On the other hand, it is not so well-known that sudden wealth can put an equal strain on a marriage and is also a major cause for divorce. In the Silicon Valley area, where our offices are located, we have seen the results of both financial boom and bust. Likewise, we have seen almost as many divorces due to sudden wealth as we have from sudden financial hardship.

We suspect that shortly after Palo Alto-based Facebook’s stock goes public, many Bay Area residents will suddenly be worth millions – on paper at least. This looming event, and the expected divorces as a result, brings us to the topic of the difference between community property and separate property in California, which we discussed this past Saturday afternoon on our weekly KDOW 1220 AM radio show and webcast.

California is one of ten states that recognize community property. In a nutshell, what that basically means for a married couple, or registered domestic partners, is that from the date of marriage to the date of legal separation, all income earned by either person becomes community property. Regardless of which partner earned the money, both partners “own” an equal 50% share of it.

The exceptions to what is community property in a marriage or partnership are known as separate property. The separate property exceptions include gifts from parents and inheritances, but those assets need to be handled properly to ensure they do not become community property through commingling and transmutation.

Clear lines of distinction need to be established between community property and separate property, so it is important to keep separate financial accounts and good records of all your transactions related to each set of property.

For example, if you are married and you inherit a house that you want to keep as your own separate property, put the property in your name only and pay any taxes or maintenance expenses for it from a separate bank account. Otherwise, expenses paid from a joint bank account indicates a willingness to share ownership of the property, which can (and probably will) be consider commingling and part of a transmutation process.

If a portion of a mortgage remains on the inherited property, be sure to also pay that from the separate bank account. In this example, a spouse or partner may be required to sign a document that indicates a willingness to disown any interest in the newly acquired property.

If one member of a couple owns some separate property, they can still file a joint tax return, but all of the facts and finances about the separate property need to be properly detailed and filed.

One of the most important aspects regarding ownership of real estate is how the title to the property is held. The primary issue is the concept of Joint Tenancy versus Tenancy in Common, which determines who owns the property when a legal partner dies.

If the property is held under a Joint Tenant title, the surviving partner gains full ownership automatically. The surviving partner will need to file an Affidavit of Death with the local Recorder’s office.

With a Tenancy in Common title, the heirs inherit the deceased partner’s percentage of the property. In a business partnership, the percentage of ownership can vary according to the terms of the title.

If Joint Tenancy or Tenancy in Common is not written in a title, then Tenancy in Common will be in effect. The transfer of property to survivors will need to occur in probate court, so, for example, the right of ownership can be determined for a surviving spouse and child whose names were listed on the title, but without a percentage of ownership indicated.

If you need to make a legal change to a title, we highly recommend that you avoid the serious problems that can occur, if it is done incorrectly. We suggest you hire a title company or an attorney. Our preference is to use a title company, because it can re-insure the new title.

During this past weeks’ radio show, we also discussed a few other issues related to the distribution of property to beneficiaries, as well as a few of the advantages and disadvantages of establishing a living trust to manage the distribution of an estate. You can download or stream a podcast of this show, which originally aired on February 11, from our Radio Show Podcasts archive.

If you have concerns about the status of your property titles and would like a free consultation with Connie Yi, a California Estate Planning Attorney, please contact us. We have four conveniently located offices around the Bay area: San Francisco, San Mateo, San Jose, and Pleasanton.

If you have any timely questions that we can answer for you on our next broadcast, please submit them by using the form on the Contact Us page on our website.

If you owe more on a mortgage than the real estate is currently worth on the open market, what can you do to try to avoid losing your property in a foreclosure procedure?

Because so many people are and will be affected by this problem, we spoke about this topic again on our weekly KDOW 1220 AM radio program, Wealth Preservation and You, in an episode called What To Do With Your Underwater House? If you missed this broadcast, you can listen to an MP3 podcast of it in our Radio Show Podcast archive.

A major factor in the collapse of the real estate market was that a few years ago many homeowners used the equity in their primary home to invest in a second property, back when “leveraging assets” was all the rage. When residential property values plummeted, those investors were left with two houses they could not sell.

