The law of giving
The law of giving? You mean there’s a law about who or how I can give my “good stuff” to if I want to? Well, sort of. Law, as you might have guessed now, after almost nine years of these columns where I’ve been drumming the theme, touches every aspect of our lives. Its one of the reasons I, for one, am so fascinated with it. From the moment of birth to beyond the grave, law organizes and directs our being and our interaction with one another. I do not think it a far stretch, nor hyperbole, to say that in one way or another law (at least in the good ol’ USA) touches almost every aspect of human undertakings and behavior.One essential aspect of “giving” involves taxes. Taxes, of course, are the product of the Tax Code which is itself a product of legislation. Legislation (that is the enactments of legislatures, both state and federal) are nothing more that statutory encodations of the law. The Tax Code is a law? Yep, a collection of them really. What all those complicated rules and regulations amount to, when distilled to their nefarious essence, are the laws of tithing to the government, the “we” and “us” that collectively makes up our nation.One legal and taxation aspect of giving concerns outright gifts from one person to another. The rule is fairly straightforward and simple. An individual may give a gift of $11,000 or less annually to any other person he or she may care to without the gift amounting to a taxable event. Stated otherwise, if I want to give you $11,000 a year for one or as many years as I like, I may do so without a tax being imposed. If I give more, the gift is taxed. If I give $11,000 to the same person more than once a year, the gift is taxed. However, I may give such a gift to as many different people as I like without taxation.Say a husband and wife have five kids and the couple wants to give them each a gift. The husband may give each of the kids up to $11,000 annually and the wife may similarly give each of the kids $11,000 annually without a tax being imposed. Say all five kids are married and themselves have kids. Both the husband and the wife (the grandparents) may give $11,000 annual gifts to each of the five kids, to each of the five kids’ spouses and to each of the five kids’ children. Give more, however, and a tax will be imposed.”Gifting” may be an important part of an estate plan. By gifting, you take assets out of an estate so, when the testator dies, the estate is smaller (and may, therefore, escape some or all of an estate tax which might otherwise be imposed). As to the less than $11,000 annual gifts, they are taken out of the estate (that is to say, a gift having been made, they are no longer the property of testator when he or she dies) and thus, are not subject to any estate tax which may be levied. And estate taxes can comprise a very significant portion of an estate, especially among the very wealthy.The first million or so in assets of a deceased’s estate are not subject to estate tax. What is in excess of that amount is subject to incremental taxation at higher and higher percentages depending upon the size of the estate. Once your nest egg gets to be about a million (this includes all assets — home, car, bank accounts, stocks, bonds, etc), it is time to give estate planning (rather than a simple will) some serious thought. And gifting, as a part of the estate plan, can be an essential component.Another legal aspect of giving relates to non-profit organizations. First, what is a non-profit organization? Well, as the name implies, it is a legally-recognized entity that conducts business not with the thought of reaping a gain, but with the express purpose of benevolence or mutual cooperation. The reason for its existence is not to enrich its shareholders but to do good for the community through grants or beneficial social programs.Stating it simplistically, there are two kinds of non-profit organizations: those that do not have to pay a tax on the money it brings in, and those who do not have to pay a tax on the money it brings and which confers a tax-deduction on those persons who donate to the organization. Most commonly, these types of nonprofits are referred to as 501(c) (3) organizations (or, sometimes, 501(c) (4) organizations, if politically affiliated), the numerical designation reflecting that section of the Tax Code in which the rules are contained.An example or two might help. A group, say a merchant’s association, which exists to promote the common welfare of the association, and not to make a profit, may be exempt from taxation but may not deduct contributions made to it. One the other hand, a philanthropic nonprofit organization, say the American Cancer Society (or my favorite, locally, the Vail Valley Charitable Fund), exist for the purpose of helping the community. As benevolent organizations, they are conferred that special status of being both exempt from taxation and conferring tax-deductible status to their benefactors’ donations. If you donate say $1,000 to the Vail Valley Charitable Fund or the American Cancer Society, for example, you can reflect that donation as a deduction on your income taxes.The thinking is this: if you donate to a charity, the charity will do work that the government might otherwise have to do if the charity did not exist. Thus, to encourage charitable giving, the government treats your donation as if you have paid a tax to the government and so the government will not tax you again on that amount. It works out well for all.There are, of course, myriad other aspects to the law of giving, most of which, in one way or another pertain or touch upon taxation. Giving warms the cockles of the heart like few other acts ever can. And if you can get a tax break out of the whole deal, so much the better. In the common, if a bit tired parlance, giving is win-win.Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices in the Vail Valley. He is a member of the Colorado State Bar Association Legal Ethics Committee and is a former adjunct professor of law. Mr. Robbins lectures for Continuing Legal Education for attorneys in the areas of real estate, business law and legal ethics. He may be heard on Wednesday nights at 7:00 p.m. on KZYR radio (97.7 FM) as host of “Community Focus.” Mr. Robbins may be reached at 970/926.4461 or at his e-mail address: email@example.comVail, Colorado
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