Trusts for Family and Society

Trusts for Family and Society T he Wall Street Journal recently reported that 60% of Americans have yet to create a will or living trust. Most people know what a will is, and might agree that they need one. But what about trusts? How do they work? Should you create a trust? Legend has it that trusts developed in the Middle Ages out of the concerns of Crusaders, who were worried about what would happen to their holdings if they were absent for several years. The following centuries saw growth and development in the law of trusts in ways that helped provide for family financial security, reduction of taxes and help for worthwhile causes. This booklet details many of these opportunities. Inside This Guide Book The Advantages of Lifetime Trusts....... 2 Benefits of a Charitable Loan.......... 9 Special Tax Advantages of the Charitable Remainder Trust............. 3 Estate Tax Considerations............. 10 The Income Tax Deduction............. 3 Gifts of Appreciated Property........... 5 A Charitable Remainder Trust Created by Will................. 10 A Gift Increases Spendable Income...... 5 A Temporary Gift from Your Will........................ 10 Taxation of Beneficiaries................. 6 Special Planning Opportunities.......... 11 Planning Individual Benefits............ 7 Notes for Tax Advisers................. 14 1

Our own financial security and the security of our family comes first for all of us yet we all want to see worthy charitable institutions continue their role of providing the best possible world for tomorrow s generations. These goals personal and family financial security and the continuation of important institutions are not mutually exclusive. Securities can be placed in a trust from which you receive income either fixed or variable for your life. 1 At your death, the property comes to us. Besides income from the securities for life, you also receive a substantial income tax charitable deduction, avoid capital gains tax and realize the personal satisfaction that comes from knowing you have added to the quality of our society. A gift in trust for yourself, your family and our future has other practical advantages. Management of the property becomes the trustee s responsibility, not yours. And, the costs of administering your estate at your death are reduced. 2 One method of giving that has been granted extremely generous tax rewards is the charitable remainder trust. This is an arrangement whereby you transfer money or property to a trustee, requiring the trustee to pay benefits exclusively to you or another or both of you for life or a certain period of time. When these payments end (whether that be in one year or in 50 years), the property passes to us. 3 The charitable remainder trust offers present benefits for you and your family, and a later benefit for our needs. For example, your charitable remainder trust could provide you an annual annuity equal to 5% of the value of your gift (or 5% of the value of the trust each year) for your life. At your death, this annuity is paid to your spouse for life. When both of you have died, the property passes to us. THE ADVANTAGES OF LIFETIME TRUSTS The charitable remainder trust is in a sense a bequest, for you can keep the right to enjoy the property for life. But it is also a living trust, and it can provide you and your family with all the advantages that have made trusts so popular. Flexibility... trusts are flexible enough to meet your every need and objective. Reduced settlement costs... the cost of settling an estate generally runs about 8% 2

Tax savings... depending on the nature of the trust, you can look for tax savings of thousands of dollars. SPECIAL TAX ADVANTAGES OF THE CHARITABLE REMAINDER TRUST of the value of the estate. Property placed in trust escapes this severe depletion. Relief from burdensome detail... investment chores disappear when property is placed in trust. The trustee does all the accounting, and gives you detailed written reports. This may be especially important to your family after your death. Future control of property... property placed in trust must be used exactly as the creator has directed. It s really the only way to control property for future generations. 4 Publicity is avoided... wills are generally open to the public, including newspapers. Trusts are completely private. Possible litigation is avoided... the chances of anyone challenging a lifetime transfer to a trust are much less than the possibilities of a will challenge. No probate interruption... it takes time to settle an estate. During this time, good investments are extremely difficult. A trust is not affected by probate. In addition, the charitable remainder trust has tax rewards that can dramatically cut the cost of a gift for our benefit. There s no capital gains tax on your paper profit when you transfer appreciated securities to the trust. The trustee can sell and reinvest for higher yield without any shrinkage from taxes. The full present value of our deferred interest is immediately deductible for income tax purposes. Amounts paid out to individual beneficiaries often can qualify for favorable tax treatment. The trust itself is tax exempt. 5 You can divert income to a low bracket taxpayer within your family group. With careful planning, the trust can save thousands of dollars in estate tax. THE INCOME TAX DEDUCTION The income tax deduction allowable for a deferred gift made through a charitable remainder trust depends on the amounts payable to individual beneficiaries and the 3

