The Michigan legislature in May of this year passed several sweeping tax bills which will hit Seniors hard. This legislation was signed by Governor Snyder and goes into effect January 1, 2012.
For this summary, I thank the monthly newsletter "Aging Alert", published by the Area Agencies on Aging Association of Michigan.
The new law establishes three categories of Seniors as:
1. Born before 1946
2. Born between January 1, 1946 and December 31, 1952
3. Born after 1952
The new law creates classifications and distinctions for the tax impact on pension income, public and private.
For all three categories social security and military pensions will not be taxed.
The other effects of the new Michigan law may affect you or somebody in your family.
Born Before 1946.1. Public pensions not taxed.
2. Private pensions exempt up to $45,120/ single or $90,240/joint.
3. Investment income could be exempt up to $10,058/single or $20,115/joint.
4. Extra $2,300 exemption eliminated
Born between January 1, 1946 and December 31, 1952.
1. Up through age 66 retirement income up to $20,000/single or $40,000/joint not taxed.
2. Beginning at age 67 all income up to $20,000/single or $40,000/joint not taxed, except
3. If total income is over $75,000/single or $150,000/joint the $20,000/$40,000 exemption
cannot be taken.
Born after 1952.1. Public and private pensions taxed.
2. Beginning at age 67 there are two options
(1) keep the social security exemption and personal exemption
(2) count all income, including social security (except exemption of social security
$20,000/single or $40,000/joint), with no personal exemption
3. Option (2) not available if income is over $75,000/single or $150,000/joint
Conclusion. These changes may affect you or somebody in your family. Talk to your tax preparer to get more information. We thank Aging Alert for its succinct summary of the changes in Michigan law affecting Seniors.
If changes in your investments will affect your estate plan, you should contact Jim Modrall or Priscilla Hirt at (231) 941-9660, or any of the attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt or E. Molly Kuras at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.
Thursday, July 14, 2011
Thursday, June 30, 2011
New Trust Rules
Michigan adopted its own version of the Uniform Trust Code, effective April 1, 2010. Since the new law will impact trusts created both before and after April 1, 2010, it will behoove readers who currently have trusts to consider possible reasons for modifying those trusts. There may be tax reasons also which we will mention briefly.
Some of the comments in this newsletter will be particularly appropriate for second marriages and blended families. Please review these comments and see if any of them may apply to your situation.
1. Simplification. We have mentioned before that the 2010 changes to the federal estate tax law, raising the exemption to $5.0 million per person, makes the complicated A-B Trust formulas obsolete for most people. Most standard trusts for married individuals had a "hard to understand" formula for dividing trust property after the death of the first spouse into two separate trusts. The A Trust was generally a Marital Trust, qualifying for the marital deduction. The B Trust, sometimes called a Family Trust or Credit Shelter Trust, could have different beneficiaries, including children as well as the surviving spouse. For married couples with separate trusts, we generally recommend simplification to provide for a single Trust at the first death, with defined beneficiaries (usually just the surviving spouse) and a tax saving clause in the event the marital deduction is necessary.
The new portability feature, whereby a married couple gets the full $10.0 million exemption, may or may not be helpful. In any event, portability could affect the trust provisions depending upon order of death and the division of assets between the respective spouses.
2. Material Purpose. The new MTC (Michigan Trust Code) introduces a standard of "material purpose" for a court to apply when considering any post death modifications, reformation and termination of a trust. In our experience, families often try to correct ambiguities or otherwise change trust provisions after the death of the Settlor. Controversies often arise in second marriage situations with natural children and step children having different views about the interpretation of parent's trusts and the impact of a change in circumstances or change in tax laws on how trusts are administered. Typically, in drafting the purpose clauses for trusts, the emphasis was on saving estate taxes. There were often not explanations or amplifications of the intentions regarding the surviving spouse, discretionary distributions, and potential early distributions.
For example, it would be easy for a surviving spouse and surviving children or step-children to get together to agree to a premature termination of the trust, contrary to the Settlor's wishes. Protection of trust property from creditors and predators is often not explained as a Settlor's "material purpose" for delaying distributions or limiting trust withdrawals.
3. Place of Administration. Disputes about trusts after a Settlor's death are becoming more common as family disagreements come to the fore. Michigan law makes the "venue" for settling disputes frequently dependent on the "place of administration". In today's modern banking world, where banks change names, officers and personnel frequently, there can be arguments about which is the proper "place of administration" for deciding in what court disputes shall be resolved.
The family may not want the disputes resolved in a court in Los Angeles, Chicago or New York just because one of the bank's trust officers is located there. Similarly, if a successor trustee moves to Florida, does that mean that trust disputes, with Michigan law applicable, should be resolved in Orlando or Tampa? When two trustees reside in different places, which is the proper location for resolution of disputes?
We typically recommend that the trust provide that the disputes be resolved where property is located (Michigan real estate, for example) or a court in Michigan where the Settlor resided, on the theory that there may be local witnesses required and that a gathering at the family's prior location would be most convenient, or less inconvenient, than a court in another state.
The solution is to make sure that the trust specifies the proper venue for resolution of disputes. At least this will give some guidance to the successor trustee and surviving beneficiaries as to the Settlor's wishes for dispute resolution.
Conclusion. The intention of this newsletter is to cover several important points. For second marriages and blended families, these points are especially critical and our readers in those circumstances should make sure their trusts are up to date and in accordance with new Michigan Trust Rules and consistent with the new Federal Estate Tax rules (which are much more liberal to most clients than the prior law). If you have any questions regarding your trust, or want an up to date review, Jim Modrall or Priscilla Hirt, or any of the other attorneys listed below at (231) 941-9660. Our assistance can save you time, money and aggravation.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt or E. Molly Kuras at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.This newsletter is provided for informational purposes and should not be acted upon without professional advice.
Some of the comments in this newsletter will be particularly appropriate for second marriages and blended families. Please review these comments and see if any of them may apply to your situation.
