Learn how to sign as someone’s power of attorney to avoid personal liability.
Is it time to consider a CHARITABLE REMAINDER TRUST?
Income tax rates are trending upward. Depending on your income level, the tax on long term capital gains can be as great as 23.8% and the President says he wants it to be 28% If you have appreciated assets, such as stock or real estate, and you want to sell, you face a stiff tax when you check out at the IRS cash register. Congress wants part of your gain.
If you are trying to cash in on your gains and create income in retirement, you should consider using a Charitable Remainder Trust. By transferring your appreciated stock or real estate into this special trust, you can sell the asset and pay no capital gains tax. The entire sale proceeds can be put to work generating income to you, more income since you did not have to pay tax when you sold the asset. Oh, and you receive a tax deduction up front for creating and funding the Charitable Remainder Trust. How much of a deduction depends on several factors, such as your age, the percentage distribution you decide to take as annual income, and a rate published monthly by the IRS.
Let’s say you own appreciated stock worth $500,000.00 and your tax basis is $100,000.00 (essentially what you paid for the stock). If you sell the stock, you will have a gain of $400,000.00 to pay tax on (the $500,000.00 less the tax basis of $100,000.00). You will pay capital gains tax on the balance. Let’s round the tax to $95,000.00 for our example. That leaves you with roughly $405,000.00 to generate income in retirement. If we use 5% as an example of the return we might be able to obtain on an annual basis (purely hypothetical), we would have about $20,250.00 in annual income. If we did not have to pay any tax on the sale, we would have the full $500,000.00 to work with and using the same 5% yields $25,000.00 annually, about a 23% increase in our annual income from what we would get if we had to pay the tax on the sale. Even if the capital gains tax rate is as low as 15%, you still save about $60,000.00 in tax you don’t have to pay, receive a nice charitable income tax deduction and have more money at work generating income to you.
Is there a catch? Indeed there is. When you and your spouse die, whatever is left in the account goes to your favorite charity. So, this is clearly not a technique for everyone, but a strategy that should be explored before you decide to start selling appreciated assets. Check with you favorite attorney and tax advisor to see if this might work for you.
Our neighbors
At a recent meeting I attended, the coordinator of a food bank made a presentation about continuing needs at the many food banks in our area. Rather than just give us fact and figures, she proceeded to empty out the contents of a couple of grocery bags onto the conference room table. She pulled out several cans of vegetables, carefully placed some apples on the table, withdrew a bag of rice, some potatoes, and several other items and presented us with what a person would actually pick up that day at her food bank. She then painted a very real picture for us of someone who might be our neighbor, a person serving us our lunch at a nearby restaurant, the nice barista pulling shots for our latte, the friendly teller at our bank or just someone we pass by on the street or in a parking lot. These nice everyday folks need a little help. Let’s all reach a little deeper and help out a local food bank. If you are looking for a place to help or if you are looking for help (a “hand up” not a “hand out”), look no further than Multi-Service Center: http://www.multi-servicecenter.com/get-help/food-bank/
Don’t follow Leonard Bernstein’s lead.
When the name Leonard Bernstein is mentioned, I think of West Side Story and my thoughts continue on to what a great conductor and composer he was. I don’t think of a computer or word processor. But, when he died, he left only an electronic draft of his memoir. That wouldn’t be so bad, except that he had it password protected and no one has been able to break the password. No one. What a loss.
What have you done to protect your passwords and to make sure your loved ones will have access to your e-world if you are incapacitated or upon your death? What about the security questions that you have set up – would anyone else know the answers?
Thinking about disability and death is not much fun to start with. Now, we must all think about our digital assets and access. This is a new and developing area of estate planning with no clear answers to questions we are just now asking. At a minimum, where might you safely store important passwords? Will your durable power of attorney allow someone to open up your electronic life if you are incapacitated? Should your will or trust pass on your digital assets? What are your thoughts?
How many days to cancel that contract?
“I bought a car at a car dealership over the weekend. Do I have three days to take it back if I don’t want it? I think I made a mistake.” I found this message in my voicemail when I arrived this morning. Unfortunately, no, there is no three day right to cancel in this case. Going back in time, the most common use of the three day right was to cancel the door-to-door vacuum cleaner purchase. You could buy it on a Saturday from the friendly vacuum sales person, vacuum all of your carpets on Sunday and then return the beast on Monday. Cancellation of a door-to-door sale is the classic use of this right and still may be its most common use, although I don’t think I’ve seen a door-to-door vacuum cleaner sale in more years than I care to admit to. You are best off to take your time when deciding to buy some great gadget, service or device, but you may find a little relief in the various state statutes that grant us all a cooling off period.
Along with door-to-door sales, the right to cancel biggies are cancellation of a health club contract (see RCW 19.142), returning of a hearing aid (RCW 18.35), and the purchase of a timeshare (RCW 64.36). More often than not, when you buy something, you are just stuck. The Washington Attorney General has a good resource about cancellation rights at http://www.atg.wa.gov/ConsumerIssues/CancellationRights.aspx#DoorToDoorSales.
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