223 Princeton Road
Audubon, NJ 08106
Toll Free (800) 999-4541 Phone & Fax
(609) 546-1501 Phone & Fax
books@oldpathspublications.com

A Bible-based Christian Charity, defending the historic Reformed faith, and approved by the U.S. Internal Revenue Service as a not-for-profit corporation)

 


Luke 12:34
"Where your treasure is, there will your heart be also"

Jeremiah 6:16
"...ask for the old paths..."

 

CONTENTS

 

1. Gifts of Cash or Checks
The US Internal Revenue Service allows deductions from The US Income Tax of up to 50% of one's Adjusted Gross Income (AGI) in any tax year (Jan 1 through Dec 31). Christians may be led to give more than 50% of their income to Old Paths in a certain year, and may certainly do this - BUT they must realize that they may only deduct up to 50% of their AGI in any one year from their Income Taxes for these gifts. Any large cash gifts over 50% of one's income in one year are therefore given without any Income Tax deduction.

It is possible to "carry over" or "spread" your tax deduction UP TO 5 (five) additional CONSECUTIVE tax years - or 6 total tax years. This means that one can give a very large cash gift during 1996, and use this large deduction on their 1996, 1997, 1998, 1999, 2000, and 2001 Income Tax forms. OR, use this deduction in just a few years such as part in 1996 and part in 1997 also - especially if a large gift were to be made in 1996, and less were to be given in 1997. There are special rules for "spreading" tax deduction, and this should only be done with the careful advice of a qualified and competent tax specialist.

There are brand new IRS reporting rules for 1995 which require that any single gift of $250 or more be specifically acknowledged by a letter/receipt from ANY charity, and Old Paths will carefully comply with this new rule.

2. Gifts of Securities
Christians may give Old Paths Publications gifts of Stocks, Bonds or shares of Mutual Funds or the like. By doing this instead of giving by check or cash, the Internal Revenue Service allows the giver to receive a likely EXTRA tax deduction. Quite often Securities have gone up, or APPRECIATED in value since they were received. If one gives them to a charity such as Old Paths Publications, the giver not only gets an INCOME TAX deduction for the full Fair Market Value (FMV) of the Securities on the day the gift was made, but the giver is excused from any Capital Gain Tax he or she may owe on the APPRECIATED PORTION, IF the Securities were held "LONG TERM" - that is, at least one year and one day.

 

Here's an example:

A. Mr. and Mrs. Tither could mail a check for $1,000 to Old Paths Publications. If they are in the 31% tax bracket (many Americans are); on their Income Taxes they get a $1,000 tax deduction for this gift, and save $310 on the Income Taxes they would have owed to the IRS. HOWEVER,

B. Instead of writing a check for $1,000, Mr. and Mrs. Tither choose to give 10 shares of IBM to Old Paths worth $100 per share, or a gift also worth $1,000. They get exactly the same Income Tax deduction as in "A" above, and save exactly $310 on their INCOME Taxes too. However, Mrs. Tither had inherited these IBM stocks from her Dad when they were worth $50 per share (or $500 at the date she received them - this is the "COST BASIS" of the stock). If, instead of giving them to Old Paths, she had cashed the stock in, she would have owed Capital Gain Tax of 28% (the current Federal Capital Gain Tax rate for all appreciated property) on the APPRECIATED portion, or $140 in Capital Gain Tax. By giving the stock to an IRS approved charity - Old Paths, she has saved BOTH the $310 Income Tax deduction AND the $140 Capital Gain Tax she would have owed. Actually, what has transpired is that Mrs. Tither has "given" not only the $1,000 in IBM stock to the Old Paths Publications, she has also "given" them her Capital Gain Tax liability; AND, since Old Paths is an IRS approved charity, they pay no taxes, and when they go to cash in the IBM stock, they owe NO TAX.

What if Old Paths cashes in the stock one month later, and it's value has dropped in half? This does not matter to the giver-the value of the gift and the Income Tax deduction is set on the DAY of the gift. Whether the stock goes up or down later results in a gain or loss to Old Paths - not the giver.