1. Simplification. We have mentioned before that the 2010 changes to the federal estate tax law, raising the exemption to $5.0 million per person, makes the complicated A-B Trust formulas obsolete for most people. Most standard trusts for married individuals had a "hard to understand" formula for dividing trust property after the death of the first spouse into two separate trusts. The A Trust was generally a Marital Trust, qualifying for the marital deduction. The B Trust, sometimes called a Family Trust or Credit Shelter Trust, could have different beneficiaries, including children as well as the surviving spouse. For married couples with separate trusts, we generally recommend simplification to provide for a single Trust at the first death, with defined beneficiaries (usually just the surviving spouse) and a tax saving clause in the event the marital deduction is necessary.
The new portability feature, whereby a married couple gets the full $10.0 million exemption, may or may not be helpful. In any event, portability could affect the trust provisions depending upon order of death and the division of assets between the respective spouses.
2. Material Purpose. The new MTC (Michigan Trust Code) introduces a standard of "material purpose" for a court to apply when considering any post death modifications, reformation and termination of a trust. In our experience, families often try to correct ambiguities or otherwise change trust provisions after the death of the Settlor. Controversies often arise in second marriage situations with natural children and step children having different views about the interpretation of parent's trusts and the impact of a change in circumstances or change in tax laws on how trusts are administered. Typically, in drafting the purpose clauses for trusts, the emphasis was on saving estate taxes. There were often not explanations or amplifications of the intentions regarding the surviving spouse, discretionary distributions, and potential early distributions.
For example, it would be easy for a surviving spouse and surviving children or step-children to get together to agree to a premature termination of the trust, contrary to the Settlor's wishes. Protection of trust property from creditors and predators is often not explained as a Settlor's "material purpose" for delaying distributions or limiting trust withdrawals.
3. Place of Administration. Disputes about trusts after a Settlor's death are becoming more common as family disagreements come to the fore. Michigan law makes the "venue" for settling disputes frequently dependent on the "place of administration". In today's modern banking world, where banks change names, officers and personnel frequently, there can be arguments about which is the proper "place of administration" for deciding in what court disputes shall be resolved.
The family may not want the disputes resolved in a court in Los Angeles, Chicago or New York just because one of the bank's trust officers is located there. Similarly, if a successor trustee moves to Florida, does that mean that trust disputes, with Michigan law applicable, should be resolved in Orlando or Tampa? When two trustees reside in different places, which is the proper location for resolution of disputes?
We typically recommend that the trust provide that the disputes be resolved where property is located (Michigan real estate, for example) or a court in Michigan where the Settlor resided, on the theory that there may be local witnesses required and that a gathering at the family's prior location would be most convenient, or less inconvenient, than a court in another state.
The solution is to make sure that the trust specifies the proper venue for resolution of disputes. At least this will give some guidance to the successor trustee and surviving beneficiaries as to the Settlor's wishes for dispute resolution.
Conclusion. The intention of this newsletter is to cover several important points. For second marriages and blended families, these points are especially critical and our readers in those circumstances should make sure their trusts are up to date and in accordance with new Michigan Trust Rules and consistent with the new Federal Estate Tax rules (which are much more liberal to most clients than the prior law). If you have any questions regarding your trust, or want an up to date review, Jim Modrall or Priscilla Hirt, or any of the other attorneys listed below at (231) 941-9660. Our assistance can save you time, money and aggravation.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt or E. Molly Kuras at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.This newsletter is provided for informational purposes and should not be acted upon without professional advice.
Tuesday, May 24, 2011
What If I Lose It?
What Happens To My Trust If I Lose It? This is a question we sometimes get from clients who are concerned about management of their trust and finances if they become incapacitated, mentally or physically. First, let's clarify the terminology. "Incompetence" used to be the common term in the days of asylums. It meant a person would be or could be confined involuntarily to an institution. The term commonly used today is "capacity" or "incapacitated", which means lack of capacity to perform a specific act or make a specific decision. That lack of capacity may be a permanent or temporary condition of the brain, or it may be a physical condition that inhibits normal activity.
Just as an example, a person may be heavily medicated and thereby unable to make medical decisions. In such a case, physicians may provide the necessary written determination of lack of ability or capacity to make medical decisions. Those decisions would trigger the patient's Medical Power of Attorney (MPOA).
How Does This Relate to Your Trust? The typical Living Trust is revocable by the trust maker, sometimes called a "Settlor" or "Grantor". The Settlor typically retains the power to amend the trust and is usually the Trustee. As Trustee, the Settlor continues to manage his or her property in the same manner that he or she would do without a trust. However, as people age, their ability to make financial decisions and judgments often wanes.
Trusts typically contain a provision stating that if the initial Trustee is unable to manage the trust, or becomes "incapacitated" (which in this case refers to management of trust property), a Successor Trustee takes over. Usually, a trust will contain a provision stating that the new Trustee (often designated as "Successor Trustee") can or shall take over management of the trust, when one or two physicians make a written determination that the initial Trustee is not able to manage trust affairs. (There does not need to be any further medical diagnosis or reasoning, so most physicians do not feel that they are revealing confidential information.)
Delicate Situation. Often the designated Successor Trustee is a spouse or child. In some cases, the Successor is reluctant to confront the initial Trustee, a parent or spouse, with the realities of the situation, perceived or actual. Sometimes the initial Trustee is reluctant to admit reality or give up control. Those situations often involve the intervention of a third party such as a physician, attorney or CPA, to help smooth the transition.
In many cases, the transition to Successor Trustee is made easier by accident, stroke or advanced dementia, where there is no resistance on the part of the initial Trustee.
However, the purposes of this discussion are to bring the matter of potential transition to our readers' attention, and to inform the potential Successor Trustees of their duties and responsibilities.
