HOW TO PASS YOUR PROPERTY ON TO YOUR FAMILY AT THE LEAST POSSIBLE TAX COST
If your estate is $600,000 or more – or you have a complex family situation – you may need assistance in planning your estate so as to conserve your property and income for your family.
Q: When it comes time for your family to receive your property, how much will they really get?
Your estate can shrink from 18% to 50% or more from these costs:
Federal estate taxes
State death taxes
Income taxes
Property taxes
Court costs
Executor’s fees
Legal fees
Debts
Medical expenses
Funeral costs
The recent tax act has increased – not eliminated – the need for careful estate planning.
The estate planning services of the Deferred Giving and Trusts Department will, at no cost or obligation to you, help you inventory your assets and liabilities to determine the extent of any tax problem you may have. We will be able to run a computerized estate analysis for you, illustrating the potential effect of Federal estate taxes and administration costs on your estate…and suggest a plan, or plans, that can help you reduce or prevent this shrinkage.
Estate planning devices that can help you conserve estate funds for your family.
THE UNLIMITED MARITAL DEDUCTION
*A husband can leave his entire estate to his wife (or wife to her husband) totally tax free of estate tax.
*Gifts between spouses are 100% deductible for gift tax purposes.
*Be careful here. It is not always advantageous to use this.
Marital deduction can also be obtained by creating a qualified terminable interest property (QTIP) trust and providing the executor with the QTIP election.
*Surviving spouse entitled to life income from trust.
*No person (including spouse) may have the power to appoint any part of the property to any person other than spouse during her or his lifetime.
*Useful to protect inheritance of children from a former marriage or children of present marriage in event surviving spouse should remarry.
*Includable in estate of surviving spouse for Federal estate and gift tax purposes.
RIGHT TO DISCLAIM
*Can be used to prevent the estate of second spouse from excessive taxation due to over-utilization of marital deduction.
*Gives surviving spouse right to fund credit shelter trust.
*Also may give children or other beneficiaries right to disclaim their portion of inheritance in favor of a charitable gift.
Possible to shelter up to $1,200,000 through husband’s and wife’s estates for benefit of family.
THE CREDIT SHELTER TRUST
*A husband or wife may shelter from Federal estate tax the amount of the unified estate and gift tax exemptions at the time of the death of first spouse and the amount of the unified tax exemption at time of surviving spouse’s death-in 1987 and thereafter this could amount to $1,200,000.
UNIFIED ESTATE AND GIFT TAX CREDIT
*Under the unified tax credit, the unified gift and estate tax exemption was increased annually until in 1987 and thereafter an estate in the amount of $600,000 or less will pass tax free.
*During the phase-in period, the bottom estate tax rate climbed from 32% to 37% of the taxable estate, while the top estate tax bracket was reduced from 70% to 55% in 1985 and is scheduled to be reduced to 50% in 1992.
LIFETIME GIFTS TO FAMILY CAN SAVE INCOME TAXES AND/OR ESTATE TAXES
*Under the annual gift tax exemption, with gift-splitting, a husband and wife with married children and grandchildren, can transfer $20,000 a year to members of the family without incurring gift tax, and thereby pass their estate on to their family partially if not entirely estate tax free.
Outright gifts to ministries of the Assemblies of God during lifetime or by will save on estate taxes, probate costs and/or income taxes.
*Unlimited estate tax deduction on outright charitable gifts by will.
*Gift removes amount from estate before estate tax rates are applied.
*Amounts contributed during lifetime not included in taxable or probate estate.
*Lifetime gifts receive present income tax charitable deduction.
A lifetime charitable deferred gift to the ministries of the Assemblies of God can save income taxes, capital gains taxes, estate taxes, and probate cost – and/or pay you lifetime income.
These charitable gift plans can be used to reduce estate taxes, conserve assets for family members, and/or produce lifetime income for you and your spouse.
CHARITABLE REMAINDER UNITRUST
*Can be created during lifetime or provided for in will.
*Qualifies for initial charitable income tax deduction if created during lifetime.
*Avoids all capital gains taxes on long term highly appreciated properties in most cases.
*Saves on Federal estate tax.
*Reduces future probate and administrative costs.
*Income may be favorably taxed.
*Guarantees income to donor and/or spouse (or other named in trust agreement) for lifetime or term of years.
