Charitable Gifts Can Pay Dividends

Attorney Alan L. Rubens has a simple answer to one of life’s most stressful questions for many retirees: how to pay the ever-escalating cost of long-term care insurance.

His solution: Don’t pay. Let the kids do it.

After all, as heirs, your kids are the ones who will benefit most from insurance that keeps the estate intact.

Most retirees’ have Medicare and Medicaid to see them through if and when their own money runs out. But that, of course, would leave little or nothing for heirs to inherit.

“By purchasing long-term nursing-care insurance,” says Rubens, an expert on probate and estate planning, “what you are really doing is these two things:

“One, you are preserving assets for the next generation. So, why not let your kids pay to preserve the assets for themselves?

“Two, you are making it easier for them (kids) to decide whether or not to put you in a nursing home - because they don’t have to consider the finances.

“But that’s something I would want to discuss with my kids before I go out and spend thousands of dollars a year so that they’ll have more money when I get sick and die. Let them take care of it.”

Rubens, a senior partner of the Spokane law firm Stamper, Rubens, Stocker & Smith P.S., put on an estate planning clinic recently for employees of Cowles Publishing Co. and their spouses. It was one in a series of five company-sponsored workshops covering a broad range of retirement and financial planning subjects.

Wills, taxes and death are not fun topics of discussion, but Rubens managed to captivate his audience with a section on charitable giving, the idea of which is to give money or assets like income property away in order to exploit tax breaks.

“When you make a gift to charity in your will for estate tax purposes, you get a dollar-for-dollar deduction in your estate,” said Rubens.

But it is also possible to give away money to charity when you are alive, get a valuable income tax deduction, and grow your estate, as well. “Indeed, when you are dealing with charity,” said Rubens, “if you are at all charitably inclined, there are some outstanding planning opportunities through lifetime giving.”

For example, a $100,000 apartment building, which has been fully depreciated, would require payment of a 28 percent tax if sold outright today, leaving just $72,000.

“Instead, we’d like to give it to charity, and we’d also like to increase our cash flow,” he said. “So, we are going to take this $100,000 property and transfer it into what’s called a charitable remainder trust.

“The trust is going to sell it,” he said, “and the trust won’t have to pay any income tax when it sells. So, the trust will have $100,000 to invest, not just $72,000.”

Better yet, said the estate planner, “The trustees are going to pay us income. We’ll set our rate of return at whatever we want - as long as it’s within the standards of reasonableness - so let’s say 8 percent.

“We’ll get 8 percent for life for us and for our survivors. When we are done, whatever’s left of that trust goes to our favorite charity. But meantime, we’ve improved the base that’s generating income for you by this $28,000 that you didn’t pay in taxes on the sale. And we’ve set your rate of return at maybe higher than what you could have gotten investing just $72,000 in bonds. And we’ve gotten you the charitable tax deduction for transferring $100,000 into charity.

“It’s so slick,” said Rubens, “that some people have figured out that even if they don’t care about the charity they gave to, it still makes sense. Sure, charity gets the trust funds in the end. But meantime, you’re way ahead of the game.”

Even so, some people will say they want to preserve the full $100,000 value of the apartment house for their kids.

Well, you can do that, too. “Take some of that extra income you got by setting up this trust,” said Rubens, “and buy a $100,000 life insurance policy. And when you die, your kids will get their $100,000.”

Not only will this boost your cash flow, provide for your heirs, and benefit charity, but those who profit from this strategy, said the estate planner, “will probably have a benefit in your honor while you are still alive.”

, DataTimes MEMO: Associate Editor Frank Bartel writes on retirement issues each Sunday. He can be reached with ideas for future columns at 459-5467 or fax 459-5482.

The following fields overflowed: CREDIT = Frank Bartel The Spokesman-Review