What if you're attached to IBM stock? - you think: "My grandfather worked at IBM and he left these to my Dad, and now I have inherited them", The solution is to GIVE the old IBM stock to Old Paths Publications, eliminating your Capital Gain debt, and BUY NEW IBM stock the same day, on which you will owe NO Capital Gain Tax.

There are special procedures for valuing Securities, and setting the actual DATE of the transfer, and the methods of transfer, of a gift of Securities. Therefore, givers should consult with an officer of Old Paths Publications and/or their tax expert very carefully when doing this.

PLEASE NOTE: There is a stricter annual limit to gifts of APPRECIATED PROPERTY, such as Securities, of 30% (THIRTY PERCENT) of your annual Adjusted Gross Income, just as there was a 50% limit to gifts of CASH which is mentioned above. You may also "spread" or "carry over" your tax deduction up to 6 tax years, just as above under #1 above, "CASH".

There is one type of stock, often held only by family members, which can also qualify for this Capital Gain bypass - gifts of "CLOSELY HELD" SECURITIES. However there are special technical rules for this and the potential giver should consult a tax expert before doing this. With this type of stock (CLOSELY HELD or PRIVATE STOCK), there is an additional advantage to be obtained by the giver and his/her company - that of an unwritten agreement, authorized by the IRS, to have the COMPANY buy back the stock from the Old Paths Publications after it is given.

This is important to Old Paths since this type of stock is usually not easily marketable to the public, and important to the giver who often would not want the public to own this stock.

Giving US Savings Bonds as tax deductible gifts is a special subject covered by unique rules. Please check on these rules when giving Savings Bonds. Old Paths can help you here.

Later, I will explain other types of IRS authorized gifts using stock, which have even more advantages - gifts which produce ongoing INCOME to the giver and/or his/her loved ones.

Also, later I'll discuss some serious implications and tax advantages of leaving gifts of cash, Securities, or other valuables to Old Paths through your will.

3. Gifts of Real Estate
This is a very specialized area that would require the services of a tax expert. However, friends of Old Paths Publications should keep in mind that they may want to give a gift of Real Estate (Home, Condominium, Business property, Rental Property, Apartments, Undeveloped or Developed Land, Farm, Vacation Home, Woodlot, Timberland, Farmland, Wetland, Forest Preserve, etc.). Similar rules and advantages can be experienced by the giver that are described in "2." "Securities" above (BYPASS CAPITAL GAIN TAX). Old Paths Publications (or any charity) will reserve the right to refuse such a gift - some gifts like this are not saleable, or worse, may include contaminated land, which could result in dangerous liability to Old Paths.

Quite often those who give Real Estate, do this in a "life income arrangement", whereby the giver gets a lifetime income in return for such a large gift. We will discuss this shortly under "Trusts". There is another very unique IRS authorized gift which can apply to your home or farm (THIS PROPERTY NEED NOT BE YOUR PRIMARY RESIDENCE). It is called a "Life Estate Agreement". This agreement offers the following rights and responsibilities:

A. retain the right to live in or rent the property for the rest of your natural life (lives, if owned jointly by 2, or even by several people).

B. retain the right to rent the property, or obtain income from it.

C. the giver keeps the responsibility to pay all taxes and insurance and maintain the property in the condition that existed on the date of the gift. The date of the gift is the date that the property deed is transferred by the County Recorder of Deeds to Old Paths Publications, Inc.

WHY WOULD SOMEONE WANT TO DO THIS?
To obtain an instant Income Tax deduction on the date the deed is changed, while staying in your home for years to come. It's like letting the Old Paths inherit your house years before you die, but getting the tax advantage of this gift now - when you may need it. You save on both Income Taxes and Federal Estate Taxes (if any) and the Pennsylvania Inheritance Tax. If you owe Capital Gain Tax on this property, you also escape this. This is a "30%" type gift, and the 6 year "spread" can be used.

 

WHAT IF I DO THIS NOW, AND IN A FEW YEARS DECIDE TO MOVE - LET'S SAY, INTO A RETIREMENT HOME???
First, you can "donate" your lifetime rights to live in your house to Old Paths (these rights DO have cash value), and receive an additional Income Tax deduction. Or, at that time Old Paths may offer to "buy out" your lifetime rights to stay in the house. Old Paths could do this with cash or with lifetime income payments. Or you can opt to rent your house until you die.

