Fundraising by Charitable Organizations

Ainer & Fraker, LLP – A regular form of fundraising by charitable organizations consists of sales or auctions of property or services at a price in excess of value.

These are referred to as “quid pro quo” contributions or dual payments made that consist partly of a charitable gift and partly of consideration for goods or services provided to the donor.

Quid pro quo contributions typically include the purchase of tickets for sightseeing tours, all-expense-paid trips, theatrical or concert performances, books or subscriptions to magazines, stationery, candy, etc., and are sold with a generous mark-up that is designed to help the charity in performing its functions. In these cases, the charitable deduction is the excess of the payment over the value received by the purchaser-contributor. For instance, when tickets to a show are purchased from a charity at a price in excess of the normal admission charge, the excess over the latter (plus tax) is a charitable contribution.

Determining and documenting the amount of the purchase that represents the charitable portion is the key to being able to take a charitable tax deduction for quid pro quo purchases. Tax law requires charitable organizations that receive a quid pro quo contribution in excess of $75 to provide a written statement, in connection with soliciting or receiving the contribution, that informs the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the amount of the purchase that is in excess of the value of the property or service purchased and a good-faith estimate of the value of the good or services purchased.

Example #1 – A taxpayer purchases a cookbook from a charity for $100. The charity provides the taxpayer with a good faith estimate of $20 for the value of the book in a written disclosure statement. Thus, the taxpayer’s charitable deduction is $80 ($100 minus the $20 value of the book).

Example #2 – A taxpayer attends a charity auction. The charity provides a catalog of the items for auction and a good-faith estimate of the value of each item. The taxpayer is the successful bidder for a vase valued at $100 in the catalog, for which the taxpayer bid and paid $500. The taxpayer’s charitable deduction is $400 ($500 minus the good-faith valuation of $100).

Example #3 – A taxpayer pays $40 to see a special showing of a movie for the benefit of a qualified charity. The ticket read “Contribution $40”. If the regular price for the movie is $10, the contribution would be $30 ($40 minus the regular $10 ticket price).

 

Estate Planning for Parents of Special Needs Kids

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Estate Planning is important for all families.

However, it is especially critical for families with one or more children with special needs.  Without proper planning, valuable government resources may be jeopardized, or worse, lost forever.

10 Ways to Lawsuit-Proof Your Estate #5

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 5 – Check ownership of what you leave

This sounds ridiculous, but make sure you own what you’re planning to leave to your heirs…With jointly owned property, the joint owner gets it…If you put your vacation condo in corporate name and the shares are to go into a trust, it doesn’t matter that you say in your will that you want your daughter to get it.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

One of the most common misconceptions in Estate Planning is that your Living Trust (or Will) will always determine “who gets what.”

However, a Living Trust only controls what is actually in the Trust.

If you never fund an asset to the Trust, the Trust will not determine who gets that asset.

As the article indicates, Joint Tenancy assets go to the surviving Joint Tenant, not through a Trust or Will, which is one of the major problems with Joint Tenancy.

We were involved in a litigation matter where the Father had created a Trust leaving the bulk of his estate to the children of the first marriage.

However, when he died, it was discovered that all properties were held in Joint Tenancy with his second wife.

The children were originally told they got nothing because these assets were never funded to the Trust.

In addition to property owned in Joint Tenancy, there are a number of assets that are not ordinarily subject to Probate – including assets that pass by operation of contract, such as an IRA or 401(k) or Life Insurance or Annuity.

For these assets, a Will is powerless over them, because they pass directly to the beneficiary named on the account form.

This is why it is never enough to create a Living Trust, you must make sure that  your assets are funded to the Trust.

10 Ways to Lawsuit-Proof Your Estate

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

We found this article to be full of good ideas, so we are going to dedicate a separate blog post for each of the 10 Ways to Lawsuit-Proof Your Estate, which we will follow up with our own commentary.

In brief, here are the 10 Ways to Lawsuit-Proof Your Estate:

  1. Treat siblings equally
  2. Decide who gets which treasure
  3. Keep track of loans and advances
  4. Transfer a business with a contract
  5. Check ownership of what you leave
  6. Get your own lawyer
  7. Consider a corporate executor
  8. Establish you’re of sound mind
  9. Include a “no contest” clause 
  10. Spell out any disinheritance

Click on any of the links above to take you to the blog post that discusses it.

