If you're like most people, you want to make sure that you and your loved ones pay the least amount of tax possible. Many use year-end gift giving as a way to transfer wealth to younger generations while also reducing the overall estate tax that will be due upon their death. Below are some steps you can take to make gifts to your heirs without triggering gift tax liability. Some of these techniques may also reduce your own income tax liability.

 

A combination of estate and gift tax exemptions can be used to significantly reduce the overall tax liability of your estate. Upon your death, federal estate tax may be owed. A portion of your estate is exempt from the tax. That exemption amount is set by Congress and can change from year to year. For deaths that occur in 2011, the exemption amount is $5 million and the value of an estate in excess of that amount is subject to estate tax. The exemption amount is set to drop to $1 million dollars on January 1, 2013 with a 55% estate tax rate.

 

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Exemption Requirements for Non-Profit Public Benefit Corporations

By Julie A. Saltoun, Esq.

A public benefit corporation is a type of non-profit organization (NPO) dedicated to tax-exempt purposes set forth in section 501(c)(3) of the Internal Revenue Code which covers: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. Public benefit NPOs may not distribute surplus funds to members, owners, shareholders; rather, these funds must be used to pursue the organization's mission. If all requirements are met, the NPO will be exempt from paying corporate income tax, although informational tax returns must be filed.

 

Under the rules governing public benefit NPOs, "charitable" purposes is broadly defined, and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency. These NPOs are typically referred to as "charitable organizations," and eligible to receive tax-deductible contributions from donors.

 

To be organized for a charitable purpose and qualify for tax exemption, the NPO should be a corporation, association or foundation; individuals do not qualify. The NPO's organizing documents must restrict the organization's purposes exclusively to exempt purposes. A charitable organization must not be organized or operated for the benefit of any private interests, and absolutely no part of the net earnings may inure to the benefit of any private shareholder or individual. 

 

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On September 21, 2012, Senate Bill 323, also known as the California Revised Uniform Limited Liability Company Act (popularly known as RULLCA), was signed into law by Governor Jerry Brown. As of January 1, 2014, RULLCA will apply to all existing California limited liability companies (LLCs) as well as all foreign LLCs registered with the State of California as of that date. RULLCA completely displaces the current California law governing LLCs (Beverly-Killea Limited Liability Company Act, Corporations Code �� 17000-17656) and will be codified as the new Title 2.6 of the California Corporations Code at �� 17701.01-17713.06. This new law will apply automatically; there are no new documents that need to be filed by LLCs to fall within its purview. Also, there is no ability to "opt out."

 

RULLCA serves to provide more guidance on issues that the current law, Beverly-Killea Limited Liability Company Act (Beverly-Killea) is silent on or does not clearly address. Much of the Beverly-Killea provisions are included in RULLCA, however there are some areas that are new, such as the provision that makes an LLC member's bankruptcy a "wrongful disassociation" of the membership.

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Schneiders & Associates, L.L.P

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