CLIENT ALERT

A NEW YEAR'S RESOLUTION: ESTATE AND GIFT TAX PLANNING CONSIDERATIONS AS THE NEW YEAR APPROACHES

As the new year approaches, there are a number of planning techniques that individuals should consider implementing before December 31 and after the first of the year, to take advantage of estate and gift tax savings opportunities.

Gifts to Individuals

Individuals may limit the growth of their taxable estates by making annual lifetime gifts. The current limit on such gifts is $13,000 per donee per year. Married couples may gift up to $26,000 to each donee per year, if they each give $13,000 individually or if they agree to split joint gifts for tax purposes. A donor is not limited by the number of annual exclusion gifts he or she may make every year. By making annual gifts to multiple beneficiaries, individuals may transfer significant wealth over time. The gift is considered to be made on the date the donee receives the gift. In the case of checks, it is important that the donee cashes the check before the end of the year. Since the gift tax annual exclusion is based on a calendar year, individuals also may wish to make 2012 gifts in early January.

Individuals interested in creating or adding to 529 Plan accounts for children or grandchildren should make the contributions before year-end and consider front-loading the accounts with five years' worth of annual exclusion gifts.

If an individual would like to pay a beneficiary's family medical or educational expenses, these payments should be made directly to the institution, not to the individual. If the payments are made this way, they will not be counted against the donor's annual gifting limit, so the donor can do both.

As past client alerts have reported, the federal estate, gift, and generation-skipping transfer (GST) tax exemptions have been temporarily increased to $5 million for the calendar years 2011 and 2012. These exemption amounts are scheduled to be reduced to $1 million unless Congress acts prior to 2013. There has been recent speculation that Congress may attempt to raise revenue by reducing the $5 million gift and GST tax exemption to the previous level of $1 million ahead of schedule, rather than allowing this provision to remain in place until the end of 2012. There is also concern that Congress may eliminate certain common estate planning strategies including grantor retained annuity trusts (GRATs) and the use family business entities to discount the value of gifts made. Individuals intending to take advantage of the higher gift and GST exemptions or implementing one of these strategies should consider the risks of waiting to implement these plans.

Gifts to Charities

Gifts made to charities enjoy the dual benefits of reducing estate tax exposure and yielding current income tax deductions. Such transfers must be effectuated on or before December 31 in order for donors to reap the tax benefit in 2012, when 2011 tax returns are filed and income tax is due to be paid. It is important that donations be delivered to the charity before December 31, as the deduction is recognized on the date the charity receives the gift, not the date the check was written. The tax benefits of charitable gifting can be enhanced by gifting appreciated assets. By donating appreciated assets, the donor avoids capital gains tax that would have been realized upon a sale of the property. The charity can sell the property and benefit from its value without paying this tax. However, if a donor sells the asset and then donates the proceeds to charity, the donor would be subject to the capital gains tax on the sale.

There are certain charitable giving techniques by which individuals can make charitable donations and obtain a charitable deduction, but retain an interest in the property for life or a certain term. Depending on the individual's goals, these can be structured in many different ways.

Review of Estate Planning Documents

It is advisable for individuals to review Wills, Trusts and other estate planning documents periodically. The end or beginning of each year is a good time for this. When reviewing estate plans, individuals should consider these questions:

1. Do the provisions still accomplish your goals?
2. Have your documents been updated to take advantage of changes to tax laws?
3. Do your documents contain provisions that provide asset protection to your children, grandchildren and other loved ones?
4. Are the fiduciaries named (Executor, Trustee, Power of Attorney/Agent-in-Fact, Health Care Agent) still appropriate?
5. Are your Durable Power of Attorney and Living Will on file with family members and health care providers?
6. Have estate planning concepts, funeral arrangements and decisions on anatomical gifts been discussed with family?
7. Are your life insurance policy and retirement plan beneficiary designations still appropriate and in line with your overall estate plan?
8. Are bank accounts and other assets titled in line with your overall estate plan?
9. For business owners, are buy-sell agreements and the related valuations and life insurance policies up to date?

Please contact any of the following attorneys in Pabian & Russell, LLC's Estate Planning Practice Group to discuss any of these matters.

Jay M. Pabian
jpabian@pabianrussell.com

Robert M. Russell, Jr.
rrussell@pabianrussell.com

Steven M. Carr
scarr@pabianrussell.com

Karyn M. Ellinger
kellinger@pabianrussell.com

Sarah M. Allen
sallen@pabianrussell.com

Pamela L. Sywak
psywak@pabianrussell.com

Marlee S. Cowan
mcowan@pabianrussell.com

Caleb S. Sainsbury
csainsbury@pabianrussell.com