Joint Tenancy

In an earlier post, we discussed why your beneficiaries would think Avoiding Probate is an excellent idea.

We also discussed how certain Assets Not Subject to Probate can avoid the Probate process, including those assets that qualify for the California Small Estate Affidavit procedure, or Assets that Pass by Operation of Contract.

Now, we will examine the concept of Joint Tenancy, and whether it makes sense to use Joint Tenancy as a means to Avoid Probate.

Joint Tenancy, or Joint Tenancy with Right of Survivorship, is a legal designation that allows certain assets to go to the surviving Joint Tenant without being subject to Probate.

People use Joint Tenancy because it is easy to use, the financial account or real property deed will need to reflect that there is joint ownership with right of survivorship.

However, there are several key Disadvantages of Joint Tenancy:

  • Both Joint Tenants are co-equal Owners, there can be no disproportional ownership (i.e. 1/3 owned by Person A, and 2/3 by Person B)
  • Because all Joint Tenants legally own all of the property, the entire property is subject to the Creditors of any Joint Tenant
  • Assets owned in Joint Tenancy do not get a full Step-up-in-Basis (for capital gains tax purposes) at the death of a Joint Tenant
  • Joint Tenants may only leave their interest in the Property to the surviving Joint Tenant – they may not leave it to their children, their Trust or Estate or any non-Joint Tenant
  • Joint Tenancy ends after the first transfer of the property.  If the other Joint Tenant has died, or dies without naming a new Joint Tenant, the property may be subject to Probate
  • If all Joint Tenants die at the same time, the asset may be subject to Probate

We believe the Living Trust remains the best option for helping your family avoid Probate.

For many families, the Disadvantages of Joint Tenancy outweigh the benefits, especially when a Living Trust can accomplish the same objectives without the downside.

We invite you to Contact Our Firm to discuss your family’s Estate Planning needs.

Assets Passing by Operation of Contract

In an earlier post, we discussed why Avoiding Probate is an excellent idea.

We also discussed how certain Assets Not Subject to Probate can avoid the Probate process, in certain circumstances.

For those Estates that meet the requirements of the California Small Estate Affidavit procedure, they may be able to Avoid Probate for those qualifying assets.

The next category of Assets Not Subject to Probate are those Assets that Pass by Operation of Contract.

Generally speaking, if an asset has a Beneficiary Designation Form, it is likely that it will pass by Operation of Contract, instead of through Probate.

Here are some assets that may pass by Operation of Contract:

  • Life Insurance
  • Annuities
  • IRA’s
  • 401(k)’s
  • Other Retirement Plans
  • Any Financial Account with a Beneficiary Designation Form

For each of these assets, there exists a Contract between the issuing Company and the Owner or Beneficiary of the account.

The Beneficiary Designation Form is part of this Contract, which means the issuing Company agrees to pay the death benefit amount to the designated Beneficiary.

Since this contract exists to handle who gets the money when the original owner dies, the asset will ordinarily pass by Operation of Contract, and generally are not subject to Probate.

And Now for the Catch

Unfortunately, there is some misleading information out there that assets with Beneficiary Designation Forms are never subject to Probate.

Due to our extensive experience with Probate and Probate Litigation, we can tell you this is not always the case.

When might such an asset be subject to Probate?

  • If the Account Owner does not complete the designated beneficiary form
  • If the Designated Beneficiary predeceases the Account Owner, and no Contingent Beneficiary has been named
  • If the Designated Beneficiary survives the Account Owner, but there is still money in the account when the Designated Beneficiary dies [and no Contingent Beneficiary has been named]

In addition, if you want these assets to follow a distribution pattern that is more complicated than what is allowed on the form, you would be better off using a Living Trust to control the distribution, rather than relying on the form.

We invite you to Contact Our Firm to discuss your family’s estate planning needs.

California Small Estate Affidavit

In our prior posts, we discussed why Avoiding Probate is an excellent idea.

We also discussed how certain Assets Not Subject to Probate can avoid the Probate process, in certain circumstances.

One of the easiest ways to Avoid Probate, if your Estate qualifies, is to use the California Small Estate Affidavit procedure.  Assets are not subject to probate if they qualify.

