B
enjamin Franklin once
quipped, “In this world
nothing canbe said tobe
certain, except deathand
taxes.” The wise man’s
words couldn’t ring more true today, as we approach the
endof 2012. Formany, theendof thisparticular yearmay
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actsbefore theendof the year, on January1st of 2013 the
current set of very favorable laws governing the transfer of
assetsenacted in the “TaxReliefAct of 2010”will no longer
be in existence.
But fret not, the duration of 2012 still offers many an un-
precedented opportunity to remove assets from estates
throughgiftingstrategies that canhelp reduceestate taxes
andprovide lovedoneswith amore substantial legacy.
If you want to engage in a lifetime of prudent gifting, you
really should make sure you are properly educated and
aware of certain important rules. For instance, at the end
of 2012, the lifetime gift tax exemption of $5,120,000 per
person is scheduled to go back down to $1,000,000 and
the highest marginal federal estate tax rate of 35%will re-
vert back to 55%.
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1
per person
($26,000 formarried couples) to asmany and anyone you
desire without triggering any tax consequences. Be cau-
tious though- if you gift more than the $13,000 allowed to
any one person, such amount will be applied toward your
lifetime gift tax exemption. In addition to the ideas dis-
cussed above, for those still looking for additional ways
to transfer wealth, youmaywant to consider some further
techniques.
ACharitableRemainderTrust (CRT)
isa tax-exemptway
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riodof timeafterwhich the remainingassetsaredistributed
to your charities of choice. You determine the time frame
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to 20 years— as well as the amount of annual payouts.
First off, theannual payout for the lengthof the trust or the
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or your spouse) cannot exceed 50% or be less than 5% of
the value of the trust. And a private foundation or donor-
advised fund may be named as the charitable remainder
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How toSmartlyGiveAway
Assets inYour Lifetime
Highly-appreciated assets owned by the trust can also be
sold without an immediate capital gain, which may allow
for an increase in current income as well as income tax
deduction. However, the type of assets gifted and the type
of charity receiving thegifts, aswell asyour adjustedgross
income, areall taken intoconsideration indeterminingyour
charitable income tax deduction. What’s more, theremay
be income tax due on your annual payouts from the trust.
ACharitableLeadTrusts (CLT)
is fundedwithassets that
are, preferably, expected toappreciate. The charityof your
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the remainder goes to your family members at the end of
the charity’s payout term.
Unlike charitable remainder trusts, charitable lead trusts
are not tax-exempt. However, tax implications differ be-
tweenagrantorCLTandanon-grantorCLT.Withagrantor
CLT, you are treated as the trust’s owner for income tax
purposes and are responsible for paying taxes on the in-
comegenerated. However, there is thepotential to receive
an immediatecharitable income taxdeduction for aportion
of your contribution to theCLT. In thecaseof anon-grantor
CLT, on the other hand, no upfront charitable deduction is
allowed for income tax purposes. However, theCLT itself
receives a charitable income tax deduction each year for
the qualifying distribution it makes to charity. The primary
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value of the donor’s initial gift to the trust is determined by
three factors: a government-set interest rate, the length of
the trust and the payout to charity.When the government-
set interest rate is low, the value of the donor’s gift is re-
duced for gift taxpurposes. SoCLTsareparticularlyattrac-
tive in periods of low interest rates.
AGrantor RetainedAnnuity Trust (GRAT)
allows you to
pass assets you believe will appreciate in value to
family members at discounted levels. You contribute as-
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IRU D VSHFLÀHGSHULRGRI \HDUV $W WKHHQGRI WKH WUXVW WHUP
the remainingassetsand their appreciation (if any) aredis-
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reducedby thepresent valueof theannuitypayments, you
could structure a payment schedule and payout amount
that could result inaminimal gift-taxvalue. However, if you
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remaining trust property would be included in your estate
and subject to estate taxes.
WealthManagement
byAdamE.Carlin