In response to the collapse of the housing market, many property owners have tried to modify the terms of their mortgage, a strategy known as loan modification, in which the lending institution makes a permanent change in one or more of the terms of the loan, such as eliminating the overdue payments and/or lowering the monthly payments.

A loan modification is difficult to obtain, because several factors exists to determine if you are a good candidate and some of these are out of your control. These factors include your income level, the fair market value of your property, the loan amount, and – perhaps most importantly – who owns the note.

Unlike with previous generations of homeowners whose notes were often held by local banks, today’s mortgages are bundled into a package and sold, along with other loan notes of several types, much like a stock or other security.

The package that contains your loan might have a mix of loans of various levels of risk, from “liar” loans (secured without a statement of income to support its viability) to “A Paper” loans (homeowner has excellent credit), along with a security agreement attached to it that limits the percentage of a particular type of loan that can be modified — for example, only 10% of liars loans in a specific bundle can adjusted.

So, for example, if your loan modification application is received a day after an allowable maximum limit has been reached for that type of loan in the bundle that contains your note, your application will not be approved, regardless of the quality of all of your other eligibility factors.  Therefore, if you own distressed property, you should begin your research as soon as possible to find the best solution out of your underwater situation.

A good place to start your research is the Making Home Affordable (MHA) website, where you can learn about the various government initiatives available to help “struggling homeowners get mortgage relief through a variety of programs that aid in mortgage modifications, interest rate reductions, refinancing, deferred payment or transitioning out of your home while avoiding foreclosure.”

As part of your research, you can learn your current credit score from the three major agencies at AnnualCreditReport.com, “the official site to help consumers to obtain their free credit report.”

We suggest you do not get your hopes up for a loan modification, if you really do not qualify. You will be better off using your time and energy on a viable solution, because in these tough times it is better to come to grips with the reality of your situation sooner rather than later.

To determine the current value of your property, you can use the FDIC’s Net Present Value Calculator. If the calculator determines you are not eligible for a loan modification, the next recommendation for your distressed property could be the HMA’s Home Affordable Refinance Program (HARP).

If you are current with your mortgage payments, but are struggling to keep your head above the water line, you may be eligible for HARP. If not, your next option might be a short sale, a topic we have discussed and written about frequently in the past few months.

Not all lending institutions will agree to a short sale, accepting less for the property than is currently owed on the mortgage, but in some cases that is a better solution for all parties than foreclosure.

Short selling was a strategy that many investors used at the beginning of the housing market downturn, with the help of a real estate agent, to unload distressed properties. However, that option became increasingly difficult as the lending institutions became overwhelmed with all of the short sale applications. As a result, many homes were lost when investors’ mortgages were instead foreclosed.

For more valuable information and insights about this situation, we recommend that you read Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth? by Brent T. White, a law professor at the University of Arizona.

You can also find, at online or retail bookstores, several other publications about short sales and foreclosures, which may also provide useful information regarding your current situation.

As we stated above, we fear that we will soon be hit by another big wave of foreclosures, as a result of balloon payments becoming due or too-high adjustable rates kicking in, as well as because so many of the government initiatives and other options have been exhausted from the over-abundance of distressed properties across the nation, especially here in California and a few other hard-hit regions.

If your home or other real estate property is underwater, or you think you may be headed in that direction, you should determine your legal rights and realistic options, as well as the financial  consequences and tax implications of the the choices you make.

If you disposed of an underwater property in 2011 and you have already received a Form 1099C for the cancellation of debt (COD), you may have a tax liability for the amount of the loan written off. For this type of transaction, we definitely recommend that you have a professional assist you with preparing your taxes for last year.  Form 1099A is the correct form if you abandoned a property.

The current COD legislation expires at the end of 2012, so that is another fact worth considering if you have tough decisions to make about your underwater property.

As always, we recommend you consult with a tax or legal professional to ensure you understand your options and the related ramifications of each. Create a strategy and a step-by-step plan to achieve your goal, so you can eliminate the stress caused by the property and then move on with your life accordingly.