What Does the Successor Trustee Have To Do? The job of Successor Trustee should not be taken lightly. A trustee is a fiduciary, meaning that the Successor is accountable to the trust Settlor and the ultimately beneficiaries of the trust, often the spouse and/or children. A fiduciary has a relationship of trust, as "trustee" indicates, and is legally responsible to all interested persons. A trustee has duties of fairness, royalty and responsibility to all interested persons, without self-aggrandizement.
The thrust of this month's newsletter is dealing with a situation where the initial Trustee is still living, but is incapacitated for one reason or another, so that a Successor Trustee has taken over. The new Michigan Trust Code spells out the duties of a Successor Trustee while the Settlor is incapacitated. The principal rule is set forth in MCL 700.7603(2). That section states that the Successor Trustee shall account to the Settlor's designated agent (in a Power of Attorney), or if the sole agent is the Trustee, the Successor Trustee has to account to all "qualified trust beneficiaries" , informing them of the existence of the trust and keeping them reasonably informed about its administration.
Trust Language and the DPOA. Everyone who has a trust, which will include most readers of this newsletter, should be especially aware of the provisions of their trust and their DPOA (Durable Power of Attorney) relating to the power of an agent to amend the trust and withdraw funds from the trust. To save controversy and expense, the provisions in these two documents should be consistent. If an agent has a power to withdraw funds from the trust, the instruments should state whether that power is individual or only as a fiduciary. In other words, does the agent have the power to withdraw funds or make trust amendments in any way the agent sees fit and for any purpose, or is the power to be exercised only for the benefit of the trust Settlor?
Duty To Account and Report. The new Michigan Trust Code has extensive provisions about the duties of a Successor Trustee to report to the Settlor, the Settlor's Agent, and "qualified trust beneficiaries". At the risk of oversimplification, a "qualified trust beneficiary" is any current permitted beneficiary or a beneficiary who would take if the trust terminated on that date (which usually means the death of the trust Settlor).
Trust administration is not to be taken lightly. The Michigan Trust Code provides specific duties for Successor Trustees and clarifies their duties, obligations and responsibilities concerning reporting and accountability. We find more Successor Trustees taking over responsibilities for disabled spouses or parents, without proper counsel. It is a situation fraught with controversy in many families. Professional counsel and assistance will save a family from disharmony, litigation and expense.
Conclusion. The purpose of this newsletter is to highlight a situation which is becoming more common as we live longer, i.e. a trust Settlor who is unable to properly manage trust property. If you have a trust, or if you are designated as Successor Trustee, with a prospect of taking over trust management, please contact Jim Modrall or Priscilla Hirt, or any of the other attorneys listed below at (231) 941-9660. Our assistance can save you time, money and aggravation.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
http://www.bfarlaw.com
This newsletter is provided for informational purposes and should not be acted upon without professional advice.
Just as an example, a person may be heavily medicated and thereby unable to make medical decisions. In such a case, physicians may provide the necessary written determination of lack of ability or capacity to make medical decisions. Those decisions would trigger the patient's Medical Power of Attorney (MPOA).
How Does This Relate to Your Trust? The typical Living Trust is revocable by the trust maker, sometimes called a "Settlor" or "Grantor". The Settlor typically retains the power to amend the trust and is usually the Trustee. As Trustee, the Settlor continues to manage his or her property in the same manner that he or she would do without a trust. However, as people age, their ability to make financial decisions and judgments often wanes.
Trusts typically contain a provision stating that if the initial Trustee is unable to manage the trust, or becomes "incapacitated" (which in this case refers to management of trust property), a Successor Trustee takes over. Usually, a trust will contain a provision stating that the new Trustee (often designated as "Successor Trustee") can or shall take over management of the trust, when one or two physicians make a written determination that the initial Trustee is not able to manage trust affairs. (There does not need to be any further medical diagnosis or reasoning, so most physicians do not feel that they are revealing confidential information.)
Delicate Situation. Often the designated Successor Trustee is a spouse or child. In some cases, the Successor is reluctant to confront the initial Trustee, a parent or spouse, with the realities of the situation, perceived or actual. Sometimes the initial Trustee is reluctant to admit reality or give up control. Those situations often involve the intervention of a third party such as a physician, attorney or CPA, to help smooth the transition.
In many cases, the transition to Successor Trustee is made easier by accident, stroke or advanced dementia, where there is no resistance on the part of the initial Trustee.
However, the purposes of this discussion are to bring the matter of potential transition to our readers' attention, and to inform the potential Successor Trustees of their duties and responsibilities.
What Does the Successor Trustee Have To Do? The job of Successor Trustee should not be taken lightly. A trustee is a fiduciary, meaning that the Successor is accountable to the trust Settlor and the ultimately beneficiaries of the trust, often the spouse and/or children. A fiduciary has a relationship of trust, as "trustee" indicates, and is legally responsible to all interested persons. A trustee has duties of fairness, royalty and responsibility to all interested persons, without self-aggrandizement.
The thrust of this month's newsletter is dealing with a situation where the initial Trustee is still living, but is incapacitated for one reason or another, so that a Successor Trustee has taken over. The new Michigan Trust Code spells out the duties of a Successor Trustee while the Settlor is incapacitated. The principal rule is set forth in MCL 700.7603(2). That section states that the Successor Trustee shall account to the Settlor's designated agent (in a Power of Attorney), or if the sole agent is the Trustee, the Successor Trustee has to account to all "qualified trust beneficiaries" , informing them of the existence of the trust and keeping them reasonably informed about its administration.
Trust Language and the DPOA. Everyone who has a trust, which will include most readers of this newsletter, should be especially aware of the provisions of their trust and their DPOA (Durable Power of Attorney) relating to the power of an agent to amend the trust and withdraw funds from the trust. To save controversy and expense, the provisions in these two documents should be consistent. If an agent has a power to withdraw funds from the trust, the instruments should state whether that power is individual or only as a fiduciary. In other words, does the agent have the power to withdraw funds or make trust amendments in any way the agent sees fit and for any purpose, or is the power to be exercised only for the benefit of the trust Settlor?
