How to create a personal financial legacy
VISTA, Calif. - According to statistics collated by the Indian Gaming Industry Report, Indian casino revenues have grown steadily, at rates exceeding 15 percent per year since 2000. Accordingly, members of many gaming tribes receive substantial income and benefits. Usually, when people's income goes up, their charitable giving increases. But ThreeHoops.com reported that American Indian tribes and charities receive less than 1 percent of all gift revenues.
While these statistics reflect donations to formal institutions, observations from my practice show otherwise. The tradition of giving is very much alive. Many tribal members help their friends and family who have less income.
For people with income, taxes are part of the cost of living in America, both on- and off-reservation. Each year, high-income tribal members pay income taxes at 25 percent or more. Federal and state tax collectors get at least 25 cents for every dollar received.
When they pass away, part of these tribal members' estates may be subject to nearly 50 percent in death taxes. Current tax laws provide complete exemption from one spouse to the other. For nonspousal heirs, the first $2 million of inheritance is exempt from the federal estate (death) tax. But all assets over this amount may be subject to a 50 percent tax rate. Heirs would get only 50 cents on the dollar.
If set up properly, gifts and financial assistance can actually help with both types of tax savings.
Tribes and individual members can actively craft their legacy so they can continue to positively affect others even after death. Many legacies are created with money or assets.
Many tribal members may have heirs that do not qualify for enrollment. Instead of giving a lump sum inheritance, funds can be set up for distribution in regular periods. Other tribal members may wish to help others by providing scholarships for education, health care services or emergency financial assistance. Charitable funds can be established.
''Trust'' is a common mechanism to hold money, earn returns and distribute income to the intended parties. These funds can be taxable or tax-exempt. In general, funds that benefit specific individuals are taxable. Funds that benefit charitable causes are tax-exempt.
All trusts have beneficiaries and frequency of distribution. Some have intended use. Money put into funding a trust is generally not tax-deductible. But donors putting money into a charitable trust may realize immediate income tax and future estate tax savings. With adequate planning, a donor can even ensure a tax-free inheritance for heirs.
Deductible amount depends on ''present value'' of the gift. If a donor gives away cash, the entire amount is its present value. Sometimes donors do not want to part with all of the assets until they pass away.
For example, a 50-year-old couple is in the 35 percent income tax bracket and has over $1 million in assets. Together they decide to donate a $100,000 investment to a charity upon the second donor's death. Since life expectancy is approximately 80 years for the average American, the charity is likely to have to wait another 30 years before the gift is received.
Due to inflation, $100,000 would not be able to buy as much as it can today. The gift would be worth less. Based upon a 5 percent inflation rate over 30 years, its present value and current deduction is $23,138.
Assume that the investment earns a $7,500 income annually. If the donors want to also leave an inheritance for their heirs, this income can be used to buy an approximately $100,000 life insurance policy for their grandchildren. Since life insurance proceeds are not subject to either income or estate taxes, the heirs can receive all $100,000 tax-free.
Gaming has made a drastic difference in the financial welfare of many tribal nations. Some may be inclined to help other tribes that have not succeeded.
Many communities set up charitable community foundations and community funds. The master foundation specializes in identifying efficiently run charities in different categories. Donors to the master foundation may also select categories of charities to help. Tribal leaders can consider establishing a regional community foundation to share resources and celebrate in the spirit of Native tradition.