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SUMMER 2007 ESTATE PLANNING UPDATE
Federal Estate Tax Modification:
Congress has taken no action to modify the estate tax exemption or repeal the tax despite its ongoing promises to resolve this matter. The exemption is currently $2 million per individual (decedent) and is scheduled to increase to $3.5 million in 2009. The law currently repeals the tax in 2010 for one year and brings the exemption back to only $1 million in 2011. None of us expect this law to remain, but we do not know what final action will be taken. Proposals have been made to increase the exemption to $5 million and even $10 million. At this point it is difficult to predict anything and no legislative action seems likely until after the next Presidential election in November 2008.
Gift Tax Exclusion and Exemption:
The annual exclusion from gift tax for each individual gift has been adjusted (by inflation) to $12,000. The lifetime exemption for gifts by a donor in excess of the $12,000 gifts remains at $1,000,000. No change is anticipated even if the estate tax exemption increases.
Pension Protection Act of 2006:
This Act has received much publicity, primarily with the temporary two year allowance to make a gift to charity directly from the IRA account up to $100,000.00 per year. This Act permits the Trustee to Trustee transfer (you cannot personally withdraw it) without bringing the withdrawal into the taxpayer's income. The withdrawal can also be applied against the minimum annual distribution. The primary benefit of a direct gift is to keep the individual donor's adjusted gross income for income taxes lower, since that is the measure of the percentage of deductions that are allowed on the personal income tax return.
It is important to note that if you have a donor directed fund with any charity, your IRA transfer cannot be made to the donor advised fund under this temporary allowance.
Of even greater importance is the extension of the spousal rollover concept to any beneficiary. Commencing with distributions in 2007, any beneficiary can "stretch" the payout benefits over the IRS table for life expectancy. This is of great benefit to defer the taxable payout and extend the tax-deferred growth inside the retirement account. Any such distribution will still be subject to minimum distribution rules if the recipient is over 70-1/2 years of age.
Limited Partnerships:
Limited partnerships continue to be a high profile for estate tax audit with the IRS. Nevertheless, there are many benefits of utilizing a limited partnership for estate planning purposes and any client considering such a planning opportunity, or a desire for any information on the use of a limited partnership should contact us. Properly structured and established for the right reasons, the partnership provides opportunities to educate the next generation in investments, manage real estate and have family meetings to discuss financial and estate planning issues. Use of the partnership to transfer fractional interests in assets to the next generation is greatly simplified and enhanced.
Advance Health Care Directive:
If you have not executed the newly revised Advance Health Care Directive appointing an agent to make medical decisions and to grant access to medical records since the law was changed in 2004, this is an item that everyone should consider.
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