DATE: Sept, 2000

The following is intended as general information and does not represent legal or tax advice. Individual circumstances vary - please consult your legal and tax advisors about your specific situation.

ARCHIVES OF PAST MONTHS

"What is the use of living, if it not be to strive for noble causes and to make this muddled world a better place for those who will live in it after we are gone?" -- Sir Winston Churchill

Congress Returns to Address Taxes and Spending

As Congress comes back to Washington and the end of the current legislative session, it faces a lame-duck President who has significant negotiating power over taxes and spending.

With Republican leaders eager to wrap up their work on spending bills in the next month and avoid even a hint of a government shutdown before the November election, Clinton is certain to win billions of dollars more for his domestic agenda while thwarting major GOP tax cuts, both sides agree. Even before members began returning from their August recess, House and Senate GOP leaders lowered expectations for the remainder of the session and vowed to avoid a legislative "train wreck" at all costs. With control of Congress and the White House at stake this fall, House Speaker J. Dennis Hastert (R-Ill.) and Senate Majority Leader Trent Lott (R-Miss.) appear more concerned about limiting political damage than scoring additional legislative victories.

Legislation on subjects from bankruptcy and organ transplant to hate crimes, visas for skilled foreign workers and the easing of sanctions on Cuba hang by a thread. No action is expected on gun controls or juvenile crime. The huge elementary and secondary education bill is being shunted off until next year, and a popular land acquisition program appears headed that way, too.

taken from an article by By Eric Pianin and Helen Dewar, Washington Post Staff Writers

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The Value of Living Trusts

More and more individuals and couples are turning to revocable living trusts to provide money management in the case of disability. This legal document enables individuals and couples to make sure there is no confusion about their wishes should they ever become incapacitated and to prevent their estate from getting bogged down in the probate process when they die.

Attorney Thomas Ryan Jr. calls a living trust "a complete will substitute. "It provides money and property management in case of mental disability or incapacity and passes property (of those signing the document) to their heirs upon their death," he said.

A will, Ryan explained, "only takes effect at death - but if and only if it goes through probate. To be effective, it must be admitted to probate." And one of the advantages of a living trust (and what creates the most interest in the document by those considering estate planning), he said, is that the revocable living trust allows the heirs to avoid the time and expense of the probate process.

"A power of attorney is certainly better than nothing at all," Ryan said. "But there's no legal requirement that anyone honor or comply with a power of attorney. It has no enforcement mechanism." Ryan said that "when a power of attorney works, great. When it doesn't, you're stuck going to court for a conservatorship."

"Living trusts are remarkably flexible arrangements," said attorney Paul Frederick. "They can deal with just about any property."

Assets like insurance policies and Individual Retirement Accounts or other retirement plans with beneficiary designations would not be included in a living trust, Frederick said. "Anything with a beneficiary designation goes wherever the document says it goes," he said.

A living trust names a successor trustee who can be anyone, a friend, family member or professional. The successor trustee steps in to manage a trust's assets if the person who sets up the trust becomes incapacitated, said Frederick.

With a revocable living trust, you can make changes or even cancel the document "as long as you have the capacity to do so," Frederick said.

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CLINTON VETOES 'UNFAIR, FISCALLY IRRESPONSIBLE' ESTATE TAX REPEAL

President Clinton vetoed H.R. 8, the Death Tax Elimination Act of 2000, on August 31, saying "This particular bill is wrong for our families and wrong for our future…it fails the test of the future both on grounds of fairness and fiscal responsibility."

Clinton vetoed the GOP-sponsored bill, designed to phase out gift and estate taxes over 10 years and estimated to cost $100 billion, because of the "real" cost of the bill: an estimated $750 billion from 2011 to 2020. He said the $750 billion would benefit only 54,000, or only 2 %, of estates.

"Over half of the benefits to these 54,000 estates go to less than 6% of the estates, less than one-tenth of 1% of the American people, 3,000 of the estates," Clinton said. "The average tax relief for those 3,000 families would be $7 million per person. And it will do nothing for the farm families…it doesn't really do what it's supposed to do." The remaining 98% of Americans would not benefit from the bill, he added.

Clinton also noted that repealing the estate tax could cause a decrease of $5 billion to $6 billion per year in private contributions to charitable causes. That is "less money for AIDS research or cancer studies, fewer resources for adoption, fewer opportunities for troubled children, fewer new acquisitions for art galleries and historical museums, and historic preservation," he said. "This is an element of this bill that has been discussed almost not at all in the public domain…but it is clear that it would be one of the unintended consequences of a complete repeal of the estate tax."

Rather than denying the need for estate tax relief, Clinton said he and the Democrats support it, as long as it is done "within a framework of fiscal responsibility and fairness." He pointed to the two Democratic alternatives as doing just that. The House Democratic plan would have provided a 20% across-the-board reduction in gift and estate tax rates, while also allowing family farmers and small businesses an immediate $4 million per couple exclusion, rather than making them wait 10 years for full repeal under the Republican proposal. The Senate Democratic plan would have exempted approximately two-thirds of all families from paying the estate tax.

Speaker J. Dennis Hastert, R-IL, vowed to make a congressional override of Clinton's veto his first priority when Congress reconvenes on September 5.