Duty To Account and Report. The new Michigan Trust Code has extensive provisions about the duties of a Successor Trustee to report to the Settlor, the Settlor's Agent, and "qualified trust beneficiaries". At the risk of oversimplification, a "qualified trust beneficiary" is any current permitted beneficiary or a beneficiary who would take if the trust terminated on that date (which usually means the death of the trust Settlor).
Trust administration is not to be taken lightly. The Michigan Trust Code provides specific duties for Successor Trustees and clarifies their duties, obligations and responsibilities concerning reporting and accountability. We find more Successor Trustees taking over responsibilities for disabled spouses or parents, without proper counsel. It is a situation fraught with controversy in many families. Professional counsel and assistance will save a family from disharmony, litigation and expense.
Conclusion. The purpose of this newsletter is to highlight a situation which is becoming more common as we live longer, i.e. a trust Settlor who is unable to properly manage trust property. If you have a trust, or if you are designated as Successor Trustee, with a prospect of taking over trust management, please contact Jim Modrall or Priscilla Hirt, or any of the other attorneys listed below at (231) 941-9660. Our assistance can save you time, money and aggravation.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
http://www.bfarlaw.com
This newsletter is provided for informational purposes and should not be acted upon without professional advice.
Monday, May 2, 2011
ESTATE PLANNING - WHERE DO WE GO NOW?
Estate Tax - Not Dracula for Most. For most clients, the estate tax Dracula has gone away. The compromise tax bill raised the individual exemption to $5 million. This means that most clients will not be concerned about minimizing estate tax. For a married couple, total marital assets have to exceed $5 million before concern arises. The new "portability" provisions of the tax law mean that for a married couple, marital assets will have to exceed $10 million before tax reduction strategies need to be considered.
This is a huge change from the 90's when the individual exemption was $600,000, and the maximum tax rate was 55%. Estate taxes could and did take a huge bite out of family wealth. We estate planning attorneys devised all sorts of strategies, many of which included charitable trusts, to minimize or legally avoid estate taxes. Now estate taxes will not be a factor, except for high net worth clients. Note: we will still put savings language in our trusts just in case the estate tax comes back. However, this seems highly unlikely at this point.
Michigan, of course, has no state death taxes. The Michigan inheritance tax went out in 1993, and the Michigan legislature has failed to enact an estate tax. Many states have done so, however. Before a Michigander moves to another state, he or she should consider the estate tax as well as other potential tax costs.
Out of a Job? Did the change in the federal tax law mean that we estate planning attorneys are out of a job? On the contrary, the human factors of daily life, including family dynamics mean that structuring trusts and estates is just as important as ever.
Second Marriages. Non-tax factors are especially important in designing trusts which are fair to the children of both spouses. Fairness, of course, is in the eyes of the beholder. Spouses can differ about what is fair, but the important thing is frank discussion and good communication to avoid disruption and expensive legal battles when one or both spouses are gone.
Who Will Administer. Administering a decedent's property, whether in an estate, trust or both, is a key decision. In second marriages, with children of each spouse, the writer has found that co-trustees - the surviving spouse and a child of the deceased spouse - rarely works. Relations with a step-parent are almost never the same when the birth parent dies. A disinterested trustee is a much better way of protecting the interests of the children of the deceased spouse.
When is Property Distributed? The senior generation still needs to decide whether property just goes to children, or also to grandchildren. Whether one or both is selected, the Trust Settlor needs to decide if there is any delay in distribution of property based on age of the child or grandchild, in order to protect the property from improvidence, creditors, predators or spouses. We see distributions from trust at later ages for all of these reasons, especially protection from a divorce or assurance of retirement funds.
Trusts for a child or grandchild's lifetime have become more rare for moderately wealthy Midwestern clients. Mostly, the senior generation wants to protect inheritances, but not prevent access for the whole lifetime of a child or grandchild.
Surviving Spouse. Decisions for a married couple involve access to funds by the surviving spouse. The provisions in a husband's trust, for example, if he is the wealthier spouse, involve discussions of:
How much property does the wife have in her name or have access to?
What are her support needs likely to be?
How much wealth should pass to the kids?
Should there be any control on wife's withdrawal of funds from the husband�s trust?
If there is control, who exercises it?
Sweetheart Estate Plans. The relatively high estate tax and low exemption pretty much made "sweetheart" estate plans a non-starter. A sweetheart estate plan means that the surviving spouse basically gets everything, without any restrictions. With an individual exemption of $5 million, this means that many nuclear families (single marriages), with joint children will mean that simple sweetheart estate plans will probably come back in vogue. There may not be a tax reason to have a trust for the surviving spouse. Some couples endorse the idea of a sweetheart estate plan for each spouse. Others want some protection of the marital assets after the first death, either to protect the surviving spouse from improvidence and creditors, or to assure some inheritance to the kids. Sometimes, of course, there are dual motivations. However, we generally do not recommend sweetheart estate plans for several reasons. First among these is the fact that a surviving spouse can live many years after the first death. That means that support may be needed for a long time and some professional management or assistance in protecting assets will be needed. Secondly, there are a lot of late life marriages which expose the assets to a late arriving spouse. Thirdly, elderly people are often vulnerable to abuse or undue influence, especially as mental faculties fail. Continuing trusts can help prevent financial catastrophes for any or all of these reasons.
Communication is Important. Considering all of the factors discussed in this newsletter, it is also important that a couple's estate plan be discussed with children and if it is a second marriage, with the children of both spouses, so that everyone knows the couple's decisions about fairness, estate administration and ultimate benefit of financial assets are known. Often times, the older generation is accustomed to secrecy about financial matters, is uncomfortable discussing these matters with family, or perhaps does not trust children or in-laws. Trust is important, of course, but communication is also important. We find that failure to communicate is frequently the cause of litigation, uncertainty, mistrust and sometimes misappropriation.
