eGiftLaw Newsletter
January 20, 2009
George O. Pickell
Director of
Planned Giving
|
Dear Professional Advisor,
Greetings from University of Northern Colorado Foundation. I am pleased to share with you the latest news from Washington, tax law updates, PLRs, Case Studies and timely articles. We provide this weekly eNewsletter and web site to our professional advisor friends as a free service. Please feel free to call me at 970-351-1380 if I can run a proposal or be of assistance to you. |
|
University of Northern Colorado Foundation |
January 19, 2009 |
GiftLaw Weekly eNewsletter - January 19, 2009
- WASHINGTON HOTLINE
- PLR THIS WEEK
- CASE OF THE WEEK
- ARTICLE OF THE MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"It was as true ... as taxes is. And nothing's truer than them."
-- Charles Dickens
Stimulus of $825 Billion - Will It Revive the USA Economy?
On January 15, 2009, a summary of the American and Recovery and Reinvestment Plan Act was released by Speaker of the House, Nancy Pelosi (D-CA).
The stimulus plan, supported by President-elect Barack Obama, is designed to "save three to four million jobs" and "jump start our economy." It includes $550 billion of priority investments and $275 billion in targeted tax cuts. The government spending and tax cuts are designed to "spur economic recovery."
In response to concerns about potentially unwise spending, the plan includes "unprecedented accountability." The stimulus bill will fund no earmarks or pet projects, a new website will disclose all expenditures, there will be a new board to review transparency and the Government Accountability Office will monitor all funding.
There are multiple targeted expenditures in the proposed bill. These include the following:
1. Clean, efficient, American energy -- $32 billion for improvement of the energy grid, $20 billion for energy tax credits and $16 billion for public housing energy efficiency.
2. Infrastructure -- $92 billion for highways, water projects, rail and other transportation improvements.
3. Education -- $166 billion for local school districts, public colleges and universities and to prevent layoffs of teachers.
4. Healthcare -- $24 billion for new health information technology.
5. Unemployment -- $39 billion to extend and strengthen unemployment benefits.
6. Vital services -- Funding for states of $87 billion for Medicaid and $4 billion for state and local law enforcement.
Ways and Means Committee Ranking Republican Dave Camp (R-MI) responded to the release by Speaker Pelosi. He stated, "It is nice to finally know the outline of the bill, even if we had to read it in press release. I will say this: it certainly makes up in length what it lacks in details."
Tax Relief in Stimulus Bill
The American Recovery and Reinvestment Plan proposes $275 billion of tax relief. House Ways and Means Committee Chairman Charles Rangel (D-NY) issued a press release that outlined the tax changes in the bill. Chairman Rangel stated, "This recovery package will provide tremendous tax relief, healthcare and job training benefits for families struggling to make ends meet, while also giving businesses the boost they need to create new jobs." He noted that the package also funds infrastructure and extends unemployment benefits.
The tax relief for individuals includes President-elect Obama's "Make Work Pay" tax credit. This credit is designed to reduce withholding and provide $500 per person or $1,000 per married couple. The hope is that taxpayers will spend the $500 or $1,000 promptly to stimulate the economy.
There currently is a $7,500 first-time buyer's tax credit that is repaid over 15 years. The stimulus bill would forgive the repayment of this tax credit. There also would be expanded eligibility for the earned income tax credit (EITC) and the child tax credit. A $2,500 tax credit for higher education also may be added.
Businesses would benefit from the higher Sec. 179 expensing limits ($250,000) and 50% bonus depreciation on new equipment.
Editor's Note: Senate Finance Chair Max Baucus (D-MT) discussed on Thursday the possibility that there would also be an increase in the alternative minimum tax exemption in the stimulus bill. Senators from both parties support the inclusion of the AMT relief and it is likely to be added to the Senate version of the stimulus bill.
IRS Guidance on 2009 IRA RMD Waiver
The Worker, Retiree and Employer Recovery Act of 2008 waived required minimum distributions (RMDs) for 2009 for most plans. The waivers apply to Sec. 401(k) plans, Sec. 403(b) plans, certain Sec. 457(b) plans and individual retirement accounts (IRAs).
In Notice 2009-9; 2009-5 IRB 1 (9 Jan 2009), Treasury has explained the specific procedures for the RMD waiver for 2009.
Individuals who are 70½ in 2008 have until April 1, 2009 to take their first withdrawal. Because this is a 2008 withdrawal, it still must be taken prior to April 1, 2009. Individuals who become 70½ in 2009 will not be required to take their RMD for that year. However, they will be required to commence RMDs by the end of 2010.
Some individuals are a beneficiary of an IRA and are taking distributions over a five year fixed term. The waiver of the 2009 distribution will enable these individuals to withdraw the IRA funds over a six year period.
Organizations serving as custodians must notify owners that there will be no 2009 RMD distribution. They may either issue Form 5498 for 2008 with no check in box 11, or notify IRA owners by March 31, 2009 that there is no RMD for this year.
Editor's Note: The Notice emphasizes that the RMDs are waived for 2009, but are applicable for both year 2008 and year 2010. While there is no RMD for year 2009, it still is permissible for a donor to make a qualified charitable distribution (QCD) of up to $100,000 during year 2009. Donors with charitable intent may still choose to make IRA charitable rollover gifts during 2009.
