © 2009 by R&R Newkirk. All rights reserved.

Last Minute Gifts Can Reduce 2009 Taxes

Late 2009 can be a good time to make tax-saving contributions.  The stock market has been on a tear since last March, and donors ideally should make gifts with stocks and bonds in which they have a large paper profit (long-term capital gain).  The profit escapes tax and the charitable deduction will be the investment’s full fair market value, if held more than one year. Note:  Gifts of securities may be deducted up to 30% of your adjusted gross income, with a five-year carryover for excess deductions.

If you want to ensure that gifts made in December are deductible for 2009, keep these rules in mind:

• Checks will be deductible if mailed and postmarked no later than December 31, 2009.
• Stock certificates and separate stock powers can be mailed and deducted for 2009 if the envelopes are postmarked by December 31, 2009.
• Securities held by your broker in “street name” are deductible as of the date they are received electronically in our account – no later than December 31, for 2009 deductibility.
• Gifts charged to a credit card are deductible as of the date the charge is “made” – but the IRS has clarified that the date the gift is actually “made” is the transaction posting date, which might not occur until January for a December 31 charge.
• Other gift assets are deductible on the date they are “delivered” to charity – usually involving physical transfer of an item or deed to the organization’s representative.

Here are examples of the tax savings that are available in different tax brackets.

Please call our office if you have any questions at all about planning your contributions.

Copyright © 2009 by R&R Newkirk. All rights reserved.

Make Plans for Someone to Handle Your Finances

Who would take over the management of your financial affairs if – for any reason – you become unable to handle them personally? Who would do your banking, pay bills or manage investments? Two or three options generally are available:

1. Power of Attorney. In most areas you can establish a “durable” power of attorney, naming a friend or relative to act for you on a broad or narrow range of activities. Standard forms are usually available, although you may need an attorney’s assistance for complex situations. In any event, check with your advisers whether your power of attorney indeed will continue in effect if you are disabled (a “durable” power).

2. Trusteeship. You can set up a revocable living trust and name a trustee (money manager) who will act on your behalf as to the assets placed in the trust. The trustee can provide valuable assistance in the event of disability. You could be the trustee at first and provide for a “standby” trustee in case you are disabled. A power of attorney sometimes is incorporated into trust arrangements, as well.

3. Guardianships. Courts will appoint guardians for persons who become incompetent – an often cumbersome, costly and time-consuming arrangement. With trusteeship or a power of attorney, you – not a court – decide who will handle your affairs. Guardianships nonetheless provide the protection of court supervision of all transactions made on your behalf.

Note: If you have made charitable bequests in your will or living trust, many advisors would suggest that you give the person who holds power of attorney, or who would be your standby trustee, the power to “accelerate” such bequests into lifetime gifts that provide income tax savings to you or your family. Estate tax savings would be available as well.

Copyright © 2009 by R&R Newkirk. All rights reserved.

Criminal Justice major, athlete
Detroit, Mich.
Scholarship Recipient

Jeremy’s story: Growing up in the shadow of Tiger Stadium in downtown Detroit, Jeremy struggled through high school and didn’t think he would get the opportunity to go to college. He was thinking about possibly enlisting in the Marines when Siena Heights’ coaching staff discovered him at a local AAU tryout. Thanks to a scholarship, Jeremy is currently attending Siena Heights, studying criminal justice and is a member of the Saints’ track and basketball teams.

The Opportunity: “I’m happy to be here. I’m the first to go to college in my family. Children back home look up to me. I’m not only obligated to myself to be here in college, I also want to give somebody else hope from where I’m from. Being successful I think will help other people out.”

What a scholarship has meant: “This scholarship gives me hope. Siena’s like another small family, which I needed. I am able to be more focused in school. I appreciate the scholarship a lot. I’m grateful.”

Livonia, Mich.
Planned Giving

As an engineer for the Ford Motor Co. for 30 years before his retirement in 2002, Dave Stevens is big on reliability.

So when he started thinking about a planned giving program with Siena Heights University, Stevens was introduced to a life insurance annuity. Under this giving program, Stevens took out a life insurance policy for $350,000, listing Siena Heights as the beneficiary. He writes a check each year to pay for the premium. However, he gives the check to Siena, who then pays the premium for him. This allows Stevens to use his payment as a tax write off.

“It’s really worthwhile because it guarantees the amount of giving,” said Stevens, a Livonia, Mich., resident. “You don’t have to worry about writing a check every time you turn around. I wanted to have a steady program of giving instead of having it be haphazard.”

“Anyone interested in supporting Siena Heights should also look at planned giving,” said SHU Vice President of Advancement Mitchell Blonde. “There are ways to set up a planned gift so that the donor enjoys tax benefits and guaranteed income while also supporting Siena Heights and its mission.”

Stevens is a 1981 graduate of Siena’s Metro Detroit program who continues to be active with the university, serving on its alumni board. He said his Bachelor of Applied Science degree from Siena helped him better understand how business and business politics operate.

“I feel like it’s a very good school and it benefitted me an awful lot,” Stevens said.

“Setting up a planned gift is not difficult,” Blonde said. “And there are a variety of ways to set up a planned gift that will be beneficial to both you and the institution.”

To learn more about a planned giving program, please contact the Advancement Office at 1-800-693-0506.

Al and Julie Brittain
Adrian, Mich.

“The more you give, the more you receive.”

This is one of Allan Brittain’s favorite expressions. Allan, a retired banker and former SHU trustee, and his wife, Julie, a retired schoolteacher, have found this phrase to be true from their giving experience. The couple encourages others to test this statement for themselves.

“Giving becomes a part of my life,” Allan said. “It becomes part of the joy when you actually feel that. … We all have some sort of ability to give and many don’t realize it and therefore they go through life and pass away and never experience what that joy really is.”

The Brittains recently established a charitable remainder trust (CRT) which names Siena Heights University as a beneficiary. CRTs enable donors to make a significant gift, receive a partial tax deduction and receive income for life. The income can be fixed or variable.

“We control how it is being invested,” Allan said of how the trust works. “We will get an income for the rest of our lives. My wife and I, for the rest of our lives, are going to annually receive a percentage of the value.”

The Brittains said they are pleased to be leaving a legacy of giving.

“Look at what you have and do something. Do something,” Allan said. “It will pay you over and over and over. It’s beautiful.”