Tax Benefits

Your guide to Tax-Wise Charitable Giving Reduce or Elminate Taxes by Supporting The Fender Music Foundation

A Word of Thanks

Words alone can not express how much we appreciate the financial and emotional support we receive from people like you. We understand that each of our supporters has individual, often personal reasons for supporting The Fender Music Foundation. Whatever your reason, we thank you for helping us with our efforts to provide instruments to in-school, community and after-school music programs throughout the United States.

Tax Breaks for Givers

The Internal Revenue Service (IRS) rewards charitable givers with tax benefits for the donor during his or her lifetime or the donor’s family upon his or her death. Many people are not aware of the tax breaks that are available to them when they make charitable contributions or the ways in which charitable giving can help them achieve specific personal and financial objectives. As a valued supporter of The Fender Music Foundation, we want to make you aware of the tax breaks available to you and your family when you support our charitable organization. We also want you to know about some creative strategies you can use to achieve specific personal and financial objectives during your lifetime or at your death.

Please call us if you have questions about anything in this brochure. We would be happy to discuss your personal situation or refer you to appropriate professionals who can help you realize your goals.

Tax Breaks for IRA Owners

Leaving a Legacy

One of the best sources of funds for charitable gifting at death is your IRA (or any other tax-deferred savings account). When you withdraw money from your IRA during your lifetime, your withdrawal is subject to ordinary income taxes. Withdrawals prior to age 59  are also subject to a 10% penalty. After your death, your heirs’ distributions from the IRA will also be subject to ordinary income taxes. However, if you name a charity as your IRA beneficiary, the charity will not have to pay taxes on the distribution of funds from your IRA after your death.

By leaving money from your IRA to a charity, more of your hard-earned money will go to the charity and less of your IRA (if anything at all) will go to the IRS. This strategy benefits your heirs because they can inherit alternative cash assets (that you might otherwise have left to a charity) income-tax free.

Lifetime Gifting for Individuals Over Age 70

Individuals who are age 70 or older are required to take minimum annual distributions from their IRA(s) which are based on their life expectancy. The older you are, the more you will have to withdraw, and all required distributions are subject to ordinary income taxes.

It bears repeating that when you donate money to charity from your IRA, during your lifetime or at death, more of your money goes to the charity and less (if anything) is left to the IRS.

Gifting and Tax-Saving Strategies for Owners of Highly Appreciated Assets

Case Study: John Smith is selling his business-a multi-million dollar cosmetics company. He’s excited about the nearly $20,000,000 he will receive and the fact that he will finally be able to retire, but he is concerned about having to pay more than $3,000,000 in taxes. What can John do?

Solution Number One for Post-Death Gifting: John and his wife, Gloria, have been long-time supporters of The Fender Music Foundation. Before John sells his business, he can transfer it to a Charitable Remainder Trust naming himself and his wife as the trustees and The Fender Music Foundation as the remainder trust beneficiary. This will provide John and Gloria with a significant charitable deduction that can be used immediately. When the trust sells the business, the proceeds will go into the trust tax-free and can provide John and Gloria with a stream of income during their lifetime. While the income they receive will be subject to taxes, a portion may be realized at lower capital gain rates. After both John and Gloria have died, the remaining assets in the trust (“remainder”) will go to The Fender Music Foundation.

Obviously, any money left in trust to a charity will not be available to the donor trustees’ family. Since many donor trustees are also concerned about providing for children and grandchildren, they often create a “Wealth Replacement Trust.” This is also known as an Irrevocable Life Insurance Trust or“ILIT”. The “Wealth Replacement Trust” will then purchase life insurance to replace the asset(s) in their trust that are being left to charity. When life insurance is purchased by an Irrevocable Life Insurance Trust, the policy is considered to be outside the deceased individuals’ estate and the proceeds from the policy can be inherited by their children and grandchildren income and estate-tax free.

The charitable deduction that John and Gloria receive for gifting John’s business to a Charitable Remainder Trust will shelter a substantial amount of funds from taxation. Those funds can be used to purchase life insurance for their Wealth Replacement Trust should they wish to do so.

Example 1 - Charitable Mainder Trust with a "Wealth Replacement Trust"

Solution Number Two for Lifetime Gifting: Sometimes, the donor trustees of a charitable trust may prefer to make regular donations from their trust to The Fender Music Foundation and other charities during their lifetime but leave the assets remaining at their death to their heirs. In this situation, the donor trustees would establish a Charitable Lead Trust.

With a Charitable Lead Trust, money from the trust is distributed on a regular basis to one or more charities during the trustees’ lifetimes. At the death of the last trustee, the remaining assets are left to the trustees’ named beneficiaries, often their children and grandchildren.

Often, when creating a Charitable Lead Trust, the donor(s) will also want to create a “Wealth Replacement Trust” and fund it with a life insurance policy. If structured properly, the policy’s death benefit will provide the donors’ heirs with lump sum income and estate tax-free to replace the monies that the Charitable Lead Trust dispersed to the charity during its lifetime.

Charitable Trusts for Other Highly Appreciated Assets: Charitable Lead and Remainder Trusts are also appropriate for highly appreciated shares of stock, art, commercial property and other such assets. For example: David Jones owns three commercial buildings that he is tired of managing. He would love to sell them and live off of the proceeds for the rest of his life, but he is concerned about having to pay millions of dollars in capital gains taxes on the sale of his highly-appreciated buildings.

A Charitable Remainder or Charitable Lead Trust will work just as well in this situation and save David a fortune in taxes!

Example 2 - Charitable Lead Trust with a "Wealth Replacement Trust"

 We Are Here to Help You

Selecting the best, most appropriate gifting strategies for your individual needs and objectives is a complex process that requires careful consideration.

If you would like help in evaluating or implementing any of the tax-saving, charitable gifting strategies mentioned in this brochure, please call Moriah Scoble at The Fender Music Foundation at (818) 706-8742. If you’d simply like to make a donation, you can donate online.

Once again, we would like to thank you for your generous support. Please let us know if there is anything we can do to assist you.

This was written by:

Richard Winer
Winer Wealth Management, Inc.
21243 Ventura Blvd., Suite 207
Woodland Hills, CA 91364
(818) 673-1695
www.winerwealth.com

This has been provided for informational purposes only. The information herein should not be construed as legal or financial advice or a recommendation or endorsement of any particular legal or financial strategy. The laws in this area are complex and constantly changing. We recommend that you consult with an experienced professional to apply whatever strategies are best and most appropriate for your individual situation.