Increased Gift Tax Exemption and Charitable Gift Planning
Clients who used up their $5 million gift tax applicable exclusion in 2011 have an additional $120,000 of shelter available for 2012 gifts to friends and family members, thanks to inflation indexing. Several charitable gift arrangements offer an opportunity to get more mileage from the extra exemption, including:
Charitable gift annuities. A daughter could transfer $224,291 for a charitable gift annuity benefiting her mother, age 76, with a 6 percent payout for the rest of the mother’s life. Using quarterly payments and a §7520 rate of 1.6 percent, the present value of the mother’s annuity works out to $133,000, which would be sheltered by a combination of $120,000 of additional 2012 gift tax exemption and a $13,000 annual exclusion. The daughter receives $91,291 in charitable deductions (both income tax and gift tax).
Charitable lead annuity trust. A parent could transfer $500,000 to a lead annuity trust paying $20,000 (4 percent) annually to charitable organizations for 22 years. The remainder interest would be roughly $120,000 (1.4 percent applicable federal rate) for gift tax purposes, but children could receive $500,000 or more when the trust ends, depending on the investment experience of the trust. The $13,000 annual exclusion is unavailable because the remainder is not a present interest.
Copyright © by R&R Newkirk. All rights reserved.
Charitable gift annuities. A daughter could transfer $224,291 for a charitable gift annuity benefiting her mother, age 76, with a 6 percent payout for the rest of the mother’s life. Using quarterly payments and a §7520 rate of 1.6 percent, the present value of the mother’s annuity works out to $133,000, which would be sheltered by a combination of $120,000 of additional 2012 gift tax exemption and a $13,000 annual exclusion. The daughter receives $91,291 in charitable deductions (both income tax and gift tax).
Charitable lead annuity trust. A parent could transfer $500,000 to a lead annuity trust paying $20,000 (4 percent) annually to charitable organizations for 22 years. The remainder interest would be roughly $120,000 (1.4 percent applicable federal rate) for gift tax purposes, but children could receive $500,000 or more when the trust ends, depending on the investment experience of the trust. The $13,000 annual exclusion is unavailable because the remainder is not a present interest.
Copyright © by R&R Newkirk. All rights reserved.
