TAX BREAK

Current Estate Tax and Charitable Planning Developments by Nick R. Taylor (continued)

 

some type of trust on other type of “planned gift”.  These techniques include charitable remainder trusts, pooled income funds, charitable lead trusts, charitable gift annuities and gifts of paid up life insurance policies.  The credit for an individual is equal to 30% of the present value of the actuarial amount of charitable gift portion of the planned gift.  The limit on this credit is $10,000 with no carry over allowed.

 

As in the federal legislation, there are specific aspects to watch out for in utilizing this benefit.  The credit is available for gifts being in 2006 not for 2005 gifts reportable on the return filed in 2006.  Additionally, the credit is only allowed if the charity involved is a Nebraska charity using the funds for Nebraska charitable purposes.

 

A corporation would be allowed a maximum $10,000 credit for any amounts paid to a charitable endowment fund (that is the corporation does not have to make use of the specific planned- giving techniques above). 

 

Federal Estate Tax

 

The final significant area of impact to taxpayers and their planning is that of federal estate tax.  As probably all are aware, earlier in 2005 the House of Representatives voted for complete repeal of the federal estate tax.  This was the sixth such vote to that effect by the House of Representatives.  The hurdle has always been in the Senate which requires 60 votes for permanent tax relief.  Major compromise efforts were under way throughout the summer with exemptions being discussed of $3,000,000, $5,000,000 and even $10,000,000.  There were senators who also wanted the 45% federal estate tax rate to be reduced to capital gains rates.  When Congress recessed for its August recess the Senate scheduled estate tax relief for its second vote on September 6th.  Unfortunately for many, many reasons, Hurricane Katrina intervened.  Now the political reality is that Congress is looking to find between 150 to 200 billion dollars to support the rebuilding of the gulf coast.  It does not appear to be a politically viable time for the Senate to address reducing government revenues. 

 

The current law is that the estate tax exemption increases in the year 2006 to $2,000,000 and this exemption will be available through the years 2007 and 2008.  As scheduled, the exemption for 2009 is $3,500,000, unlimited exemptions for deaths occurring in the year 2010, and the exemption then reverts to $1,000,000 in 2011. 

 

What to Make Of The Above?

 

Many would predict that Congress will not return to estate tax relief for at least the next year or two.  If, and when, it does the best predictions are that the exemption would be potentially raised some degree, but held at a level amount.  Where does this leave planning currently?  For the next three years, the estate tax exemption will be $2,000,000.  If a husband and wife have an estate, including all assets of every kind, in excess of this figure, they would likely want to address estate tax planning currently. Two planning techniques that are often being implemented currently in a somewhat “hedge your bets” estate planning approach are as follows:

 

     1.  Each spouse creates a shelter trust in their own estate to be held for the surviving spouse.  The shelter trust can hold as much as the available estate tax exemption for the first to die.  If both spouses are comfortable making the surviving spouse the initial trustee of that shelter trust, the spouse can actually have simplified administrative access to those funds, somewhat akin to if the spouse had just been left those assets.  This type of estate planning structure is one which some couples who have implemented, and who now no longer need the estate tax

 

Continued

 

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