CHARITABLE REMAINDER ANNUITY TRUST
*Similar to Unitrust except in basis of income payment.
REVOCABLE CHARITABLE TRUST AGREEMENT
*Pays income to donor and/or spouse for lifetime unless trust is revoked.
*Any portion or all of trust funds may be withdrawn in event of any need.
*Savings in estate settlement costs if trust is not revoked.
*Gains investment management.
*The gift remainder designated for the ministries of the Assemblies of God qualifies for estate tax charitable deduction.
POOLED INCOME FUND
*Pays lifetime income to donor and/or spouse, based on pro-rata share of pooled funds.
*Qualifies for initial income tax deduction.
*Saves on estate taxes.
*High rate of income return due to pooling of investment funds.
LIFE ESTATE AGREEMENT
*Transfer title to home, farm or other property and retain the right to live there and/or use the real estate for life.
*Income, if any, on property returns to donor, who is responsible for taxes, insurance and maintenance of property.
*Qualifies for initial income tax charitable deduction.
*Avoids all capital gains tax in most cases.
*Receives Federal estate tax deduction.
*Avoids probate administration, procedures, and costs.
CHARITABLE LEAD TRUST
*Can be created during lifetime or by will.
*Converse of charitable remainder trust- lead trust payments go to Assemblies of God ministries during term of trust. At end of trust term, assets are delivered to self or designated family members.
*Protects trust principal for benefit of self, children, grandchildren, or others.
*Donor decides how income payment to charity is to be made.
*Lead trust created during lifetime can pass assets to family members at reduced or no transfer tax costs.
*The charitable lead trust is for those in high Federal income, estate and gift tax brackets who wish to
1. Give to the work of the Lord.
2. Benefit family members.
3. Save taxes.
ENDOWMENT TRUST
*Can be created during lifetime or by will.
*May be set up for term of years or as a perpetual endowment.
*Protects estate funds from mismanagement by family members.
*Provides investment management of estate funds to assure income to family members and/or Assemblies of God ministries in amounts greater than the principal over a period of years.
*Tax benefits are limited.
CHARITABLE GIFT ANNUITIES
*Returns life income at a fixed annual rate to you and your spouse based on age when gift is made.
*Tax deduction allowed for gift portion.
*Saves on estate taxes and probate costs.
DEFERRED PAYMENT GIFT ANNUITIES
*Gives you life income at retirement (or other date you choose).
*Gives you a Federal income tax charitable deduction now while in higher tax bracket.
*Future income probably taxed in lower tax brackets and portion will be tax-free.
*Will not be included in estate for Federal estate tax purposes.
GIFTS OF LIFE INSURANCE
*Can produce current and future tax deductions.
*Provides a flexibility of giving that can fit your desires and financial capabilities.
LIFE INSURANCE TRUSTS
*The irrevocable insurance trust may be used to fully or partially “replace” capital (value of property) transferred to charitable trust.
Here’s how:
*Use current income tax saving from charitable remainder trust to fund an irrevocable life insurance trust. The trust will use the funds to purchase life insurance on life of donor with trust as beneficiary.
*Name the children as beneficiaries of the trust and they own future right to insurance proceeds tax free. The Crummey Trust power must be used.
*Donor and spouse can benefit from increased life income benefits of charitable trust.
*Excellent means of providing for family while making a gift to the ministries of the Assemblies of God.
SPECIAL BENEFITS OF CHARITABLE GIFTS OF LONG TERM APPRECIATED PROPERTIES
*Outright gift of long term appreciated properties may be deductible on Federal income tax return up to 30% – and in some cases, 50% – of your adjusted gross income, with excess deductible – up to 30% or 50% – over the five following years.
-Completely avoids payment of capital gains tax in most cases.
*Long term appreciated property may be used to fund life income gift.
-Can produce more spendable income.
-Qualify for current income tax charitable deduction.
-Avoid or reduce capital gains tax in most cases.
-Eliminate management and investment worries.
THOUGHTFUL PLANNING NOW PAYS FUTURE DIVIDENDS
*Conservation of estate funds for use of family.
*Benefit of investment management for your loved ones, and in some cases, for yourself.
*The possibility of increasing your stewardship ministry in giving to the soul-winning ministries of the Assemblies of God…spreading the gospel at home and abroad.
(The above material was published by Deferred Giving and Trusts Department, Springfield, MO.)
Christian Information Network