 

WHAT SORT OF INCOME TAX DEDUCTION DO I GET WHEN I FIRST MAKE A "LIFE ESTATE CONTRACT", THE FULL MARKET VALUE OF MY HOUSE?
No, you get the full market value, less the estimated value to you of your right to stay in your house til you die. This you will retain over your estimated life expectancy (as established by the IRS using current actuarial tables which estimate average life spans). The IRS rules assign a specific cash value to your rights.

Needless to say, this is a complex agreement and should never be entered into without the advice of an attorney who is well versed in this part of the Tax Code. This "Life Estate Contract" can be IRREVOCABLE or REVOKABLE, with significant tax differences between the two.

 

4. Gifts of Life Insurance
Occasionally, someone discovers that they have a life insurance policy that has "cash value", and the person feels they no longer really need this insurance. You can give the policy to Old Paths simply by instructing your life insurance company in writing to change the name of the "owner" AND "beneficiary" to Old Paths Publications, Inc. and hand the policy to, or mail the policy to Old Paths. Old Paths can cash in this policy if they may choose, or wait til the death of the insured, receiving the likely higher proceeds then. If there are still premiums being paid, the giver can stop this, or the giver or Old Paths can continue as they choose. The actual value of the policy on the date the "owner" AND "beneficiary" is changed to Old Paths Publications, Inc is the date of the gift and this is fully deductible, applying the "50%" deductibility rule mentioned above for the tax year you do this. The tax deduction is equal to the value of the policy on the date it is given, and additional tax deductions are given by the IRS each time any more premiums are paid by the giver of the policy (SO LONG AS OLD PATHS IS BOTH OWNER AND BENEFICIARY OF THE POLICY).

One may also just change the "beneficiary" on ANY life insurance policy to Old Paths Publications, Inc. WATCH OUT! This is NOT a deductible gift, because the giver can still change the "beneficiary" at any time, making this a REVOKABLE gift, and thereby NOT eligible for ANY tax deduction.

One may also want to name Old Paths as "contingent beneficiary" on any life insurance policy. Suppose you name your sister and your brother as beneficiaries, but when you die your sister is not living. This is a good opportunity to name Old Paths as "contingent beneficiary" to receive that sister's share.

Some people like the idea (some don't, and I'll explain why) of taking out a life insurance policy on themselves for, let's say $100,000, and naming Old Paths both the beneficiary AND owner of the policy. All premium payments made by the giver are tax deductible. The gift is worth $100,000 UPON THE DEATH OF THE GIVER. This sounds like a fantastic idea - Who of us is able to give a one time gift of $100,000 to our favorite charity??? Some charities even put up a plaque or dedicate a room in such a giver's honor.

However, this gift only really has a "deferred value" of $100,000, and in the meantime the life insurance company and it's salesmen should be (and will be) paid for their work-really reducing the direct benefit of such a gift to Old Paths. Usually premiums are paid for many years. Some people may like the orderly discipline of making regular life insurance premium payments leading to an eventual large legacy. As I said above, some people like this idea, and if so, they should do this.

As you can see, life insurance is also a specialized area for gift giving, and a friend of Old Paths Publications, Inc. should consult with an expert in this area, and, as a courtesy, with the Old Paths Treasurer before making such a gift. There are special rules for gifts of life insurance, but these gifts may be ideal for some.

There is a related type of gift - a gift of a retirement plan which you feel you don't really need (like a 401k, IRA, TSA-Tax Sheltered Annuity, etc.). There are VERY SPECIAL RULES for giving this type of asset - most assets like this were put aside without paying any Income Taxes on these earnings - and taxes are STILL DUE. People considering this must get expert advice. A simple rule for this type of gift is to consider leaving this type of asset to Old Paths in your will; this usually will be to the giver's best tax advantage.

