Planning Potpourri


Sell your CRT Interest:

So you're charitable and sent up a charitable remainder trust (CRT). You get an annuity payment for life, then your favorite charity gets the remainder. Times are tough. Consider selling your CRT interest. You can get a lump sum now, it might even exceed the present value of the annuity stream you might get for life. Terms of the trust and state law must be considered.

Family Loans:

If you're loaning your brother-in-law money to get through tough times have a formal signed note evidencing the loan, and get collateral. Insisting he sign a note and give you a second mortgage on his home isn't a sign of your mistrusting him, but gives you better standing ahead of other creditors if he is forced to bankruptcy. You're preserving family money, not being tough on him.

Review your Divorce Agreement:

Divorce agreements might mandate insurance coverage, contributions to 529 college savings plans, and more. How the recent economic turmoil affects your divorce might hinge on the wording used. If you were required to maintain a target level of funds in a 529 plan when a child attained a certain age or started college, the decline in the value of 529 investments might require additional contributions you had not planned on. If you and your ex were each required to contribute specified amounts, will that be enough to fund college if the value of the funds saved just plummeted by ½? Be proactive, review the agreement and consult with your matrimonial attorney and come up with an alternate plan before the fund is depleted on tuition. If your ex has insurance obligations, get proof of insurance to make sure that the ex didn't cancel the coverage because of economic problems, and that the policy and insurer remain viable (not assured after recent developments).

Ordinary Not Capital Loss. If stock in a C or S corporation is sold at a loss, that loss will be subject to severe restrictions on deducting capital losses ($3,000 above capital gains). However, if your stock qualifies as "Section 1244 stock" the loss might be deductible as an ordinary loss without the restrictions. ►The corporation must be a domestic C or S corporation.  ►The total money and property contributed to the corporation for stock must not exceed $1 million. ► The stock must be issued in exchange for cash or other property, not for services. ►The stock must be issued directly to the original owner who is an individual or a partnership. ► Stock can be either common or preferred (if issued after 7/18/84). ► For the 5 years before the loss, the corporation must have derived more than 50% of its gross receipts from other than royalties, rents, dividends, interest, annuities and gains from sales and trades of stocks or securities. ► The amount of ordinary loss that you can claim on Section 1244 stock in any year is $50,000, and for married taxpayers filing joint returns $100,000.

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