If you would like a free consultation with Connie Yi, a California real estate attorney and a CPA, about your underwater home, please contact us. We have four conveniently located offices around the San Francisco Bay area.

If your middle name is “Revenue” and you discover a way to collect an extra $4.4 billion, it is not hard to believe you are bringing back the program responsible – especially when you can raise the penalty rate by 2.5% for future collections.

We have recently written other articles about the OVDI and have been following this situation closely, because it affects so many people living in California, including many who are not even aware they are subject to taxes on offshore bank accounts and other overseas assets.

The new version of the OVDI does not have a set cutoff date, yet, like the previous two  offshore initiatives, but it also does not have a permanently set penalty rate, so that could rise without notice.

If you are still not in compliance with the law regarding reporting your overseas assets, you do not want to know how much the penalty rate has risen since the first program in 2009, but you should know that the penalty rate to become compliant will probably continue to rise as the program is extended, as an incentive to motivate you to act sooner rather than later.

The IRS has been extremely focused on this issue for a couple of years, and the program is generating so much new revenue, that the agency will also keep increasing the pressure on all of the financial institutions and mechanisms that assist with hiding assets on foreign soil.

Because of recent federal legislation, overseas banks and financial institutions are forcing account holders who are U.S. taxpayers to either submit the required IRS offshore asset declaration forms or take their money elsewhere.

Soon, there will be no place left to hide illegal foreign assets and the OVDI penalty rates will be even higher, so now is the best time to seriously consider coming clean, because eventually tax rate penalties can turn into criminal penalties. You cannot spend illegal assets while you are in jail.

If you would like a free consultation with Connie Yi, a California tax attorney and a CPA, about your overseas assets, please contact us. We have four conveniently located offices around the San Francisco Bay area.

Another good reason to not switch to a new tax preparer is the hassle of securely moving your financial record archive to a new location. Change is hard, so be prepared to deal with the stress of finding the right person, setting up your new account, and familiarizing your new tax preparer with your financial past and present, as well as your future intentions.

However, if you do need to find a new professional to help you file your 2011 taxes on-time, then you should understand a few basics about selecting a good tax preparer. We discussed this topic on our most recent Saturday afternoon radio broadcast on KDOW 1220 AM. Some of the points we covered on the show were:

• Check the preparer’s professional qualifications. All paid tax preparers need to be registered with the IRS as an enrolled agent. To be an enrolled agent, you need to be a licensed attorney or CPA, or you need to have passed the IRS’s Special Enrollment Examination (SEE) and a background check.
  .
• Conduct your own secondary background check of the preparer on the official websites of the American Institute of CPAs, the California Society of CPAs, and the State Bar of California (or the corresponding professional organizations in your state).
  .
• The cost for the services of your tax preparer should be a flat fee, not based on a percentage of your refund. You might find a large difference in the cost of hiring one preparer versus another, so keep in mind that you get what you pay for. If you are audited by the IRS, which professional do you want representing you in front of the government’s hired guns?
  .
• Is your CPA, attorney, or other tax preparer accessible during tax season? It is often difficult to immediately contact tax preparers during tax season, because they are doing a year’s worth of work for many clients in just a few weeks time, but your tax preparer should be available within a reasonable amount of time (48 hours) if you try to contact them via phone or email. Get your questions in as early as possible, because the closer it is to April 15, the more difficult it will be for your preparer to respond to the questions you should have asked weeks ago.
  .
• Your tax preparer is required to conduct due diligence regarding the expenses you declare, which means they cannot prepare a tax return for you to sign if they suspect it contains illegitimate expenses, so it is good – even desired – if a prospective tax preparer asks you up front about your expenses for 2011.
  .
• Never sign a blank tax return, even at the last minute. No further explanation should be necessary about this concept.
  .
• Never assume your tax return is 100% accurate, because tax preparers are only human. During tax season, they are usually working long, tedious, and stressful hours, almost every day for close to four straight months, so they do ocassionally make honest mistakes. Be sure to avoid making a costly mistake yourself, by closely reviewing your tax return before you send it to the IRS. You, not your tax preparer, will pay for any mistakes you submit.

