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ESTATE AND PLANNED GIVING |
Leaving More for
Your Family The tax code provides the means to pass more of one's wealth to family members at death. The opportunity to accomplish this objective depends on an individual's assets. Each family has a unique array of assets and there is a formula best suited to maximize potential tax savings and to meet specific charitable objectives. A number of tax-favored suggestions are offered below. However, an attorney, tax advisor, or financial consultant should be consulted for professional advice for estate favored planning that best matches personal estate holdings and objectives. Devices for Tax-Favored Transfer of Wealth to Family Life Insurance – If you set up life insurance in a properly designed Irrevocable Life Insurance Trust (ILIT), the proceeds will pass intact to your family without being subject to estate taxes in either your estate or that of your spouse. Although life insurance passes tax-free to beneficiaries, without an ILIT, the face value of life insurance policies in effect at death is added to an individual's gross estate for tax purposes. Oftentimes, an ILIT is established at the time that a significant charitable gift is made. Income tax savings realized from the charitable tax deduction are used to pay the premium and/or in the case of a planned gift that provides income for life, future income is used to pay the insurance premiums. Additional tax-favored treatment is realized when a donor uses highly appreciated assets such as stock to fund a planned gift. In addition to receiving a charitable tax deduction for the fair market value of the asset, the donor may be able avoid capital gains taxation. The net outcome is more for your family and charity. Planned Gifts – A growing number of people take advantage of charitable options that allow for a return on the charitable contribution. Called split gifts, these donations benefit both the donor and charity. Planned gifts provide income for a specified period of time or until death, and benefit a charitable organization. In addition to income and estate tax favored treatment, planned gifts may receive additional tax benefits through avoidance of some or all capital gains tax. |
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Charitable Lead Trust – For those who have assets that are expected to appreciate and would like their family to ultimately have control of the assets, a charitable lead trust offers special tax favored appeal. When established to benefit a charity, this type of irrevocable trust provides income to a charity for the life of the individual(s) or for a period of years. At death, or at the end of the chosen period of years, the amount remaining in the trust transfers to child(ren), etc. A charitable deduction is received if the donor reports income earned by the trust on his or her personal return. The property is transferred to the donor's beneficiaries at less than full value for gift tax purposes. Any appreciation that occurs on the property while it is held in trust avoids later gift or estate tax. An income tax deduction may be available to the donor when the charitable lead trust is established. Charitable Remainder Trust – These types of irrevocable trusts allow the donor to make a gift and retain income for one or more lives. Any principal remaining in the trust at the death of the donor or life income recipient(s) passes to the designated charity for its use. An advantage of charitable remainder trusts is that non-income producing property can be converted to an income-producing stream with the added benefits of a charitable deduction and in many cases, without capital gains taxation. Some individuals use the income tax savings or the trust income stream to pay premiums on an irrevocable life insurance (wealth transfer) trust for family members. This can result in family members receiving more wealth than would otherwise be possible. Another option is to fund a charitable remainder unitrust with life insurance by using its cash value accumulation to provide retirement income. This provides a current charitable tax deduction and removes the policy from tax as an estate asset. Q. What are the Federal estate tax rates for individuals? A. The following “Unified Federal Gift and Estate Tax” table for 2004 provides the rates of taxation one could expect to pay on his or her net taxable gift or estate .
*Gift tax credit is frozen at $1 million of shelter and gift tax is retained in 2010 with top tax rate of 35%. Tax rates were capped at 50% in 2002, declining to a top rate of 45% by the year 2007. Q. Can you provide information about capital gains taxation? A. Capital gains tax rates were changed by the Jobs and Growth Tax Relief Reconciliation Tax of 2003 . The information below describes the effects of this law on income tax rates, capital gains and dividends. Income Tax Rates. Tax rates have dropped to levels that were scheduled to take effect in 2006, retroactive to January 1, 2003 , with expiration in 2011. The top rate is now only 35% compared to 38.6% at the start of 2003. Capital Gains. The new law lowers the top capital gains rate to 15% (5% for taxpayers in the 10% or 15% tax brackets). Five-year gain has been repealed effective May 6, 2003 eliminating an 8% rate for property held five years (taxpayers in the 10% and 15% bracket) and an 18% rate for those in higher brackets. No change was made to the 28% top capital gains tax rate for collectibles, or to the 25% tax rate for real estate improvements as to which the owner has taken depreciation deductions. Top rates are sunsetted January 1, 2009, returning to the former 20% and 10% rates. Dividends. The new law provides a top 15% tax rate on dividends through 2008. There is a 5% rate for taxpayers in the 10% and 15% tax brackets through 2007 and zero tax in 2008. The new relief expires after 2008 for all taxpayers. The dividend tax break is intended to reduce the double taxation of corporate earnings but does not cover all types of income usually considered to be “dividends,” including payments from bond mutual earnings, most real estate investment trusts (REITs), and balanced mutual funds that invest in both stocks and bonds. Future mutual fund statements would break down which payments are eligible for the reduced tax rates. A sunsetting of ordinary rates apply to dividends after 2008. Important choices are yours to make To preserve and to control the wealth you have worked for and accumulated during your lifetime, please consult a professional to make a proper estate plan. Your preparation now will protect yourself and your loved ones’ interests if you are incapacitated or at your demise. Good planning may redirect “social capital” for charitable purposes that you choose rather than for estate taxes. Interestingly, there may be more money for you to spend now or distribute in your estate than would be the case if you leave nothing to charity. Estate planning helps to unlock the value of highly appreciated assets that have a built-in capital gain liability. Planning may help to create a more secure retirement income due to the benefits accorded to qualified (charitable) plans. Contact your attorney and financial planner for more information. The American Thyroid Association is available as a resource for additional questions about designated endowments and thyroid research funding at the address below.
Contact Information |
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The American
Thyroid Association provides this information for the benefit of
potential donors.
