I. Changes in the Gift, Estate & Generation-Skipping Transfer Taxes.
In 2009, the lifetime exemption from gift taxes remains $1,000,000, but the exemptions from estate taxes and generation-skipping transfer (“GST”) taxes increased to $3,500,000 (up from $2,000,000 in 2008). The top rate for all of these taxes is 45%.
Any portion of the $1,000,000 gift tax exemption used for lifetime gifts reduces the maximum allowed estate tax exemption. Thus, if a person who dies in 2009 had previously used $400,000 of the lifetime gift tax exemption, then the remaining estate tax exemption is $3,100,000 ($3,500,000 minus $400,000). In addition, if the lifetime gift is a generation-skipping gift (e.g., to a grandchild), then the gift amount is also offset against the $3,500,000 GST tax exemption.
In 2009, the annual “per recipient per donor per year” gift tax exclusion increased to $13,000 (in addition to the unlimited gift tax exemption for amounts paid directly for school tuition or medical expenses), up from $12,000 in 2008.
II. Transfers from IRAs to Charities.
As part of the financial industry bailout (the Emergency Economic Stabilization Act of 2008, H.R. 1424), signed into law on October 3, 2008, Congress restored and extended the law allowing a person over age 70-1/2 to transfer up to $100,000 directly from an IRA (other than a SEP-IRA or a “Simple Retirement Account”) to a public charity (generally, not a private foundation) without taking the income into account. This provision is now effective through 2009. Note that you can’t receive a benefit from the charity that results from making the transfer. (For example, you can’t transfer an amount to charity to fund a life income gift such as a Charitable Remainder Trust.) Generally, the funds can’t be transferred to a supporting organization or donor advised fund, even though those organizations are treated as public charities. Making a charitable transfer will save taxes for many people over age 70-1/2 who are receiving distributions from an IRA and who want to benefit a public charity.
III. FDIC Insurance.
The FDIC bank deposit insurance limit has been increased to $250,000 per account (up from $100,000) from October 3, 2008 through the end of 2009. The recent failure of a number of banks has given rise to questions by clients about the way FDIC insurers funds held by revocable trusts and retirement accounts. Generally, all retirement accounts of a single “participant” at a particular bank are insured up to $250,000. All accounts held by a revocable trust are insured on a “per settler/per beneficiary” basis.
IV. No Contest Clauses.
- The new rules will be effective for documents that became irrevocable in 2001 or later, so it will be retroactive for approximately nine years! While the new law will make many changes, probably the most important is that a person who files a contest based on “probable cause” will not forfeit his or her inheritance, even if the contest fails.
V. Gay Marriage.
Starting in mid-May 2008, California recognized marriages between gay persons, but Proposition 8 on the November 2008 ballot sought to eliminate recognition of gay marriages in California. While Proposition 8 passed, court cases have been filed seeking to void the election result. It is unclear what status will apply to gay couples who married earlier this year.
VI. California Tax Changes.
California enacted a number of revenue raising provisions. Here are just a few of them. Beginning in 2009, the LLC Gross Receipts Tax will be due as an estimated tax payment by June 15 of the current year, rather than April 15 of the following year. For 2009, married couples with income over $1,000,000, or single persons with income over $500,000, cannot avoid estimated tax underpayments by making a “safe harbor” payment based on the prior year’s income. Effective September 30, 2008, if you buy an aircraft or boat outside of California and bring it into California, use tax will be due unless it has been kept outside California for one year (previously 90 days) before bringing it into California. Net operating losses can’t be carried forward into 2008 or 2009, although the carryover period has been lengthened and carrybacks will be permitted (on a phased-in basis) starting in 2012.
VII. Failure-to-File Penalties.
The IRS imposes a penalty of 5% of the amount of tax shown on an income tax return if the return is not filed in a timely manner and the taxpayer can’t show reasonable cause for failing to file the return. For 2009, if a return is filed more than 60 days late, and no reasonable cause is shown, the minimum penalty will be the smaller of $135 or 100% of the tax.
Contact Us
We would be happy to assist you in your charitable planning. Contact our Development Office at 323-761-8704 or development@jewishfoundationla.org to learn more about options that may work for you.
This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the editor and contributors are not engaged in rendering legal, accounting or other professional services. Therefore, the contents should not be applied as legal or financial advice.