 

5. Gifts of Tangible Personal Property
These gifts are sometimes called "gifts in kind". Here we focus especially on gifts of art, jewelry, silver, gold, coins (coin collections are NOT considered gifts of cash - IRS Revenue Ruling 69-63-1 C.B.63), antiques, stamps, etc. You usually may only deduct what you paid for these items (the "cost basis"), and of course, Old Paths will not accept this type of gift if it is difficult to dispose of. Gifts with a Fair Market Value of $5,000 (or a cumulative value of personal property gifts in any one tax year of $5,000) or more require a certified or qualified appraisal by an independent expert. Old Paths must be furnished a copy of IRS Form 8283 along with the appraisal and the gift valued in excess of $5,000. There is one (AND ONLY ONE) way to get a 100% full Fair Market Value deduction for a gift of tangible person property - that is if you give a gift such as a copier or computer which

Old Paths directly needs and uses. Caution, the 30% deductibility rule mentioned in #2 above applies to this type of gift of the COPIER OR COMPUTER which is actually used by Old Paths. All other types of gifts of Tangible Personal Property use the 50% rule outlined in #1 above.

Note how this rule applies - if you give a $10 million dollar Van Gogh painting which an Art Museum displays, you get the $10 million deduction; if you give $10 million in platinum bars which the museum will NOT display, you get what you paid for the platinum-even if you bought it for $5 dollars 50 years ago!!!, and even though now both gifts may truly be worth the same - $10 million!

Suppose you are a carpenter and you MAKE furniture used by Old Paths which has a retail value of $10,000-here you may only deduct from your income taxes the cost of the MATERIALS you used. However if you own a travel trailer and donate it to Old Paths, you may deduct your cost basis in the item (assuming Old Paths agrees to accept this as a gift). The IRS rules and the law state that Old Paths may not set a value on ANY type of donated item, no matter what the value - this is the giver's responsibility.

It would be helpful to list all the rules here but this can be quite complicated. Again a qualified tax advisor and/or the Old Paths Treasurer should be consulted. However, friends may want to consider these sorts of gifts as a practical way to give to the Lord's work. It would be prudent to discuss this with the Old Paths Treasurer first.

PLEASE NOTE: It may also be very wise to consider SELLING these items first, and give Old Paths the money, as there is little chance of any tax advantage to gifts-in-kind, UNLESS OLD PATHS NEEDS AND USES THE ITEM.

 

6. Gifts by "Bargain Sale" and "Partial Interest"
The US Internal Revenue Service recognizes a category of gift-giving to charities such as Old Paths Publications, Inc. called Bargain Sales. Suppose someone owns a piece of land worth $200,000 for which he paid $100,000 (the "cost basis"). He may SELL the land to Old Paths for less than the full Fair Market Value, let's say $100,000 for this example, and receive a large charitable income tax deduction for the difference, or a $100,000 Income Tax deduction. Of course Old Paths may not be interested in such an arrangement. The giver also escapes 1/2 of the total Capital gain tax he would have owed ($28,000) had he just sold the property for $200,000. He then winds up with only a $14,000 Capital Gain tax debt, which he can offset by his large Income Tax deduction.

Did you notice how this person saves almost 1/2 the cost of making a gift worth $100,000 to Old Paths? He saved $31,000 (assuming he is in the 31% Income Tax bracket) in Income Taxes he owed, plus $14,000 in Capital Gain Tax he owed, plus PROBABLY saves about 3% of the state Capital Gain Tax he owed.

The same above principle applies to a gift to Old Paths of a mortgaged property. This is recognized by the IRS as a type of "Bargain Sale".

A giver may do this with a large block of stock. He may "sell" the stock to Old Paths for less than its current real value, and get the tax advantages mentioned above, although the giver would ordinarily not consider this with publicly traded securities. He may consider this with privately held stock.

A giver may also divide a deed to a property, or a portion of a partnership, or other such assets, naming Old Paths as part owner. The IRS allows for an immediate tax deduction when this is done. The valuation of this gift must be done by a certified or qualified appraisal of the partial interest. There are other more exotic forms of the Bargain Sale and Partial Interest which should be pursued only with expert advice. Of course Old Paths retains the right to reject these types of gifts.

7. Gifts by Will
Christians should ALWAYS be mindful of remembering the work of the Lord in their will. It is perhaps the easiest way to give to the Lord's work. Why?

A. It costs nothing now. Your assets are not touched or reduced in any way during your lifetime when you may still need some savings for your old age, or possible infirmity. You simply state in your will that if you die before the Lord Jesus Christ returns, you want any worldly possessions to be used as you instruct.

