Important “News You Can Use”
Regarding Recent Tax Code Changes
Our goal is to keep Friends throughout the Northwest aware of governmental changes that have an impact on charitable giving and estate planning. As you probably know by now, there were sweeping federal legislative changes that occurred on December 17th—many of the finer details of which are just now becoming fully known. Some of the more important details are highlighted below for your consideration—and conversation with your professional advisors.
1. Estate, gift tax and generation skip revisions
The new law reinstates estate taxes for 2011 and 2012, but at substantially higher thresholds than were previously allowed before 2010. Going forward, each person will now have estate and gift tax exemptions that equal the first $5,000,000 of net worth per person ($10,000,000 per couple). This exemption has been unified once again—any gifts you make during life to your children or grandchildren (above the annual gift exclusion amount) will be subtracted from the amount you can give estate tax-free. In other words, the amount you can give to your kids and grandkids, during life and in death, without triggering taxation is now a total of $5,000,000 per person.
The estate tax rate for amounts given to loved ones above what you can pass on tax-free will be a flat rate of 35%, nicely lower than what the graduated rates were prior to 2010. Check your state law to see if state estate taxes still apply.
2. Possible simplification to estate planning documents
For many years married couples have included credit shelter trusts (aka “A/B trusts” or “marital and by-pass trusts”) as the centerpiece of their estate plan, serving as a way to protect each of their exemption amounts.
The new law allows the executor of a deceased spouse’s estate to essentially transfer any unused estate tax exemption to the surviving spouse (for decedents that pass away after December 31, 2010). For many people this new provision may allow estate planning documents to be simpler and streamlined—and less complicated to manage after the first spouse’s passing.
Of course, there may still be valid reasons to break the estate into two parts at the passing of the first spouse, such as second marriages or to include QTIP trust provisions. But for many people they will find the new law much simpler—at least for the next two years.
3. New provisions to encourage charitable giving
Previously, if a donor’s income were over a certain threshold there was a limit on the amount of itemized deductions a person could actually take, including charitable contributions. There is now a full repeal through 2012 and the full value of all charitable gifts can be deducted from taxable income, subject to any adjusted gross income limitations.
In addition, the law reinstates charitable IRA rollover opportunities, allowing people who are over 70.5 years of age, and have traditional or Roth IRAs, to make tax-neutral gifts from their retirement accounts up to $100,000 per year—again through 2011.
CONCLUSION: If you would like assistance updating an older will or living trust, or you would like help creating one for the first time, call Brendon Connelly at 503.476.9992. We have high-quality resource material which we can send to you. In addition, there is confidential planning assistance provided free of charge for those who desire it.
NOTE: The following information is for illustration purposes only. Please do not rely on the accuracy of this report, but rather consult with your own professional advisors. If you would like additional information, illustrations, or to have a conversation about the new law known as “TRUIRJCA 2010,” please be encouraged to call Gene Christian at 503-620-5173 or you can email him at email@example.com.
Article by Gene Christian, principal of Charitable Estate Planning Northwest