We also discussed a few other points about how to select a good tax preparer, so if you missed the original airing of this episode of Wealth Management and You with Connie Yi, you can stream or download a podcast of this program from our Radio Show Podcasts archive.

Remember, April 15 gets closer every day, so choose your new tax preparer soon to receive all of the attention you need, before crunch time suddenly, but not unexpectedly, arrives.

If you would like a free consultation with Connie Yi, a California tax attorney and a CPA, about filing your 2011 tax return, please contact us. We have four conveniently located offices around the San Francisco Bay area.

If you have a living trust, the current uncertainty about this issue is a very good reason to take the time to understand the nuances of the subject, as well as to review with your attorney the current and potential future validity of your estate plan.

Some of the points we touched on during our broadcast include the flexibility of your trust, abandoning property, trustee powers, the impact of revised tax laws on your trust, the power of termination, and the complexities of trusts in relation to a non-traditional family structure.

Because we cannot be sure of the changes that may take place to the current estate tax laws, we believe an estate plan’s flexibility is the key to minimizing the taxes you ultimately pay. As a result of the current $1-million and $5-million estate tax-rate thresholds, your estate plan should account for the variances of the value of your trust fund.

Your estate plan should include contingencies for when the market is up or down at different points during the tax year. Due to the increasing prevalence of sudden spikes in stock market valuations, it is more-important than ever to understand your potential tax liability in relation to both the average daily value and the maximum value of your portfolio on any particular day during of the year.

It is also important to give ample flexibility to the trustee of a living trust or an estate, so that he or she can make decisions based on the current market conditions – especially if a trust fund could exist over an extended period of time.

An example of this type of flexibility might be a trustee’s ability to decide whether or not to abandon a piece of property, to cut operating expenses or future losses. It might be best financially for an estate trustee to just let go of a 40-year-old condominium that has lost most of its value and would be nearly impossible to sell in the current market, but which still carries the annual expense of a substantial maintenance fee. The ability to legally make that type of decision at the right time, instead of needing to confer and reach a consensus with all beneficiaries, is usually beneficial.

Other examples of sufficient flexibility would be a trustee’s ability to transfer the trust from one state to another or to divide an estate among heirs, so that physical assets are not split in half. For instance, a trustee could give a piece of real-estate to one sibling and an equal amount of cash and stocks to another sibling, so that the property could remain in the family rather than being liquidated. Or a trustee could split one trust fund into two, so each heir can manage their own assets.

A trustee should have the power to take advantage of any new tax laws, as well as the power of termination, so that a fund can be closed if the cost and effort of maintaining it would be more than its ability to significantly grow. For example, maintaining a trust fund might not be a good idea if it was established for five grandchildren and would exist for 20 years as written, until the youngest one turned 25, but which is only worth $50,000. An option available to a trustee with the power of termination would be to close the trust and disperse the remaining assets ahead of schedule, instead of spending lots of time and money maintaining it.

We also discussed, as part of setting up a trust, the need to establish a trustee protector, a mutually-agreed-upon person who would referee any disputes between a trustee and trust fund beneficiaries, as well as the option to establish a “No Contest” clause, which helps to prevent lawsuits by beneficiaries.

In the final segment of our weekly broadcast, we mentioned that a non-traditional family structure can add layers of complexity to setting up an estate plan that satisfies all beneficiaries. People who have children with multiple partners have several types of former and current relationships to consider – like when a wife from a third marriage continues to live in her deceased husband’s house until she dies, as a result of a “life trust” in the husband’s estate plan, even though, according to that plan, the house will eventually become the property of the first son from his second marriage.

During this election year, the status of estate tax laws will be a topic discussed in many forums, so we are sure to be speaking and writing about the subject again soon. In the meantime, we believe that, if you have not recently done so, this is an important time to review your estate plan with an attorney, especially if it includes a trust, so you can establish appropriate contingencies for the current period of uncertainty.

If you have any questions or concerns about your estate plan or trust fund tax law, please contact us to schedule a free consultation at one of our four conveniently-located offices in the San Francisco Bay area.