B. You can change your mind - at ANY time up to your dying breath (assuming you remain mentally competent). Suppose you begin to believe that those to whom you have left your assets may misuse them, or no longer share your beliefs or principles - simply change your will or just change a sentence or a paragraph in your will; or add a "codicil", a brief addendum to your will.

C. Making a simple will is usually fairly inexpensive - some lawyers may do it for $100 or $200 or for FREE if you name your lawyer as executor or trustee or legal guardian in your will (they'll get paid later), or if you use this lawyer regularly.

D. A will is flexible. You can leave an amount of money to Old Paths Publications, Inc. - like $10,000 or $1,000, whatever. Or you can leave a percentage - "I hereby bequeath 10% of my assets as a tithe to the Lord's work at Old Paths Publications of Audubon, New Jersey..." Naming a PERCENTAGE will protect Old Paths from inflation - if you leave Old Paths $1,000 this amount may not be worth much if inflation escalates, but leaving a PERCENTAGE should insure Old Paths will receive the amount of "buying power" you intended.

OR, you can name Old Paths your contingent beneficiary - "I hereby leave all my worldly goods to my 13 brothers and sisters. However should any of them not be living upon the date of my death, the portion which would have been due to any of my siblings who are then deceased shall go to Old Paths Publications...".

Perhaps you want to specially designate your bequest - "I hereby leave all my worldly goods to the support of the publication of works of Calvin, Luther and the Puritans by Old Paths Publications..."

Leave anything you want to Old Paths - your cash, securities, retirement plans that you may not have used up, life insurance, your house, car, vacation home, furniture - anything -

E. Remember, you needn't TELL anyone what you've done except the lawyer that types your will - it is a secret until you are gone.

F. A bequest to Old Paths will probably save your estate taxes. For every taxable dollar an individual leaves over $600,000, the Federal Government will keep FORTY PERCENT, unless you leave it to a spouse. That spouse will still face the same huge tax rate when he/she dies. And those that leave more than $600,000 in their taxable estate face even HIGHER Federal Estate taxes - up to 50% or higher for the wealthy.

Pennsylvania's Inheritance Tax (as an example) will keep, ON THE FIRST DOLLAR YOU LEAVE, AND ON EVERY DOLLAR AFTER THAT TOO, 6% what you leave to your parents, children or grandchildren, but 15% (FIFTEEN PERCENT) of whatever you leave to any other person/s.

Whatever you leave to Old Paths will REDUCE your taxable estate for both Federal Estate Tax (if any) and Pennsylvania (or many other state's) Inheritance Tax!!!

G. If you have a substantial estate, you can leave an ENDOWMENT which the Treasurer and Officers of Old Paths will preserve, spending only the INCOME, but keeping your legacy intact until the Lord returns, or for as long as you stipulate. This type of bequest keeps giving year after year.

H. Some have left money by their will to a Christian charity like Old Paths for something Old Paths may not ordinarily be able to afford - "I hereby bequeath all my worldly goods to Old Paths Publications, Inc. for the purpose of air conditioning their offices, and for the continuing maintenance of the same..."

8. Gifts by Trust
Finally, but VERY importantly, are Trust gifts as stipulated by the US Internal Revenue Service Code. A number of friends of Old Paths should consider this type of gift vehicle. Many large books are devoted to the critical subject of Charitable Trusts, and only a brief review and summary are provided here. The reason for all this recent attention to this subject is the great advantage to BOTH the charity AND to the giver (here called the trust "grantor").

First, let me explain that we will not be discussing the revokable "living trust" (also called the "loving trust"). This is primarily NOT a vehicle for making gifts, nor does it usually have tax advantages, and is beyond the scope of this paper. These "living" trusts are nonetheless very important, and much material is available on them from any CPA, tax expert, estate planner, lawyer, etc. We are also not going to discuss "living wills" by which people stipulate their intentions for medical care should they become gravely ill or mentally incompetent. This is also an important topic. I believe most lawyers have information and/or brochures about this - as do many physicians.