Conclusion. I hope that this newsletter has provided some food for thought. Saving estate taxes is not the only reason for a carefully, well thought out estate plan, both for married individuals and single persons. Disputes can arise after the death of single individuals. Some of the biggest and most expensive court battles have erupted where there are no children. The new estate tax liberalization may be a good reason to review your estate plan documents and bring them up to date to reflect current ideas, current finances and current family circumstances. Please call Jim Modrall or Priscilla Hirt, to schedule a no-obligation appointment, at (231) 941-9660, or any of the other attorneys listed below,
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.
This is a huge change from the 90's when the individual exemption was $600,000, and the maximum tax rate was 55%. Estate taxes could and did take a huge bite out of family wealth. We estate planning attorneys devised all sorts of strategies, many of which included charitable trusts, to minimize or legally avoid estate taxes. Now estate taxes will not be a factor, except for high net worth clients. Note: we will still put savings language in our trusts just in case the estate tax comes back. However, this seems highly unlikely at this point.
Michigan, of course, has no state death taxes. The Michigan inheritance tax went out in 1993, and the Michigan legislature has failed to enact an estate tax. Many states have done so, however. Before a Michigander moves to another state, he or she should consider the estate tax as well as other potential tax costs.
Out of a Job? Did the change in the federal tax law mean that we estate planning attorneys are out of a job? On the contrary, the human factors of daily life, including family dynamics mean that structuring trusts and estates is just as important as ever.
Second Marriages. Non-tax factors are especially important in designing trusts which are fair to the children of both spouses. Fairness, of course, is in the eyes of the beholder. Spouses can differ about what is fair, but the important thing is frank discussion and good communication to avoid disruption and expensive legal battles when one or both spouses are gone.
Who Will Administer. Administering a decedent's property, whether in an estate, trust or both, is a key decision. In second marriages, with children of each spouse, the writer has found that co-trustees - the surviving spouse and a child of the deceased spouse - rarely works. Relations with a step-parent are almost never the same when the birth parent dies. A disinterested trustee is a much better way of protecting the interests of the children of the deceased spouse.
When is Property Distributed? The senior generation still needs to decide whether property just goes to children, or also to grandchildren. Whether one or both is selected, the Trust Settlor needs to decide if there is any delay in distribution of property based on age of the child or grandchild, in order to protect the property from improvidence, creditors, predators or spouses. We see distributions from trust at later ages for all of these reasons, especially protection from a divorce or assurance of retirement funds.
Trusts for a child or grandchild's lifetime have become more rare for moderately wealthy Midwestern clients. Mostly, the senior generation wants to protect inheritances, but not prevent access for the whole lifetime of a child or grandchild.
Surviving Spouse. Decisions for a married couple involve access to funds by the surviving spouse. The provisions in a husband's trust, for example, if he is the wealthier spouse, involve discussions of:
How much property does the wife have in her name or have access to?
What are her support needs likely to be?
How much wealth should pass to the kids?
Should there be any control on wife's withdrawal of funds from the husband�s trust?
If there is control, who exercises it?
Sweetheart Estate Plans. The relatively high estate tax and low exemption pretty much made "sweetheart" estate plans a non-starter. A sweetheart estate plan means that the surviving spouse basically gets everything, without any restrictions. With an individual exemption of $5 million, this means that many nuclear families (single marriages), with joint children will mean that simple sweetheart estate plans will probably come back in vogue. There may not be a tax reason to have a trust for the surviving spouse. Some couples endorse the idea of a sweetheart estate plan for each spouse. Others want some protection of the marital assets after the first death, either to protect the surviving spouse from improvidence and creditors, or to assure some inheritance to the kids. Sometimes, of course, there are dual motivations. However, we generally do not recommend sweetheart estate plans for several reasons. First among these is the fact that a surviving spouse can live many years after the first death. That means that support may be needed for a long time and some professional management or assistance in protecting assets will be needed. Secondly, there are a lot of late life marriages which expose the assets to a late arriving spouse. Thirdly, elderly people are often vulnerable to abuse or undue influence, especially as mental faculties fail. Continuing trusts can help prevent financial catastrophes for any or all of these reasons.
Communication is Important. Considering all of the factors discussed in this newsletter, it is also important that a couple's estate plan be discussed with children and if it is a second marriage, with the children of both spouses, so that everyone knows the couple's decisions about fairness, estate administration and ultimate benefit of financial assets are known. Often times, the older generation is accustomed to secrecy about financial matters, is uncomfortable discussing these matters with family, or perhaps does not trust children or in-laws. Trust is important, of course, but communication is also important. We find that failure to communicate is frequently the cause of litigation, uncertainty, mistrust and sometimes misappropriation.
Conclusion. I hope that this newsletter has provided some food for thought. Saving estate taxes is not the only reason for a carefully, well thought out estate plan, both for married individuals and single persons. Disputes can arise after the death of single individuals. Some of the biggest and most expensive court battles have erupted where there are no children. The new estate tax liberalization may be a good reason to review your estate plan documents and bring them up to date to reflect current ideas, current finances and current family circumstances. Please call Jim Modrall or Priscilla Hirt, to schedule a no-obligation appointment, at (231) 941-9660, or any of the other attorneys listed below,
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.
Tuesday, April 19, 2011
JOINT TENANTS WIN THE DAY
Klooster Case. You may recall that our January, 2010 newsletter reported on the decision in the Klooster case favorable to taxpayers. You may recall that the Michigan Court of Appeals ruled in Klooster that property passing at the death of an original joint tenant did not get “uncapped” at death.
Without getting into the technicalities of the decision of the Michigan Supreme Court in Klooster, a quick review of the facts is in order.
1. August, 2004: James and Donna Klooster owned property as tenants by the entireties. Donna quit claimed her interest to James. On the same day, James quit claimed the property to himself and their son, Nathan Klooster, as joint tenants with rights of survivorship.
2. James died in January, 2005, leaving Nathan Klooster as owner.
3. In September, 2005, Nathan executed a quit claim deed creating a joint tenancy with rights of survivorship with his brother, Charles Klooster.