One of the tax-related topics that generated a lot of interest in 2011 is foreign bank accounts and other overseas assets, especially here in California where so many people are first- or second-generation immigrants who still have family and financial connections to their homeland.

We featured this topic this past Saturday afternoon on our weekly radio broadcast on KDOW 1220 AM.  As we mentioned on the show, we have written about this topic in previous posts and will probably discuss it further in the coming weeks, because there is so much to know about this important subject and it affects so many people in the local Bay area, especially in Silicon Valley.

During the last three years, the IRS has placed the collection of taxes on overseas assets on its priority agenda, along with collecting back-taxes, plus stiff penalties, if they determine you have committed a “willful violation” of tax reporting laws.

The IRS has also made many efforts to publicize the reporting requirements for offshore assets and it has implemented initiatives to make it easier to become compliant for any current or back taxes you may have owed. Therefore, should you be audited for non-compliance of reporting a foreign bank account or other overseas assets, it will be very difficult to prove you were unaware of your tax reporting obligations.

On the radio program, we covered some (not all) of the details and requirements for reporting the bank accounts or other property you own in another country on your 2011 tax returns:

• The U.S. Treasury Department requirement for taxpayers to disclose foreign assets valued at more than $10,000 at the end of the year is formally known as the Report of Foreign Bank and Financial Accounts (FBAR). The IRS is the collection agency responsible for ensuring taxpayer compliance with this law.
• You need to report eligible foreign assets if you are a U.S. citizen or you are a citizen of another country who resides in U.S. and you claim this country as your tax base. The form to use is TD F 90-22.1 (Here are FBAR Filing Requirements FAQs and FBAR Financial Accounts FAQs.)
• The deadline for filing an FBAR is June 30, 2012. No extensions to that deadline are available, even if you have received an extension for filing your regular tax return Form 1040.
• The civil penalty for non-compliance is $10,000 per incident. If the IRS proves you have committed a “willful violation” of not properly reporting foreign assets, you will be subject to criminal penalties.
• The U.S. Treasury Department is working closely with foreign banks to obtain the identity of all accounts owned by U.S. taxpayers. The banks are increasingly using sophisticated technology, such as face recognition software, to prevent depositors from hiding their identity from governments.
• If you decide to leave the U.S. and declare a different country as your tax base, to avoid paying U.S. taxes, you must follow an official exit procedure.
• The IRS reports that more than 90% of tax fraud attempts are caught and penalized, so compliance may be the less-expensive option.
• In addition to the cash balance in overseas bank accounts, foreign assets include brokerage accounts, CDs, bonds, and whole life insurance policies with a cash value over $10,000.
• A new filing requirement for 2011 is that if the value of your foreign assets is greater than $100,000 at the end of 2011, or if they exceeded $150,000 at any point during 2011, then you need to file Form 8938, Statement of Foreign Financial Assets.
• You may meet the “accidental requirements” for filing an FBAR if you find yourself in one of several situations, such as:
  • You are an overseas student whose parents have set up a foreign trust fund from which you receive income.
  • You have retired and moved to the U.S., to be near your children and grandchildren, but you still own retirement accounts or real estate in your homeland.
  • You are one of many technology industry workers in Silicon Valley who still have oversea ties.

If you are from another country and still have family there, we recommend that you ask your parents, grandparents, and other close relatives, if perhaps at some point in the past they included your name on a joint family account or set up a trust or other assets in your name. We suspect you would prefer to discover this information yourself rather than by receiving a certified letter in the mail from the Internal Revenue Service.

The IRS is not really concerned with how your name became associated with a foreign asset, they only look at the facts and then pursue revenue to which they are legally entitled. They expect you, as a qualified U.S. taxpayer, to be aware of all of your domestic and foreign financial assets, to know the law, and to pay your taxes on time every year.

We will explore this topic again soon, because we have just scratched the surface of all of the aspects of this subject. And please remember that reading this or any other blog does not constitute real research on the subject. To fully understand your legal requirements regarding this subject, start by clicking some of the links above or this link to the IRS website, then consult a tax professional whose responsibility is to know the law and act accordingly on your behalf.

