GREETINGS!
Thank you for subscribing to
E-Update, the complimentary monthly electronic
estate planning bulletin from the Trusts and Estates
Practice Group of Giarmarco, Mullins & Horton,
P.C.
Our estate planning attorneys provide sound
estate and business succession plans
utilizing:
- Revocable Living Trusts
- Irrevocable Life Insurance Trusts
- Qualified Personal Residence Trusts
- Grantor Retained Annuity Trusts
- Sales to Grantor Trusts
- Business Succession Plans
- Split-Dollar Plans (Private and Employer)
- Generation-Skipping Transfers
- Charitable Trusts
- Buy-Sell Agreements
- Specialized Trusts for Retirement Benefits
- Asset Protection Trusts
For a referral to one of our attorneys,
please call Julius Giarmarco, Esq. at
(248) 457-7200.
|
|
Tax Relief Act of 2010 Impact on Charities |
 |
On December 17, 2010, President Obama signed The 2010 Tax Relief Act. The Act extends the Bush-era individual and capital gains/dividend tax cuts for all taxpayers for two years. The bill also provides for a top federal estate tax rate of 35 percent with a $5 million exemption per person, and more. Following are some of the highlights of the Act and their potential impact on charitable giving.
Individual Tax Rates
Under the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), on January 1, 2011, individual income tax rates were scheduled to revert to 15, 28, 31, 36, and 39.6 percent (from the 10, 15, 25, 28, 33, and 35 percent 2010 tax rates). The 2010 Tax Relief Act extends the reduced 2010 individual income tax rates for two years, through December 31, 2012.
Impact on Charity: Lower income tax rates are a disincentive to taking advantage of the charitable income tax deduction.
Capital Gains
Under EGTRRA, qualified capital gains were taxed at a maximum rate of 15 percent. The capital gains rate was scheduled to revert back to 20 percent on January 1, 2011. The 2010 Tax Relief Act extends the 15% capital gain rate for two more years, through December 31, 2012.
Impact on Charity: Lower capital gains rates are a disincentive to using charitable remainder trusts to avoid capital gains taxes, and to making direct charitable gifts of appreciated property.
Federal Estate and Gift Taxes
Pre-EGTRRA estate and gift tax rates ($1 million exemption per person; and top rate of 55%) were scheduled to return after 2010. The 2010 Tax Relief Act provides for a maximum estate tax rate of 35 percent and a $5 million gift and estate tax exemption ($10 million for married couples) for two more years, through December 31, 2012.
Impact on Charity: The higher estate tax exemption is a disincentive for decedents to make estate tax free bequests to charity.
Charitable IRA Rollovers
The 2010 Tax Relief Act extended for 2010 and 2011 the ability of taxpayers who are at least 70½ years of age to transfer up to $100,000 per year directly from their IRA to a qualified charity.
Impact on Charity: The return of the charitable IRA rollover is beneficial because this puts (at least for 2010 and 2011) the nearly two-thirds of Americans who do not itemize deductions on their annual income tax returns and, therefore, who do not receive a tax benefit for their charitable contributions, on par with those who do itemize. It also benefits itemizing taxpayers who are prohibited from deducting more than 50% of their AGI for the purpose of making charitable donations (because donations from an IRA are not included in income and are not deductible). Finally, the IRA charitable rollover satisfies for the donor's required minimum distribution (RMD) obligation.
Shifting Paradigm?
Financial advisors and life insurance professionals are likely to focus less on estate tax planning (because of the increased gift and estate tax exemption) and more on income tax planning. If so, the likely beneficiary will be charitable remainder trusts in conjunction with wealth replacement trusts.
For more information regarding this topic, please
e-mail your requests to
Julius Giarmarco, or call Julius at
(248) 457-7200.
THIS ARTICLE MAY NOT BE
USED FOR PENALTY
PROTECTION.
|
|
WHAT YOU MAY NOT KNOW ABOUT THE CHARITABLE IRA ROLLOVER |
|
The Tax Relief Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the charitable IRA rollover (technically, the "qualified charitable distribution" or "QCD") income exclusion for 2010 and 2011. Much has already been written about it. However, the following nuances have not been so widely covered, and thus may not be so well known.
1. It is well known that QCDs can be made from IRAs only (Roth and traditional, inherited and non-inherited). But it is not so well known that QCDs can also be made from SEP and SIMPLE IRAs that are not "ongoing". A SEP or SIMPLE IRA is not ongoing if an employer contribution was not made for the year the QCD is made.
2. It is well known that QCDs cannot be made to private foundations. But it is not so well known that this does not exclude private operating foundations (see our October 2008 e-update for more), "conduit" (or pass-through) foundations, or pooled fund foundations as QCD recipients. Though the word "foundation" may appear in a charity's name, that alone does not disqualify it as a potential QCD recipient.