What is a Charitable Trust? A Charitable Trust is a piece of paper (sometimes as little as a few pages, but often several pages) through which an individual establishes a legal arrangement for the handling of some or all of their assets-their worldly goods. Some or all of the assets put into the Trust will eventually benefit a charity or charities.

Someone has said that setting up a Trust is like establishing a private corporation. A Charitable Trust must have a "grantor" - that is the person who establishes and funds the Trust with some sort of assets, and must have a "Trustee" - the person who runs the Trust and carries out the wishes of the Grantor. The Trustee of any Charitable Trust may be ANY individual on the face of the earth, and is often the Grantor himself/herself. Sometimes there is a co-Trustee like a bank (Trust Co.), lawyer, accountant or stock broker. Sometimes the Trustee is the charity which will later benefit from the Trust.

Note: Lately, it is not unusual that ordinary Americans with average incomes and with modest assets, have a Charitable Trust, especially those above 60 years of age.

There are 2 broad types of Charitable Trusts - INTER VIVOS (to be created AND effective during one's lifetime) and TESTAMENTARY (set in motion by one's will). Starting with the INTER VIVOS type, let's discuss the 2 main types:

A. The Charitable Remainder UniTrust-This is the most common of all the trusts. It is usually set up with at least $50,000 in assets, and the assets are almost always highly appreciated property such as Securities or Real Estate. Here are the highlights:

i. the Trust is irrevokable. Once assets are put into the Trust (titled in the name of the Trust), they can never be returned to the giver or grantor, but must be used for the eventual benefit of a 501c(3) IRS approved charity/s, like Old Paths. It is possible to CHANGE the name of the charity (the "remainderman") after the Trust has been established, but only if the Trust document itself allows for this.

ii. the Trust is established by the Trust document, but only goes into action when ASSETS are placed into the Trust by the Grantor. Some Trusts exist for years before this happens.

iii. All of the assets which "remain" in this type of trust upon the death of the Grantor and/or the Trust "beneficiaries" (the person/s named in the Trust document who are to receive payments from the Trust during their lifetime/s) then pass to the charity/s upon the death of the last beneficiary. Some Charitable Remainder Trusts have many beneficiaries, but they MAY become difficult or unworkable when there are more than 4, or if the beneficiaries are young children. If the beneficiary includes someone other than the giver, that is, other than the "Grantor" and/or his/her spouse, the Trust may be subject to the Federal Gift Tax.

iv. the Grantor often names himself/herself the first beneficiary of the income produced by the Trust, and a living spouse as co- beneficiary, with other beneficiaries named to receive benefits either CONCURRENTLY with the Grantor or CONSECUTIVELY, after the Grantor dies. The Grantor need not be a beneficiary. Anyone can be named a beneficiary.

v. The Charitable Remainder Unitrust may continue for the lives of the beneficiary/s OR a term of NO MORE THAN 20 years, at the choice of the Trust maker-the Grantor.

vi. The assets of each Trust must not be co-mingled with other assets kept in Trust by the Trustee.

vii. the Trustee may elect (and often does) to hire a financial expert to advise him/her on the best investments to make of the assets of the Trust. NO agreement can exist that the assets put into the Trust (let's say 500 shares of GE Corp) will not be sold and must remain in the Trust.

viii. the Grantor (the donor) is given a handsome Income Tax deduction in the YEAR HE/SHE FUNDS THE TRUST.

ix. the 30% rule (see #2 above) applies

x. the 6 year "carry over" or "spread" rules apply. (see #1 and #2 above).

xi. The Grantor completely bypasses ALL Capital Gain Taxes due on any appreciated Securities or Real Estate placed into a Charitable Trust. This makes these Trusts extremely attractive to anyone who holds Securities or Real Estate that is highly appreciated.

xii. There is annual, usually taxable income paid out of the Trust to the named beneficiary/s. Here there are 3 sub-varieties of these Trusts, which will not be explained, in order not to complicate this matter. However, The US Internal Revenue Service Code REQUIRES that the Trust payout be no less than 5% - There is one exception to one sub-variety Trust that does allow the Trustee to pay less than 5% annually to a beneficiary/s ONLY IF THE TRUST'S ASSETS EARN LESS THAN 5%.