If you have any questions about reporting foreign assets or you would like to schedule a free consultation to discuss your situation regarding overseas assets for the tax year that just ended, please contact us.

Most of us normally don’t like to think about the possible worst-case scenarios that could affect us, but in the real world in which we live, bad things sometimes happen to good people. It is definitely better to understand that from a realistic perspective and deal with it properly than to ignore that fact and suffer the consequences later, when, as a common example, a teenager injures someone in an auto accident.

We all live with a certain amount of risk in our daily lives, which increases as we acquire valuable things when we grow up, beginning with a family and everything it takes to raise one: from a home to a savings account to automobiles. Maybe you’ve acquired some stocks or a 401(k) account, to plan ahead for your children’s education and your retirement. You may have invested in a few pieces of serious artwork or some gold jewelry, which has appreciated in value over the years. You may have started a small business along the way, which might include rental property or which may have grown considerably since it began.

One bad day can put all of this in jeopardy. Car collisions occur all of the time, to drivers of all ages, and people are injured in them, or worse, every day. If this type of worst-case scenario happens to you or a member of your family, proper protection of your personal assets becomes very difficult after the fact.

If you own a small business, one lawsuit can threaten its survival. Proper protection of your corporate assets should be a part of your business planning process, not an after-the-fact reaction to circumstances you should have anticipated. Tenants like to sue landlords. Business partners have heart attacks and die unexpectedly. Accidents will happen on the job. Products might fail – and consumers definitely will file lawsuits if they do.

One common, affordable solution to protecting the assets of the average working person, middle-class family, or small-business owner is an umbrella insurance policy, which can provide the necessary coverage and protection, at a reasonable price, for the majority of people with a moderate amount of risk.

During this Asset Protection edition of our radio show, we discussed umbrella policies on the phone, with a local State Farm insurance agent, Wen Ling Cheng, who mentioned that you might be able to adequately cover a home and a couple of cars, depending on the number of drivers, for less than $200 per year. At that price, it really makes sense to assess your risk and properly protect yourself from the risk of the realities of everyday life in a complicated world.

We also covered a lot of other related topics during our radio show, including how to determine your risk factor; living trusts; inside creditors compared to outside creditors; setting up an LLC versus a corporation; a charging order in Delaware compared to other states (e.g., Alaska, Wyoming, New Jersey and Nevada); and cross-state LLC registration. We also mentioned caveats to consider when thinking about purchasing forms, books or any type of service from do-it-yourself asset protection websites — or advertised seminars that offer guarantees in exchange for a mere few thousand dollars in advance. Caveat emptor!

To listen to a podcast of this radio show (originally broadcast on December 10, 2011), either as an online stream or a downloadable MP3, visit our Radio Show Archive.

Obviously, there is much to consider regarding the topic of Asset Protection, beginning with an accurate assessment of your level of risk and your willingness to gamble. As usual, we urge you to consider consulting with a qualified, licensed professional to ensure you have the proper knowledge with which to make important decisions that will have long-term legal and financial ramifications on your life and lifestyle.

To schedule a free consultation with the Law Offices of Connie Yi, P.C. about asset protection for your family or your business, please contact us. For your convenience, we have four conveniently located offices in the Bay area: San Francisco, San Mateo, San Jose, and Pleasanton.

Click image above at noon on Saturdays to listen to live webcast of 'Wealth Preservation and You' with Connie Yi, P.C.

Each week we present a lot of valuable and timely information about estate planning, tax laws and real estate issues, on Saturdays at noon on KDOW 1220 AM. However, we know that not every everyone who might want to listen to the show can do so at the time of our original live broadcast. Therefore, we are posting MP3 files of each broadcast in our radio show podcast archive.

You can listen to a previous show by simply clicking a link and streaming it online in your web browser’s audio player or you can download the file to listen later offline. We are thankful for the positive feedback we’ve received about the information we provide each week in our broadcasts, so we are delighted to offer you a choice of listening methods.

The first podcast available is of our most recent show about Asset Protection. We will post the MP3 files to our previous shows soon, as well as all of our future shows, so check back later.

Send us your questions, so we can answer them in a future show.

