Dedon on Estate Planning

Planning to Use Exemption Amounts

Set forth below is an article published last week in VA Business Magazine pertaining to how a married couple can each use their $5,120,000 gift exemption while the opportunity lasts, and yet still benefit from the assets.

Download Va bus mag art 2-16-12

 

 

Let the Games Begin

President Obama’s 2013 Budget proposal was released this week. As expected, there are restrictions on estate and gift tax strategies that have been useful during 2011 and 2012. A couple of the proposals are repeats from his prior recommendations. These include eliminating 2-year rolling GRATS and valuation discounts between family members.

Most significantly, the President desires a $3.5 million estate tax exemption and a $1 million gift and generation skipping tax exemption. Thus, for 2013, as during 2009, a married couple can protect $7 million upon death, and can gift $2 million during their lifetimes. The estate tax rate would be 45%. These proposed limits would dramatically reduce the current advantages available to wealthy taxpayers, which allow for a $5 million exemption amount upon death or for lifetime gifts. As relatively bad as the Obama proposal is for estate planning purposes, if Obama and Congress fail to agree on estate legislation in 2012, in 2013 the death and tax exemption amounts will be only $1 million per person and a 55% tax rate.

What does it all mean? A lot of uncertainty, but for wealthy taxpayers considering asset transfers, act this year.

Substantiating Charitable Deductions

Taxpayers who claim income tax deductions for charitable contributions must request and obtain the written acknowledgement from the charity that the contribution was made. It is due by April 17, 2012, the time the income tax return is filed. Failure to have the required substantiation from the charity can void the tax deduction. Below is a sample letter.

　

CHARITY NAME

____[Date]_______

　

[Name of Donor]

[address]

 

Dear ____________:

Thank you very much for donating $_________ to Charity during 2011. This letter acknowledges your generous donation. No goods or services were received by you in consideration of this gift. Therefore, the full amount is deductible to the extent allowed by the Internal Revenue Service regulations.

Thank you for your support.

Sincerely,

 

___________________________________

_____________________, [Title]

Charity

The More Things Change, The More They Stay The Same

On January 10^th, PricewaterhouseCoopers hosted a webinar pertaining to potential tax legislation in 2012. The panelists concluded that, despite a number of tax provisions that will expire, a huge deficit, and a continuing clamor for significant tax reform, it is unlikely there will be major legislation during this election year. Rather, it is very likely that, in 2012, taxpayers will face the same planning uncertainty they did in 2010; namely, the next year looming with a $1 million gift and death tax exemption.

Thus, Congress will act (or not) sometime between Thanksgiving and New Years. In 2012, however, in contrast to 2010, there are additional pressures which do not bode well for the continuation of this year’s $5 million gift and estate tax exemption, such as a lame duck Congress and a scheduled $450 billion cut in defense spending. There could also be a new President. Absent other cuts or tax increases, the tension between reduced spending or increasing taxes or both, will continue to dominate the debate.

Business Owners and 401(k) Compliance

Attached is an article I wrote that was recently published in the Virginia Business Magazine pertaining to 401(k) plans and common employer compliance failures. According to an IRS study, 64% of the plans audited are not in compliance, causing problems for businesses and potential personal liability for Board members.

Download Va bus mag art 1-4-12