By: Laurie Valentine-COO & Trust Counsel
The federal gift tax and estate tax exemptions are $5.12 million for gifts made or deaths occurring in 2012. If Congress does not act, the federal estate tax and gift tax exemptions will both drop back to $1 million and the top transfer tax rate will increase to 55% on January 1, 2013.
As 2012 draws to a close, many are focused on how to use all, or a significant portion, of the current $5.12 million gift tax exemption, rather than miss the opportunity that could disappear if congress fails to act and we fall off the “fiscal cliff” (or it acts to reduce the current level of exemption).
If you would like to fund your annual giving for missions, childcare ministries or other charitable causes for the next few years in a new and creative way and coordinate your charitable giving with a plan that allows you use as much as possible of the 2012 federal gift tax exemption amount to make gifts to your family, a charitable lead annuity trust may be a good giving plan to consider.
A charitable lead annuity trust (“CLAT”) is a giving plan that provides a fixed income stream to one or more charitable causes for a designated period of years. At the end of the trust term the trust remainder can either be returned to you (this is a “grantor lead trust”) or be distributed to your children and/or other family members (a “non-grantor lead trust”).
While a lifetime gift to a “non-grantor” CLAT does not entitle you to a charitable income tax deduction, it does provide a way to pass assets to your children or family at a reduced gift and estate tax cost.
Gift tax savings come from the fact the tax value of the future gift to your family is the present value of the remainder trust interest, not the full value of what you give to the trust. Estate tax savings result from the removal of the asset, any subsequent appreciation and the future income it generates from your estate.
Ask your legal and tax advisers how you should be planning for the possibility of reduced estate and gift tax exemptions. A CLAT may be the answer.
For more information, please call us at (502) 489-3533 or toll free in KY at 1-(866) 489-3533
The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.