We discussed charitable gifting a few days ago on our weekly radio show on 1220 KDOW (noon on Saturdays). As mentioned, the most important aspect of charitable gifting is your intention. We believe a 70/30 split of intentions is the appropriate perspective to have when considering charitable giving as a means of reducing your tax liability.

In other words, 70% of your intention to give to charity should be to contribute to a worthy cause that benefits others, while only 30% of your intention should be to avoid capital gains taxes. The bottom line is that you cannot legally keep the money you owe Uncle Sam, you can just divert some of it elsewhere based on your desire to serve the community in a more direct fashion.

With the economy still not in high gear, now is a great time to donate to a not-for-profit organization, because non-profit operating budgets have been slashed in the last few years, so your support is surely needed and will be greatly appreciated. You can also establish your own charitable trust fund to serve your community in a very specific manner.

A few options for charitable gifting are available:

• Direct Gift: the quickest and easiest way to give to charity is through a direct donation. Just write a check or make a secure online contribution. Be sure to acquire a letter of confirmation from the organization for your financial records and tax filing purposes.
• Charitable Trust: three types of trusts are available to distribute funds in different manners:
  1. Charitable Remainder Trust – you transfer ownership of assets, such as stocks or valuable art, to the trust, which sells them; you specify income you receive annually from fund.
  2. Charitable Unit Trust – you specify the percentage of the total value of the fund you want back annually (maximum $20K).
  3. Charitable Lead Trust – the fund provides a stream of income annually to the charitable organization; your heirs receive the remainder upon your demise
• Private Foundation: you establish a not-for-profit organization that operates as a business; entity is registered with the state’s Office of the Attorney General; long-term strategy that requires minimum expenditures annually; need to keep business dealings with organization at “arms length” to avoid perception by IRS of “self dealing.”
• Donor-Advised Fund: stock ownership is transferred to a brokerage account (e.g, Charles Schwab, Vangaurd) that is managed by the fund; you deduct fair-market value of stock each year and use the fund again in the following year; hands-free compared to private foundation, because Donor-Advised Funds do not operate like a business – you just decide how much and to whom you want to donate. We like this type of fund, because it does not operate like an independent business and therefore involves less effort and management than other options.

The legal and financial details of charitable giving can be complicated and cumbersome, which is why you should seek qualified financial advice and legal counsel before you make any decisions that have a major impact on your tax returns. The types of red flags the IRS looks for to find fraud include tax filings that are noticeably different than in recent years.

If you are taking a new strategic approach to your tax calculations that involves significant charitable giving for the first time, you should carefully comply with all of the laws and regulations that pertain to your transactions and filings.

Here are a few useful links to information on the IRS.gov website:

• Tax Information for Charities & Other Non-Profits
• Life Cycle of a Private Foundation
• Charitable Trusts
• Donor-Advised Funds Guide Sheet

If you are thinking about charitable gifting as a short-term or long-term tax strategy, here are a few things to consider:

• It is a good way to lower capital gains on highly-appreciable assets.
• You should involve your whole family in the decision and process.
• Some of the options require considerable advanced planning, so they may not work for the 2011 tax year, if you have not started the process already.
• Watch out for self-dealing, even if you do not intend to personally gain from a transaction.
• Choose a trustee to manage the charitable entity. Carefully balance the trustee’s authority between too much and too little control. Don’t tie the trustee’s hands to impede decision-making, but do make sure the trustee is not taking sudden tropical vacations beyond their means or investing in too-good-to-be-true stocks or schemes.

The Law Offices of Connie Yi, P.C. is uniquely qualified to help you make beneficial decisions regarding the complex issues of charitable gifting, because Connie Yi is a San Francisco Bay area charitable planning and capital gains tax law attorney, as well as a highly-experienced Certified Public Account. Connie can work closely with your family to determine the best financial options for current members and future generations, as well as your community.

To schedule a free consultation with Connie Yi about your family’s charitable giving and estate planning, contact us. For your convenience, we have four conveniently located offices in the Bay area: San Francisco, San Mateo, San Jose, and Pleasanton.