Year-End Estate Planning Reminders

17 December 2008 Publication

Legal News Alert: Estates and Trusts

With 2009 around the corner and the anticipation of a new tax bill following the inauguration of President-elect Barack H. Obama, now is a great time to review a few gift, estate, generation-skipping, and income tax developments that may present planning opportunities now and in the upcoming year.

Gift Tax
The annual gift tax exclusion is scheduled to increase from $12,000 per donee to $13,000 per donee in 2009 ($26,000 for a married couple). Gifts up to the annual gift tax exclusion amount are entirely gift tax free. Gifts in excess of the annual gift tax exclusion amount use a portion of the donor’s $1 million lifetime gift tax exemption and reduce the amount that can be transferred at death by the donor without incurring a federal estate tax.

Estate and Generation-Skipping Transfer Taxes
On January 1, 2009, the total amount of assets that an individual can pass upon death to a non-spouse or non-charitable beneficiary without paying estate and generation-skipping transfer taxes will increase from $2 million per taxpayer to $3.5 million per taxpayer. The estate tax rate on assets in excess of the exemption amount will be 45 percent, and the generation-skipping transfer tax rate on assets in excess of that exemption amount will be an additional 45 percent.

Currently, the federal estate and generation-skipping transfer taxes are scheduled to be repealed in 2010 and reinstated in 2011 with a $1 million federal estate tax exemption, a somewhat higher generation-skipping transfer tax exemption, and a maximum tax rate of 55 percent. President-elect Obama has expressed an interest in locking in the federal estate and generation-skipping transfer tax exemptions at $3.5 million per taxpayer and capping the federal estate and generation-skipping transfer tax rates at 45 percent.

Income Tax
Under present law, the 15 percent rate on capital gains and qualified dividends will expire at the end of 2010. Further, President-elect Obama has indicated his intention to increase the capital gains rate to 20 percent for taxpayers in the top two tax brackets and to apply the same tax rate to qualified dividends. As such, Foley recommends a review of your personal income tax situation to determine if you can take advantage of the current rates.

In addition, on October 3, 2008, President George W. Bush signed into law the Emergency Economic Stabilization Act of 2008 (Act). The Act included a provision that extended the charitable individual retirement account (IRA) rollover through December 31, 2009. As a result of this extension, taxpayers age 70½ and older who are required to take annual distributions from their IRAs can make donations of up to $100,000 per year from their IRAs directly to charities, without the requirement to include such distributions in their adjusted gross income.  

Low Interest Rates and the Depressed Markets — A Great Time to Transfer Wealth
Interest rates are at historical lows, making it an excellent time to enter into transactions that take advantage of these rates. Further, the depressed stock and real estate markets make it an opportune time to transfer devalued assets to children and future generations. Intra-family loans, sales to “intentionally defective” grantor trusts (IDGTs), grantor retained annuity trusts (GRATs), qualified personal residence trusts (QPRTs), and charitable lead trusts (CLTs) are among the most effective tax planning strategies to capitalize on these challenging economic times. Foley recently provided guidance on these strategies in the Legal News Alert below:

These changes in the tax laws, interest rates, and markets may make changes in your estate plan appropriate, depending upon the composition and size of your estate, as well as your personal family considerations.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues.

If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following individuals:

Debra K. Smietanski
Tampa, Florida

Wendy S. Rusch
Madison, Wisconsin

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