4. The City of Charlevoix asserted in 2006 that the property had become uncapped at the death of James in January, 2005.
Important Decision. Weaving its way carefully through the statute and the fact situation in Klooster, the Michigan Supreme Court determined that the transfer of property on the death of a joint tenant could be a “conveyance” for purposes of the property tax statute, defining “transfer of ownership”.
However, analyzing the exceptions, the Michigan Supreme Court decided that as long as James was an original owner of the property, the taxable value did not get uncapped in January, 2005 when James died. However, the Court also decided that the taxable value did get uncapped by the September, 2005 deed from Nathan to himself and his brother, Charles Klooster, as joint tenants. In other words, the Court decided that the City of Charlevoix was right for the wrong reason and that the taxable value was uncapped in 2006.
Taylor Case. The decision of the Michigan Supreme Court was a victory for taxpayers in a somewhat similar case in Traverse City, Michigan. In that case, Dr. Kenneth Taylor, a few weeks prior to his death, deeded his residence to himself and his daughter, as joint tenants with rights of survivorship. The City of Traverse City had asserted that the property was uncapped at Dr. Taylor’s death.
Dr. Taylor was an “original owner”, as defined by the Michigan Supreme Court. Therefore, his daughter did not have the property uncapped at her father’s death.
In sum, the Court Decision in Klooster was a victory for some taxpayers, including the Taylors, but not the Kloosters.
Nathan Klooster would have been fine, with no uncapping in 2005, if he had not deeded the property to himself and his brother, Charles, in September, 2005.
Key Importance of Klooster. The Klooster decision is a victory for taxpayers who want to hold on to the family cottage or residence without an uncapping. So long as an original owner is a joint tenant, the taxable value does not get uncapped at the original owner’s death. Generally, the joint tenancy is established between parents and children, so at least the children (or child) can inherit property without an uncapping at the parent’s death. If parents choose to skip a generation, passing the property to grandchildren, that would also permit a transfer of ownership without uncapping at the death of the original owner.
Estate Planning Clarification. The importance of the Klooster Decision is that all Michigan property owners with a residence or cottage that they want to keep in the family now have to re-examine their estate plans. If owners want to keep property in the family without uncapping, they should examine the Klooster alternative to see if it fits their circumstances and objectives.
Many clients have put their residence or cottage property in trust. Those provisions should now be re-examined by all property owners in light of Klooster.
Conclusion. The Klooster case is important for estate planning purposes and especially for cottages and residences. (The Decision may be of less importance for farms because agricultural property typically does not get uncapped so long as Ag usage continues.)
If you are concerned about uncapping of your property at death, we strongly urge that you contact Jim Modrall or Priscilla Hirt, at (231) 941-9660, or any of the other attorneys listed below, for a review of your estate plan in light of the Klooster decision.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. GraF at (231) 941-9660
Without getting into the technicalities of the decision of the Michigan Supreme Court in Klooster, a quick review of the facts is in order.
1. August, 2004: James and Donna Klooster owned property as tenants by the entireties. Donna quit claimed her interest to James. On the same day, James quit claimed the property to himself and their son, Nathan Klooster, as joint tenants with rights of survivorship.
2. James died in January, 2005, leaving Nathan Klooster as owner.
3. In September, 2005, Nathan executed a quit claim deed creating a joint tenancy with rights of survivorship with his brother, Charles Klooster.
4. The City of Charlevoix asserted in 2006 that the property had become uncapped at the death of James in January, 2005.
Important Decision. Weaving its way carefully through the statute and the fact situation in Klooster, the Michigan Supreme Court determined that the transfer of property on the death of a joint tenant could be a “conveyance” for purposes of the property tax statute, defining “transfer of ownership”.
However, analyzing the exceptions, the Michigan Supreme Court decided that as long as James was an original owner of the property, the taxable value did not get uncapped in January, 2005 when James died. However, the Court also decided that the taxable value did get uncapped by the September, 2005 deed from Nathan to himself and his brother, Charles Klooster, as joint tenants. In other words, the Court decided that the City of Charlevoix was right for the wrong reason and that the taxable value was uncapped in 2006.
Taylor Case. The decision of the Michigan Supreme Court was a victory for taxpayers in a somewhat similar case in Traverse City, Michigan. In that case, Dr. Kenneth Taylor, a few weeks prior to his death, deeded his residence to himself and his daughter, as joint tenants with rights of survivorship. The City of Traverse City had asserted that the property was uncapped at Dr. Taylor’s death.
Dr. Taylor was an “original owner”, as defined by the Michigan Supreme Court. Therefore, his daughter did not have the property uncapped at her father’s death.
In sum, the Court Decision in Klooster was a victory for some taxpayers, including the Taylors, but not the Kloosters.
Nathan Klooster would have been fine, with no uncapping in 2005, if he had not deeded the property to himself and his brother, Charles, in September, 2005.
Key Importance of Klooster. The Klooster decision is a victory for taxpayers who want to hold on to the family cottage or residence without an uncapping. So long as an original owner is a joint tenant, the taxable value does not get uncapped at the original owner’s death. Generally, the joint tenancy is established between parents and children, so at least the children (or child) can inherit property without an uncapping at the parent’s death. If parents choose to skip a generation, passing the property to grandchildren, that would also permit a transfer of ownership without uncapping at the death of the original owner.
Estate Planning Clarification. The importance of the Klooster Decision is that all Michigan property owners with a residence or cottage that they want to keep in the family now have to re-examine their estate plans. If owners want to keep property in the family without uncapping, they should examine the Klooster alternative to see if it fits their circumstances and objectives.
Many clients have put their residence or cottage property in trust. Those provisions should now be re-examined by all property owners in light of Klooster.
Conclusion. The Klooster case is important for estate planning purposes and especially for cottages and residences. (The Decision may be of less importance for farms because agricultural property typically does not get uncapped so long as Ag usage continues.)