The Grantor of A Charitable Remainder Unitrust may choose ANY payout but an annual payout of 9% or 10% or more is often impractical, as these Trusts can be quickly depleted of their assets, and their remainder value to a charity nil.

xiii. the amount of the charitable Income Tax deduction which the donor/Grantor receives is dependent on the age of the beneficiaries when the Trust is established, and the annual payout chosen. The IRS monthly publishes rates and tables which calculate how much money will eventually pass to the named charity/s upon the death of the last Trust beneficiary.

xiv. there is a form of the Charitable Remainder Trust, called the Annuity Trust which establishes a payout amount on the date the Trust is established, and this never changes. Unlike the UniTrust described above where additional gifts may be added again and again to the Trust at any time, the Annuity Trust may NOT be added to, after it is established.

 

WHAT'S SO GOOD ABOUT THESE TRUSTS?

A. The Grantor eliminates Capital Gain taxes on the appreciated portion of Securities or Real Estate, yet gets to earn annual income on the FULL Fair Market Value of this property. There is no other vehicle available under the current tax code to accomplish this great advantage!!!

B. There is a large income tax deduction given when these Trusts are funded which can be "spread" for 6 tax years - this is especially helpful if the Grantor is earning a strong income at that time. The earnings from the Trust are usually taxable, but these taxes can be reduced by applying the charitable Income Tax deduction available for the full 6 years.

C. The Trust assets are removed from any liability to the dreaded Federal Estate tax (if any) and State Inheritance Tax.

D. If the Trustee is not the Grantor, the Grantor is relieved of the burden of asset management.

E. The Trust assets are removed from Probate fees, Estate lawyers fees, executor's fees, etc., making the Trust COMPLETELY PRIVATE! If you leave assets by will, your will becomes a public document upon your death - NOT SO A TRUST - only you and your Trustee know. Even the charity need not know about your trust until the last of the income beneficiaries dies.

G. Assets (like land or Securities) which may have been producing little or no annual income, can quickly and easily be converted to higher income producing investments, without Capital Gain taxes owed.

H. Invariably, these Trusts increase the income of the Grantor, and occasionally without even reducing the overall estate assets.

I. If established properly, the Trust corpus (assets) will GROW, and the income will more than keep pace with inflation. CAUTION: THIS CANNOT HAPPEN IN THE "ANNUITY TRUST" (here the annual Trust income payment is fixed).

J. The Trust Grantor can distribute his/her wealth gradually to heirs who ordinarily might be tempted to squander a large inheritance quickly. After a period of years or after the death of these Trust beneficiary/s, leave the principal (the body or "corpus" of the Trust) intact to be given to their charity/s.

K. MOST IMPORTANT, the Trust assets can be earmarked for the charitable remainder beneficiary - namely Old Paths Publications, and its work of spreading the saving knowledge of the Lord Jesus Christ, both here and around the world. "Remainder" gifts from these types of Trusts tend to be very significant, as these Trusts are often structured by Christians to steadily grow, increasing the annual income for the beneficiaries, and increasing the "remainder" for the charity.

 

The Pitfalls

A. The Trust is irrevokable. The Grantor can NEVER have access to the principal, the Trust's assets, even in an extreme emergency.

B. A Trustee may make poor investment decisions, and both the annual income for the Grantor/beneficiary/s and the charitable gift - the "remainder" may be reduced.

C. there are attorney's costs to set up a Charitable Remainder Trust, and costs SOMETIMES for Trustee fees and investment advice.

 

THE TESTAMENTARY TRUST
There are only two important things to know about the Testamentary Trust. Almost everything said about the above Trusts applies, except that one establishes such a Trust upon their death and by their will - for their beneficiaries, usually their spouse and/or children, and subsequently their charity; and second, there is no advantage to bypassing Capital Gain taxes, as one's death eliminates all Capital Gain tax on any appreciated asset.

Note: This paper is intended to be educational and to encourage lawful gifts to Old Paths Publications, Inc. of Audubon, New Jersey. It is not authoritative, nor should any individual consider any of the above advice without seeking their own qualified and competent counsel from an attorney, CPA, Certified Estate Planner, or other qualified and competent advisor.

 


223 Princeton Road
Audubon, NJ 08106
(609) 546-4802
books@oldpathspublications.com