3. It is well known that QCDs may not be made to donor advised funds (typically sponsored by community foundations). But it is not so well known that other funds at community foundations are eligible QCD recipients. These include unrestricted, field of interest, and scholarship funds.
4. It is well known that a check made payable to the charity can be sent to the donor for the donor to present to the charity. But it is not so well known that neither a copy of that check nor the entry on the account statement showing the QCD is enough. Rather, a written acknowledgment of the contribution from the charity and a confirmation that there was no consideration received in exchange for the same is required. If this is not obtained by the earlier of the date of filing or the extended due date of the return, the transfer will fail to meet the QCD requirements and thus be inlcuded in income (and potentially deductible).
For more information regarding this topic, please
e-mail your requests to
Salvatore J.
LaMendola, or call Sal at
(248) 457-7204.
THIS ARTICLE MAY NOT BE
USED FOR PENALTY
PROTECTION.
|
|
LOANS IN EXCESS OF INVESTMENT IN LIFE INSURANCE CONTRACT TAXABLE TO POLICY OWNER |
|
In Sander v. Comm'r, T.C. Memo 2009-279 (December 20, 2010), the Tax Court held that a policy owner, who borrowed against a whole life insurance policy to the point where the policy was terminated, recognized taxable income to the extent that the policy loans and accrued interest exceeded the cash value and paid-up dividends. The court held that this outcome was dictated by IRC Section 72, which renders amounts distributed during the insured's lifetime with respect to a life insurance policy taxable either as annuity distributions (where applicable), or as ordinary income.
The ruling in this case would apply to any type of policy termination, whether it be a surrender or lapse. If a policy loan is outstanding at the time of a policy termination, the borrowed amount will be taxable to the extent that the cash value exceeds the policy owner's basis in the policy.
For more information regarding this topic, please
e-mail your requests to
Thomas P.
Cavanaugh, or call Tom at
(248) 457-7218.
THIS ARTICLE MAY NOT BE
USED FOR PENALTY
PROTECTION.
|
|
DON'T THROW AWAY YOUR CREDIT SHELTER TRUST JUST YET |
|
The Tax Relief Act of 2010 provides for a $5 million estate tax exemption (indexed for inflation in 2012) per person, and a top tax rate of 35%. In addition, the unused portion of the estate tax exemption of the first spouse to die may be transferred to the surviving spouse (so-called "portability"). This portability provision makes it possible for a married couple to transfer up to $10 million free of federal estate tax without having to use a Credit Shelter Trust. However, without further Congressional action, on January 1, 2013, the estate and gift tax exemption will decrease to $1 million per person, the top tax rate will increase to 55%, and portability will be repealed.
Despite the relative simplicity of just letting the surviving spouse use the predeceased spouse's unused estate tax exemption in 2011 and 2012, there are several reasons for still using Credit Shelter Trusts, including the following:
- The predeceased spouse's unused exemption is not indexed for inflation.
- The first predeceased spouse's unused exemption could be lost if the surviving spouse remarries and survives his/her next spouse.
- The appreciation in the assets in the Credit Shelter Trust is removed from the surviving spouse's estate.
- The predeceased spouse (as opposed to the surviving spouse) controls the management and distribution of the assets in the Credit Shelter Trust.
- There is no transfer to the surviving spouse of the predeceased spouse's unused generation-skipping transfer tax exemption.
- The assets in the Credit Shelter Trust are protected the from creditors of the surviving spouse and future beneficiaries.
- The portability provision is scheduled to sunset on December 31, 2012.
The bottom line: while portability is an improvement over no planning, it is not a substitute for proper planning.
For more information regarding this topic, please
e-mail your requests to
Julius Giarmarco, or call Julius at
(248) 457-7200.
THIS ARTICLE MAY NOT BE
USED FOR PENALTY
PROTECTION.
|
|
February 2011 AFRs |
|
| Compounding Period |
|---|
| Annual | Semiannual | Quarterly | Monthly |
|---|
Short Term AFRs
(Term 3 Years or Less) |
0.51%
|
0.51%
|
0.51%
|
0.51%
|
Mid Term AFRs
(Term More Than 3 Years
and Less Than 9 Years)
|
2.33%
|
2.32%
|
2.31%
|
2.31%
|
Long Term AFRs
(Term More Than 9 Years) |
4.15%
|
4.11%
|
4.09%
|
4.08%
|
|
Section 7520 Rate
|
2.8%
|
| Quick Links... |
 |
Giarmarco, Mullins & Horton, P.C. | 101 West Big Beaver Road | Tenth Floor | Troy | MI | 48084
|
