Ask the Expert: Can't alter tax situation

The tax code doesn't let you claim a

The tax code doesn't let you claim a deduction for giving away money unless your gift is irrevocable. (Credit: iStock)

Lynn Brenner

Lynn Brenner Lynn Brenner

Brenner answers questions about all aspects of family finance.

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My will says that when I die, $200,000 is to be donated to a charity, which will provide an annuity for a relative. Can I arrange this in advance without giving up control of the money, in case I want to change my mind or the beneficiary dies before I do?

 

That's exactly what you've already done. As things stand, the money is yours until you die; and if you change your mind, you can revise the will. But perhaps your real question is whether there's a way to take a current tax deduction for a charitable gift that you may never make. If so, the answer is no, says Neil Geschwind, a Melville tax accountant.

Here's a simple rule of thumb: If you still control money, it's still yours for tax purposes. You can't alter your tax situation with a legal document that you have the power to change, like a will or a revocable living trust. (It's a very common misconception that if you transfer your assets into a revocable living trust, you remove them from your taxable estate. That's not so, says Eric Kramer, a Uniondale estate lawyer, because as the trustee, you still control those assets.)

Geschwind says that if you want your estate to receive a charitable deduction after you die, your will should direct your executor to set up a $200,000 charitable remainder trust for your relative's benefit, should he survive you. The charitable remainder trust will buy the annuity that provides him with life income, and the trust principal will eventually go to the charity. Your estate can then claim a charitable deduction for the present value of that future gift.

The bottom line: The tax code doesn't let you claim a deduction for giving away money unless your gift is irrevocable.

Websites with more information bit.ly/UlaTvR and bit.ly/SSVDEx

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