Estate and Trust Strategies in Uncertain Times. Herrick, Feinstein LLP and ERE Accountants & Advisors

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1 Estate and Trust Strategies in Uncertain Times Herrick, Feinstein LLP and ERE Accountants & Advisors October 28, 2009

2 New, Meaner, Leaner IRS

3 Federal Estate Tax Current $3.5M exemption and 45% top rate repealed, however NO STEP UP $1M exemption and 55% top rate Obama (2010 Budget Resolution) Lock in law as exists in 2009 Eliminate family discounts Minimum 10-year GRAT

4 Federal Estate Tax (cont.) Everyone wants a say 9 bills considered over the past 12 months Pomeroy: $3.5M + 45% + 5% surtax for estates over $10M Mitchell: $5M + 15% under $25M and 30% over $25M Rep. Brady: repeal Sen. Baucus: $3.5M + 45%, reunify gift and estate, spousal portability, deduction for state estate taxes allowed

5 State Estate Tax Within one year of EGTRRA, 12 states changed regime Recent changes: Delaware: reinstates estate tax for estates or and after June 30, 2009 (expires in 2013) Rhode Island: exemption increase to $1M on January 1, 2010 Connecticut: exemption increase to $3.5M on January 1, 2010 Maine: decouples so for deaths after December 31, 2009 estate tax after $1M

6 Most Likely?

7 Most Likely? Federal House considering 1-year patch: retain 2009 levels for a one year period ($3.5M + 45%) Senators want permanent reform State Increased taxes to make up budget shortfalls

8 Planning Opportunities Low values Historically low rates Availability of valuation discounts Short-term GRATS

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10 Planning Vehicles Trust funding with depressed assets Utilize life exemption to fund trust to avoid state/federal exemption differences GRATS Sales to grantor trusts CLTS CRTS FLPs and FLLCs Intra-Family Loans Charitable gift annuities Charitable planning with retirement assets

11 Important Revisits Specific distributions and formula clauses in wills and other testamentary documents Addressing difference between state and federal estate tax exemptions Substitution of property provisions Renegotiation of notes Termination of CRTs Unitrusts instead of income only provisions

12 Estate & Trust Strategies in Uncertain Times What the current state of new legislation means to you Richard J. Stone, CPA, Partner

13 Estate Tax Saving Tools Splitting assets Proper wills or living trusts Simultaneous death clause Annual gifting Additional gifting or support College saving (529 plans) Annuities and life insurance Trusts

14 Estate Tax Trusts Credit shelter trusts Marital trusts Grantor trusts GRITS, GRATS, GRUTS, IDGT Family limited partnerships Charitable trusts Qualified residence trusts

15 Estate Tax Example TOTAL NET WORTH $7,000,000 TRUST: $3,500,000 (Income & Right to Principal, Health, Maintenance, Support, Education, etc.) SPOUSE $3,500,000 CHILDREN CHILDREN Between federal and state taxes, this method would save the beneficiaries of the estate roughly $2,000,000.

16 Questions? Richard Stone can be reached at Or contact your own trust and estate advisor for more information. ERE LLP Accountants & Advisors 440 Park Avenue South New York, NY Columbus Avenue Valhalla, NY Jericho Turnpike Jericho, NY

17 The Benefits of Charitable Gifts to Smart Retirement Planning Lorri M. Greif, CFRE, President Breakthrough Philanthropy, Inc October 28, 2009

18 Charitable Gifts and Retirement PPA 2006 (ending soon) 70½ years old can donate up to $100,000 from IRA (only) directly to a charity No tax deduction but distribution is not taxed either Charitable Gift Annuity (retired) Charitable deduction Attractive, fixed, tax advantaged income Guaranteed by all of the nonprofit s assets State permit (NYS) Secure a legacy

19 Charitable Gifts and Retirement Deferred Charitable Gift Annuity (saving for retirement) Same as regular charitable gift annuity but guarantees a future income (no more worrying about investment returns) Avoiding Excessive Taxation of Your Retirement Plan (non-spouse beneficiary) Estate tax and IRD tax leaves Uncle Sam more than your chosen heirs Leaving retirement plan assets to an American spouse or charity avoids this tax situation Testamentary charitable remainder trusts are one remedy to this situation that will provide ongoing income to your desired beneficiaries and help your favorite nonprofit too

20 Basic Gift Illustrations Taxation of Gift Annuity Payments 8% Deferred Gift Annuity ASSUMPTIONS: Annuitant 55 Date of Gift 10/28/2009 Age at Date of First Payment [12/31/2019] 65 Cash Donated $100, Annuity Rate 8% Payment Schedule quarterly CALCULATIONS: Charitable Deduction $32, Number of Payments in First Year 1

21 Basic Gift Illustrations Taxation of Gift Annuity Payments Page 2 Annuity $8, Quarterly Payment $2, BREAKDOWN OF ANNUITY: Tax-free Ordinary Total Portion Income Annuity 2019 to , , to , , , to , , , onward , , After 19.9 years from the year the payments begin, the entire annuity becomes ordinary income.

22 Summation PPA 2006: reduces size of future estate Charitable Gift Annuity: may improve current cash flow; charitable deduction; Deferred Charitable Gift Annuity: secures a future income; charitable deduction; Beat Excessive Tax On Retirement Plan: leave to spouse; charitable beneficiary; set up a charitable remainder trust to benefit other types of heirs

23 Estate and Trust Strategies in Uncertain Times Alex Popovich Herrick, Feinstein LLP (212) Richard Stone ERE Accountants & Advisors (914) Lorri Greif Breakthrough Philanthropy (212)