Applicable Federal Rate of 2.0% for February -- Rev. Rul. 2009-5; 2009-6 IRB 1 (16 Jan. 2008)
The IRS has announced the Applicable Federal Rate (AFR) for February of 2009. The AFR under Sec. 7520 for the month of February will be 2.0%. The rates for January of 2.4% or December of 3.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2009, pooled income funds in existence less than three tax years must use a 4.8% deemed rate of return. Federal rates are available by clicking here.
|
PLR THIS WEEK
PLR - 200902012 Service Permits Division of CRT
Husband and Wife (H and W) created a charitable remainder unitrust (Trust) on date X. Upon receipt of a dissolution of marriage decree, H and W obtained permission from the Superior Court to divide Trust into two separate trusts subject to receiving a favorable letter ruling from the Service. H and W request a ruling that the division of Trust into two separate trusts with substantially the same terms will not result in a termination tax, will not be considered an act of self-dealing, will not give rise to a taxable termination of Trust and that any reasonable legal fees incurred by Trust will not be classified as an act of self-dealing.
The Service determined that Trust is subject to the Sec. 507 rules regarding the termination of private foundations. Sec. 507(b)(2) provides that in the case of a transfer of assets from one private foundation to another pursuant to any "redemption, recapitalization or other adjustment," the transferee organization shall not be considered a newly created foundation. The accompanying regulations to Sec. 507 provide that for 507(b)(2) to apply, the move of assets must be a "significant disposition of assets," meaning at least 25% of the assets must be transferred. Because Trust will distribute 100% of its assets to two substantially similar trusts, Trust will not be subjected to a taxable termination. The newly formed trusts will provide H and W with substantially similar benefits as they received under Trust, the self-dealing rules will not apply and no act of self-dealing will occur as stated in Sec. 4941. Finally, the Service determined that assuming the legal fees incurred by Trust in preparation for the Private Letter Ruling were reasonable and incurred in good faith, they will not be considered acts of self-dealing.
To view the full PLR Click Here.
|
CASE OF THE WEEK
Living on the Edge, Part 6
Rhea Jones, 75, lives in a beautiful coastal town in northern California. Rhea's home occupies three magnificent acres of bluff property that overlooks the crashing waves of the Pacific. Since her home sits just steps away from the dramatic cliffs, Rhea frequently jokes to her friends about her "living on the edge" lifestyle.
John, Rhea's husband of 50 years, built the custom home ten years ago. It was truly the realization of a lifelong dream of John and Rhea. Unfortunately, John passed away unexpectedly five years ago. Now, Rhea lives alone in the large home. Nevertheless, Rhea is looking forward to spending her remaining days in this lovely home. Not surprisingly, she frequently plays host to her children, grandchildren and friends.
Rhea is an active philanthropist. In fact, she spends three days a week volunteering with local charities. While very wealthy and philanthropic, Rhea makes only modest yearly gifts. However, she intends to make a substantial bequest upon her death. Specifically, Rhea plans on distributing her entire estate to her children and grandchildren, except for her cliff-side home. Rhea's will provides that the home passes to John and Rhea's favorite charity upon her death. The home is worth $3 million.
However, at a recent estate planning presentation, Rhea discovered the benefits of a gift of a remainder interest in a personal residence. In particular, she liked the potential significant tax savings and the home's avoidance of the probate process. Also, because the gift is irrevocable, the local charity would recognize and honor Rhea for her generous gift at the annual fund raising gala. Of course, Rhea would retain the right to live in her home for the rest of her life, which is an absolute requirement to any potential gift arrangement.
Rhea is very excited about this gift arrangement, but she has many questions. Before she commits to the gift plan, she wants to address several issues. In order to compute the charitable income tax deduction, Rhea is required to determine the estimated useful life of her home. How does she do this? Are there some rules regarding this determination? What are the four basic options to make this determination?
To view the solution to this Case of the Week Click Here.
|
ARTICLE OF THE MONTH
Increasing Payment Lead Trust
A charitable lead annuity trust (CLAT) may have increasing payments. In Rev. Proc. 2007-45, IRB 2007-29 (16 Jul 2007), the Service approved the concept. Under 02 Annotations for Paragraph 2, Payment of Annuity Amount, the IRS stated in Section 4, "Alternatively, the governing instrument of a CLAT may provide for an annuity amount that is initially stated as a fixed dollar or fixed percentage amount but increases during the annuity period, provided that the value of the annuity amount is ascertainable at the time the trust is funded."
With increased volatility in stock markets, there are persuasive economic reasons for a CLAT with increasing annuity payouts. Annuity trust remainder recipients benefit from the difference between the applicable federal rate and the actual economic return. If the applicable federal rate is fairly low at 4% or 5%, and the trust assets are able to produce total return of 8% or 9%, then the family benefit is increasing by 4% or 5% each year.
This benefit is particularly helpful if there is an economic downturn in the early years of the trust. The favorable benefit for family with a fixed annuity is that growth can compound and significantly increase the distribution to family. However, if there is a fixed annuity payout and an economic downturn in the early years of the trust, then most, and in some cases all, of the principal of the trust is used to make the annuity payment.
To view the full Article of the Month Click Here.
|
Note: Case studies, articles, commentary and other materials in the GiftLaw system are included solely as educational information. Articles and editorial comments are offered as an educational service to friends of this organization, and may not always reflect our official position on any issue. Since case studies or articles may not always reflect the current AFR or tax law, it may be necessary to run any illustration with a current version of Crescendo to obtain updated information. If professional services are required, all persons shall consult with their qualified professional advisors. Tax Quotes are courtesy of Jeffery L. Yablon, Washington, D.C.
© Copyright 1999-2009 Crescendo Interactive, Inc. |
University of Northern Colorado Foundation |
January 19, 2009 |
|
Thank you for your interest in gift planning. To access any of this updated GiftLaw information, please select our web page by clicking here.
Cordially yours,
George O. Pickell
Director of Planned Giving
E-mail: George.pickell@unco.edu
Phone: 970-351-1380
University of Northern Colorado Foundation
http://www.uncalumni.org/Foundation
|
|
