Learning From Warren Buffett-Good For the Heart, Good For The Tax Return

 The Associated Press recently reported that Warren Buffett Wants Charities to Use His Fortune Within 10 Years After His Estate Is Closed.

Warren Buffett is arguably one of the greatest investors of all time. We should all be so fortunate to be in his position. Warren Buffett is not only a smart investor and generous philanthropist, he no doubt has achieved significant tax benefits from his donations.

If I were in his shoes, I would want to create a lasting charitable legacy that carried on after my death. I find no greater satisfaction in knowing that my money went to worthy causes and helped in contributing to make the world a better place.

I’m sure most people who had Warren Buffett’s money would answer the same way. The fact is, people who have significant wealth over the current Unified Credit Amount (for gift and estate tax purposes) are subject to onerous estate taxes (45% Federal, plus any applicable state death taxes) at the time of their death. People in this position who take the time to plan their estates properly, can realize significant tax deductions by making charitable contributions. Vehicles like Charitable Remainder Trusts can provide a tax deduction for the charitable contribution, remove assets from one’s estate so that they are not subject to estate taxes, and provide the donor with an income stream in return for the contribution. In my opinion, these kinds of trusts are particularly useful when one has highly appreciated assets (like real estate or low basis stock positions) which would be subject to capital gains tax if sold outside the protection of a trust of this type. In some cases, the donor can actually wind up with MORE, by actually gifting the asset away! This should not be construed as legal advice (I’m not an attorney and not qualified to give legal advice), but a wake up call to people that if done properly, people can have their cake and eat it too in many cases. When considering a charitable gift of this nature, I would say that it is helpful to determine how much money one needs in order to live the lifestyle they desire, how much estate taxes they could potentially be subject to, what steps could be taken to reduce their taxable estate, and what legacy objectives could be realized as part of this process.

Warren Buffett’s desire to have the charitable organizations spend his assets within 10 years of his death reflect a trend among large donors called “Strategic Philanthropy” where donors want to have more control of what happens to the money that they donate. Realizing that in some cases, only a very small percentage of a donor’s contribution goes to the actual cause intended, many wealthy individuals have opted to create their own private foundations instead. This can allow the donor to take a salary (within limits) from the foundation, employ family members for pay (within limits) and create a lasting legacy that carries on after the donor’s death. People are advised to speak to a qualified estate attorney for legal advice.

In my opinion, the bottom line is that while many people know “giving to charity is good” they don’t know about the financial benefits that can come from “doing good”. I’ll bet Warren knows…


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