California Probate Code Section 13100 et seq. sets forth the basic requirements to use this process:

  • The gross value of the Estate for which you are trying to use this Affidavit procedure is less than $150,000.
  • The Decedent has been deceased for at least forty (40) days
  • The successor to the Decedent may take possession of certain property without Probate, if he or she completes an Affidavit pursuant to California Probate Code Section 13101, in which they make certain declarations as required by law

Generally, the California Small Estate Affidavit procedure is not used in place of a Living Trust.

It is normally used when one or more small assets of the Estate are inadvertently left out of the Trust, and a Beneficiary or Heir (a successor to the Decedent) wishes to take possession of the asset without Probate.

However, the California Small Estate Affidavit procedure will not work if there is a Probate case going on simultaneously.

One of the requirements of the Small Estate Affidavit is to affirm that “no proceeding is now being or has been conducted in California for administration of the decedent’s estate.”

We invite you to Contact Our Firm to discuss your family’s estate planning needs.

Assets Not Subject to Probate

In our earlier post series, we discussed why Avoiding Probate is important for your family.

We discussed the Top 5 Reasons to Avoid Probate in California:

  1. The extremely High Cost of Probate
  2. The public nature of the proceedings
  3. The length of time involved in Probating an Estate
  4. The bureaucratic, Court-driven nature of the Probate process
  5. The requirement for Minor Children to be put on a Family Allowance

However, it is important to know which Assets are not ordinarily Subject to Probate.

First, under California Law, there is a provision for handling smaller estates known as the California Small Estate Affidavit procedure.  Assets are not subject to Probate if they qualify for this procedure.

Next, there are certain assets that pass By Operation of Contract – such as IRA’s, 401(k)’s, life insurance, etc. – generally are not subject to Probate.

Finally, Joint Tenancy assets are not subject to Probate, except in certain circumstances.

We will address each of these in separate posts, which you can access by clicking on a link above.

As always, we look forward to serving your family’s Estate Planning needs.

Contact Our Firm to see how we may help you.

Avoiding Probate #3 – Speed is the Key

Part Three in our series, Reasons to Avoid Probate, deals with the very slow nature of the Probate Process.

We estimate that the average Probate can take anywhere from 9-18 months to process.

Why so long?  A couple of reasons:

Probate is a Court-supervised process, that has a number of statutory and other deadlines.

The one non-negotiable deadline is the statutory Creditor’s Notification Period.

California Probate Code Section 9050-9054 sets the basic parameters of providing Notice to Creditors.

A Personal Representative has up to four (4) months after Letters Testamentary have been issued to notify all creditors.

Once notice has been given, a Creditor has sixty (60) days to file their claim.

Taken together, the Creditor Notification period can last up to six (6) months!

In the meantime, the Probate can not close, and ultimate distribution to the beneficiaries can not be made until the Creditor Notification period has elapsed.

However, in addition to the statutory time limits on a Probate, you also have to factor in the overcrowded and underfunded nature of the Probate Court itself.

Like all State agencies, Probate Courts are subject to the current financial crisis and budget cuts.  Sometimes this can result in under-staffing, and sometimes it can lead to mandatory closure days, depending on the budget chaos in Sacramento.

All this leads to extra delays in the Probate process, which is reason enough to Avoid Probate.

Avoiding Probate #2 – Privacy Matters

The second part in our series, Reasons to Avoid Probate, deals with the very Public nature of Probate Court proceedings, and why the lack of Privacy can cause harm to your family.

Unlike with a Living Trust, which must only be shared with those named in it after the creator has died, the Probate process is an open, public forum.

All of your bank account numbers and locations, birth dates, social security numbers and other Personally Identifiable Information become a matter of Public Record, which almost anyone can access.

In short, it becomes a one-stop-shop for would-be identity thieves.

Two or three decades ago – before Identity Theft became a household word – the Public Nature of the Probate Process was not ideal, but it didn’t represent the risk it does today.

Today, many Probate Courts in California allow much of the information from a Probate proceeding to be published online.

No longer do you have to go down to the Probate Records department and furnish identification.

Now you can stay at home and access a treasure trove of Personally Identifiable Information over the internet.

Reason enough to Avoid Probate entirely.