If you are concerned about uncapping of your property at death, we strongly urge that you contact Jim Modrall or Priscilla Hirt, at (231) 941-9660, or any of the other attorneys listed below, for a review of your estate plan in light of the Klooster decision.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. GraF at (231) 941-9660
Friday, February 25, 2011
2011 - What To Do?
The dust has settled on the 2010 eleventh hour Federal Tax Bill. The new features which are important to estate planners are:
(1) Increase of the individual Federal Estate Tax Exemption to $5.0 million per person.
(2) Re-combining the gift tax and estate tax exemption so that lifetime gifting becomes much more important.
(3) Introducing portability of the estate tax exemption for married couples.
These changes offer powerful estate planning opportunities and challenges.
Jumbo Exemption. The Federal Estate Tax Exemption for 2011 and 2012 is raised to $5.0 million per person or $10.0 for a married couple. The tax rate is reduced to 35% of the taxable estate in excess of the unused exemption.
Does this mean that married couples with less than $5.0 million of combined assets should forget about estate taxes? The answer is an emphatic "no." The principal reason is that in most cases tax planning is only one of the motivations for estate planning. Protection and management of family wealth for the future benefit of family members is still important.
What about married taxpayers with combined assets of more than $5.0 million? Certainly, estate planning and trusts take on a tax complexion.
Gifting Becomes Critical. For the first time ever, lifetime gifts take on huge importance in wealth preservation. Taxable gifts (those reported on Form 709 to the Internal Revenue Service), made to family members directly or in trust, take on a new importance for families. This is the first time that the lifetime gift tax exemption has exceeded $1.0 million per person. For wealthy taxpayers, this is a prime opportunity to make gifts in trust for family members, including charitable trusts. Charitable gifts and estate planning take on new importance because the value of property transferred to family members is so much larger. This subject will be dealt with in future newsletters.
A Note of Caution! Remember that property transferred by gift carries over the donor's cost basis for purposes of computing future capital gain. Thus, identification of property to be gifted is critical. High-cost-basis assets are definitely preferable, to minimize future potential capital gain taxes. Remember that capital gain rates are likely to increase in the future. Also, remember that property owned at death takes a step-up in cost basis to the date of death value.
Portability. The 2010 Tax Act introduces the concept of portability of estate tax exemptions between spouses. In a simple example of portability, assuming the husband dies in 2011 with a taxable estate of $3.5 million. No estate tax is due, without using a marital deduction. Morever, the surviving wife can elect to carry over the unused $1.5 million from the husband's estate to her taxable estate. However, in order to take advantage of this benefit, the surviving wife has to make sure that an estate tax return is filed for the husband, making the election to carry over or transfer the husband's unused estate tax exemption. The portability option is lost if a proper tax return is not filed for husband. (Even though no tax is due at husband's death.) It is still important to use a trust for wife, not an outright gift, in these circumstances.
Are A-B Trusts Obsolete? Many traditional trusts for married couples contain provisions for division of trust property at death into two separate trusts, Trust A and Trust B, or "Marital Trust" and "Family Trust." The alternative that we have been using the past few years is a trust for the surviving spouse alone, with the possibility of a "Q-TIP" election possible in the event that a marital deduction is needed.
In short, the traditional A-B Trusts formulas should be carefully reviewed to make sure that the interests of the surviving spouse are adequately protected. We have been warning in our seminars that there are a lot of out-of-date formulas and trust provisions out there. These formulas might have worked fine with an estate tax exemption of $675,000 or $1.0 million. These formulas may not be appropriate with the large $5.0 million exemption.
Are Sweetheart Estate Plans Now The Rule? For some married couples, a "Sweetheart" estate plan, with everything left to the surviving spouse may work just fine. However, usually there are family planning concerns that favor protection of family wealth with trusts. Trusts can help prevent improvident use and protect assets from both creditors and predators. There is no general rule. Every family's situation is unique and should be reviewed carefully when the question of estate planning updates arise. Moreover, if the estate tax exemption goes down in 2013, it is important to use the exemption of the first spouse to die with a trust.
Conclusion. The 2010 Tax Law presents many opportunities and some challenges. Remember that the new estate and gift tax provisions do not apply beyond December 31, 2012. Without action by Congress, the exemption drops back to $1.0 per person on January 1, 2013. Experience over the past year or so has taught us that we cannot depend on Congress to act in a timely fashion with respect to tax law changes. Most of us are aware that the country cannot keep spending with no regard for tax revenues. This means more changes on the horizon and the necessity for more frequent review of estate planning documents. If you have questions about your documents or need a review, please call Jim Modrall or Priscilla Hirt, at (231) 941-9660, or any of the other attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.
(1) Increase of the individual Federal Estate Tax Exemption to $5.0 million per person.
(2) Re-combining the gift tax and estate tax exemption so that lifetime gifting becomes much more important.
(3) Introducing portability of the estate tax exemption for married couples.
These changes offer powerful estate planning opportunities and challenges.
Jumbo Exemption. The Federal Estate Tax Exemption for 2011 and 2012 is raised to $5.0 million per person or $10.0 for a married couple. The tax rate is reduced to 35% of the taxable estate in excess of the unused exemption.
Does this mean that married couples with less than $5.0 million of combined assets should forget about estate taxes? The answer is an emphatic "no." The principal reason is that in most cases tax planning is only one of the motivations for estate planning. Protection and management of family wealth for the future benefit of family members is still important.
What about married taxpayers with combined assets of more than $5.0 million? Certainly, estate planning and trusts take on a tax complexion.
Gifting Becomes Critical. For the first time ever, lifetime gifts take on huge importance in wealth preservation. Taxable gifts (those reported on Form 709 to the Internal Revenue Service), made to family members directly or in trust, take on a new importance for families. This is the first time that the lifetime gift tax exemption has exceeded $1.0 million per person. For wealthy taxpayers, this is a prime opportunity to make gifts in trust for family members, including charitable trusts. Charitable gifts and estate planning take on new importance because the value of property transferred to family members is so much larger. This subject will be dealt with in future newsletters.