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Car Donations Are Becoming a Concern

Residents of large metropolitan areas such as Washington donate about 8,000 to 10,000 cars a year to charities, which sell the vehicles for an estimated $4.5 million, according to the Better Business Bureau. It is a good fundraising technique for charitable organizations - so good that many groups vigorously solicit donations of old vehicles. Radio advertisements promote the donations as a pain-free way to help a needy organization because consumers get a tax deduction.

But some groups may overstate the tax benefits, and consumers could wind up in trouble with the Internal Revenue Service. The IRS is taking a close look at the tax consequences of vehicle donations because of the increased popularity of donation programs.

Two areas of concern exist: Are vehicle owners properly calculating the fair market value of the cars they are donating? Are charities that sell the donated cars to a third-party auction house complying with the rules for charitable donations?

To avoid problems with the IRS and to make sure the charity fully benefits from the donation, here are some guidelines from the Better Business Bureau:

* Verify the charity's track record. Request an annual report and IRS Form 990 to find out how the charity spent its funds in the previous year. Also, make sure the charity is registered to solicit donations with the state. This information is usually available from the state attorney general's office.

* Find out the plan for the donated cars. Many charities say the cars will be used to help deliver services, such as transporting people to jobs or doctors' appointments. Some groups that solicit donations through major ad campaigns sell the donated cars at auction, however. In cases where an 800 phone number is listed, a third-party company may be collecting cars on behalf of a number of charities. If this is the case, the charity may get only about 20 percent of the sale of the car.

* Make sure to get receipts and proper tax forms. The charity should mail a receipt saying it has received the car. This information must be provided to the IRS.

If the donated value is more than $500, the taxpayer must fill out Form 8283 to submit with the tax return for the tax year in which the donation was made. This form requires the following information: name and address of the organization receiving the gift, description of the property contributed, date of contribution, date the property was acquired, how the property was acquired and method for determining the property's fair market value.

If the claim is more than $5,000, a professional, written appraisal of the car is required for tax purposes.

* Use caution when determining the fair market value of the car. The industry benchmark for used-car prices is the Kelley Blue Book, which is available in libraries or on the Web (www.kbb.com). The listings are based on cars in good condition. Some vehicles may be worth less than the Blue Book value if they have been poorly maintained or have numerous dents and scrapes.

The IRS will raise a red flag in any case in which a taxpayer has set a fair market value for a vehicle donation that exceeds the price the charity gets for the sale of the car.

To avoid problems, taxpayers should document their donated vehicle's mileage, condition and features, and include photographs for supporting evidence.

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HOUSE FAILS TO OVERRIDE CLINTON VETO OF ESTATE TAX REPEAL BILL

House Republicans fell 14 votes shy of overriding President Clinton's veto of their bill to phase out the federal estate tax September 7, closing the legislative chapter on the effort for the year and turning the issue over to the elections.

Thirteen Democrats who voted for H.R. 8, the Death Tax Elimination Act, in June switched their positions and backed Clinton's veto. A lone Republican, Rep. Doug Bereuter of Nebraska, voted to sustain the veto. The final vote was 274 to 157. An override requires a two-thirds approval of those present and voting.

House Majority Whip Tom DeLay, R-Texas, said the vote-switchers would pay politically for stopping the override. "If 13 Democrats had not switched, we would have overridden the veto," said DeLay, who was under the mistaken impression at the time he made the remark that the House had fallen only 13 votes short. In all, 53 Democrats voted with Republicans this time, compared with 65 who voted for H.R. 8 in June. Because there were seven more Democrats present and voting on September 7, 157 Democrats voted to sustain the veto, compared with the 136 who opposed the Republican bill in June.

above news release from Tax Analysis

House Again Overwhelmingly Approves Pension Changes, Debt Relief

By a 401-20 vote on September 19, House lawmakers cleared H.R. 5203, a reconciliation package that includes the $16 billion five-year package of pension and IRA changes the chamber approved in July and a debt relief bill it approved September 18.

Across the Capitol, the Senate is set to bring up its slightly larger $27 billion five-year package the week of September 25; it unanimously cleared the Senate Finance Committee earlier this month. Both chambers' bills would hike the annual IRA contribution limit from $2,000 to $5,000 by 2003, the first boost since 1981.

Both bills would:

· increase the contribution limit to defined contribution plans such as 401(k) to $15,000 by 2005;
· raise to 20% of compensation the limit on an employer's deduction for contributions to defined contribution plans;
· make different types of defined contribution plans more fungible and portable;
· speed up vesting requirements for employer matching contribution plans from five years to three; and
· modernize pension laws to encourage small businesses to offer pension plans.

The Senate bill, the Retirement Security and Savings Act of 2000, includes over 50 provisions Roth says are geared toward reversing the disincentives that discourage saving and expanding retirement savings opportunities. It would also:
· Allow a qualified charitable distribution from an IRA, which is made after age 70-1/2, which qualifies as a charitable contribution (within the meaning of sec. 170(c)), and which is made directly to the charitable organization or to a charitable remainder annuity trust, charitable remainder unitrust, pooled income fund, or charitable gift annuity.
· Create a tax credit for small employer plan contributions and start-up costs designed to help offset the first three years of costs involved in starting a small business retirement plan;
· rename as a "Roth 401(k)" a new retirement tool that would allow workers to contribute after-tax dollars to a 401(k) and withdraw funds upon retirement tax-free;
· increase income limits for contributions to Roth IRAs for joint filers to twice the limits for single filers; and
· increase the income limit for conversions of an IRA to a Roth IRA to $200,000 for joint filers.

above news release from the National Committee on Planned Giving

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