When it comes to practicing law, mistakes can and do happen. Despite our best efforts, they can sneak into even the most thoroughly reviewed document or estate plan. Most clients can forgive the occasional error–attorneys are human after all. However, when it comes to big mistakes, especially those that cost clients money or don't meet their estate plan goals, can result in ruined client relationships and even negatively impact your practice's integrity.
The best way to avoid mistakes is to know about them in the first place. Take a look at our list, so you don’t fall victim to their snare.
1. Failing to comply with strict appraisal and substantiation requirements.
The Internal Revenue Code and Treasury Regulations impose substantiation and appraisal requirements for most charitable gifts. Failure to comply with these rules – which many advisors feel are draconian – can result in a complete loss of the charitable deduction.
Many people end up losing their clients’ charitable deduction by not following these rules. Ironically, this seems to happen more frequently with contributions to private foundations and charitable remainder trusts (CRT). This may be because many donors serve as trustee of their private foundation and CRT and do not realize these rules apply to gifts to trusts or non-profit corporations that are not managed by the charity.
The receipt requirement is most typically missed. Imagine losing a $1 million deduction because of a failure to provide a less than one-paragraph piece of paper to him or herself! It has happened!
2. Contributions of cash instead of low basis, highly appreciated publicly traded securities held long-term.
When the charity comes knocking at your client’s door looking for major gifts, a typical donor will respond with a cash contribution. While this may fulfill the charity’s fundraising goals, it may not be the best gift for the donor. A donor with an equities portfolio of highly appreciated, low-basis securities may be better off from a tax standpoint by a contribution of publicly traded stock held for more than one year. Why? Because a donor can deduct a gift of long-term capital gains property at the property’s full fair market value.
Learn about the rest of the most common charitable giving mistakes by downloading “5 Charitable Giving Mistakes to Avoid.”