A Note of Caution! Remember that property transferred by gift carries over the donor's cost basis for purposes of computing future capital gain. Thus, identification of property to be gifted is critical. High-cost-basis assets are definitely preferable, to minimize future potential capital gain taxes. Remember that capital gain rates are likely to increase in the future. Also, remember that property owned at death takes a step-up in cost basis to the date of death value.
Portability. The 2010 Tax Act introduces the concept of portability of estate tax exemptions between spouses. In a simple example of portability, assuming the husband dies in 2011 with a taxable estate of $3.5 million. No estate tax is due, without using a marital deduction. Morever, the surviving wife can elect to carry over the unused $1.5 million from the husband's estate to her taxable estate. However, in order to take advantage of this benefit, the surviving wife has to make sure that an estate tax return is filed for the husband, making the election to carry over or transfer the husband's unused estate tax exemption. The portability option is lost if a proper tax return is not filed for husband. (Even though no tax is due at husband's death.) It is still important to use a trust for wife, not an outright gift, in these circumstances.
Are A-B Trusts Obsolete? Many traditional trusts for married couples contain provisions for division of trust property at death into two separate trusts, Trust A and Trust B, or "Marital Trust" and "Family Trust." The alternative that we have been using the past few years is a trust for the surviving spouse alone, with the possibility of a "Q-TIP" election possible in the event that a marital deduction is needed.
In short, the traditional A-B Trusts formulas should be carefully reviewed to make sure that the interests of the surviving spouse are adequately protected. We have been warning in our seminars that there are a lot of out-of-date formulas and trust provisions out there. These formulas might have worked fine with an estate tax exemption of $675,000 or $1.0 million. These formulas may not be appropriate with the large $5.0 million exemption.
Are Sweetheart Estate Plans Now The Rule? For some married couples, a "Sweetheart" estate plan, with everything left to the surviving spouse may work just fine. However, usually there are family planning concerns that favor protection of family wealth with trusts. Trusts can help prevent improvident use and protect assets from both creditors and predators. There is no general rule. Every family's situation is unique and should be reviewed carefully when the question of estate planning updates arise. Moreover, if the estate tax exemption goes down in 2013, it is important to use the exemption of the first spouse to die with a trust.
Conclusion. The 2010 Tax Law presents many opportunities and some challenges. Remember that the new estate and gift tax provisions do not apply beyond December 31, 2012. Without action by Congress, the exemption drops back to $1.0 per person on January 1, 2013. Experience over the past year or so has taught us that we cannot depend on Congress to act in a timely fashion with respect to tax law changes. Most of us are aware that the country cannot keep spending with no regard for tax revenues. This means more changes on the horizon and the necessity for more frequent review of estate planning documents. If you have questions about your documents or need a review, please call Jim Modrall or Priscilla Hirt, at (231) 941-9660, or any of the other attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.
Wednesday, January 5, 2011
ACT NOW - CHARITABLE IRA ROLLOVER ENDS JANUARY 31, 2011
Short Deadline. We are trying to get January's newsletter published early so that charities and clients with charitable intent are aware of the brief extension of the $100,000 charitable gift from IRA accounts. The compromise tax bill enacted by the lame duck Congress and signed by the President reinstates this special tax benefit for 2010 and 2011. However, this IRA Charitable Rollover extension expires soon - January 31, 2011.
Double-Up Opportunity. A Charitable IRA Rollover made by January 31, 2011 can be allocated to 2010 or the 2011 tax year. Thus, a Donor with a large IRA and charitable commitment could have a total of $200,000 charitable IRA gifts, with $100,000 allocated to 2010 and $100,000 allocated to 2011. Even for smaller gifts, this may be a once-in-a-lifetime opportunity to satisfy charitable pledges and charitable gift intentions in a tax efficient manner using IRA accounts!
The Old Law. The Pension Protection Act of 2006 originally enacted the Charitable IRA Rollover. The Charitable IRA Rollover was summarized in our newsletter of August 2006, available on our website. This offered tremendous tax advantages to a person 70-1/2 or older. This benefit has now been given new life for tax years 2010 and 2011.
Important Points.
(1) The Charitable IRA Rollover must be made directly by the IRA Custodian to the qualified charity.
(2) The account owner does not recognize any taxable income.
(3) If the gift is allocated in 2011, it can satisfy the minimum required distribution for 2011.
(4) This is particularly advantageous for individuals who take the standard deduction on their Federal Income Tax Return (without itemizing charitable gifts or other deductions).
(5) The Charitable IRA Rollover is especially helpful to Michigan residents, where itemized deductions are not allowed for state income tax purposes. In other words, the charitable rollover amount is not reported as income and therefore not taxable by Michigan.
(6) Generous donors have the opportunity to bypass limitations on charitable gifts covered as itemized deductions.
(7) Charitable IRA Rollovers are limited to persons age 70-1/2 or older.
Bottom Line. The 2010 Tax Relief Act created a brief window of opportunity for both charities and individuals. Satisfaction of charitable gifts and pledges can be made in the most tax efficient manner from an IRA account by January 31, 2011. All donors and potential donors should discuss the income tax planning opportunities with their income tax advisors.
Caution. Donors should contact their IRA Sponsor to determine the procedures and minimum contribution amounts of the particular advisor. We understand that some advisors establish minimums of $1,000-$5,000 each. Also, remember that contributions must be made to a public charity. Donor advised funds or private foundations do not qualify. For example, if a Community Foundation were a Donee, the contribution would have to be to its general fund, field of interest fund, or an endowment fund for a public charity that had a fund at the Community Foundation.
Conclusion. If you want more information about charitable gifting as part of your estate plan, or if your documents need a review and update as a result of the new law, contract Jim Modrall or Priscilla Hirt, as (231) 941-9660, or any of the other attorneys listed below, or to schedule a no obligation appointment. Other beneficial provisions of the 2010 law will be discussed in future newsletters.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660
BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.
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