length of time these payments will continue. 6 The larger the individual benefits and the longer they continue, the smaller the deduction. The tables in the next column show approximate deductions allowable per $100,000 transferred. 7 Most charitable remainder trusts provide benefits for the life of one or more individuals. And as the table indicates, the deduction is based on the age of the beneficiary as well as the amount of benefits. Examples of the Tax Deduction: The tables make it clear that a $100,000 gift to a charitable remainder trust that is to pay a 5% annuity to a 75-year-old beneficiary for life will give rise to a $55,095 tax deduction. In short, more than half the value of the gift is immediately deductible. 8 The tables, which use $100,000 multiples, can easily be used to compute the approximate deduction for any size gift. Thus, if a 65-year-old person transfers property worth $500,000 to a unitrust under which he or she is to receive payments equal to 5% of the annual value of the trust, he or she can deduct $225,285 ($45,057 times five). Limitations on the Deduction: The deduction allowable in any one year for gifts to charity is about 50% of the donor s income. 9 If appreciated property is given, the maximum deduction is 30% of income. 10 Amounts not deductible in the year of the gift may be carried over and deducted in later years. 11 GIFT OF $100,000 TO UNITRUST FOR LIFE OF BENEFICIARY (VARIABLE PAYOUT) Deduction if Beneficiary Receives: Age of 5% 6% 7% Beneficiary Annually Annually Annually 50 $26,521 $21,120 $17,044 55 32,052 26,331 21,861 60 38,267 32,362 27,593 65 45,057 39,135 34,196 70 52,478 46,756 41,835 75 60,281 54,992 50,314 80 67,893 63,222 59,983 GIFT OF $100,000 TO ANNUITY TRUST FOR LIFE OF BENEFICIARY (FIXED PAYOUT) Deduction if Individual Receives: Age of $5,000 $5,500 Beneficiary Annually Annually 75 $55,095 $50,604 80 64,568 61,024 85 72,897 70,187 90 79,831 77,814 4

remainder trust. That way, you gain a tax deduction based on an untaxed profit. GIFTS OF APPRECIATED PROPERTY You can transfer almost any kind of property to a charitable remainder trust: cash, real estate, stocks, bonds, mutual fund shares, life insurance, etc. The value of the property at the time of the gift not the cost of the property to you is used to compute the allowable tax deduction. For example, if you transfer stock that is now worth $150,000 to a charitable remainder trust, $150,000 is the measure for calculating your deduction even though the stock may have cost only $40,000 when you bought it. Besides the deduction, there s another big tax advantage: None of your paper profit is taxable as a capital gain. Using the example of stock worth $150,000 but with a cost basis of only $40,000, the donor can base his or her deduction on the $150,000 value and pay no tax on his or her $110,000 profit. Clearly, it is often desirable to transfer appreciated property to a charitable A GIFT INCREASES SPENDABLE INCOME It is interesting to note how combined tax rewards that Congress has provided to encourage gifts to a charitable remainder trust substantially reduce the cost of such gifts. Assume, for example, that Mr. White who is in a 28% income tax bracket owns securities that are worth $100,000 but are returning a low yield. The securities cost him $52,000, so he will have a $48,000 capital gain if he sells them. Here is what he might expect if he were to sell the securities: 12 Proceeds from sale of stock... $100,000 Cost basis... $52,000 CAPITAL GAIN ON SALE... $48,000 Tax 13... 15% CAPITAL GAIN TAX ON SALE... $7,200 Even if brokers fees are ignored, Mr. White will have only $92,800 to reinvest. If he receives a 5% return on his new investment, he will have income of $4,640 a year. Compare the results if Mr. White transfers the securities to a charitable remainder 5

trust under which he is to receive $5,000 a year for his life. Clearly, he has a larger income. And, as is explained later, it may be favorably taxed. There is no tax on his $48,000 paper profit and Mr. White, age 70, qualifies for an immediate tax deduction. Value of transferred property...$100,000 Percentage deductible for donor, age 70... 44.9% ALLOWABLE TAX DEDUCTION...$44,874 Tax bracket... 28% DOLLAR TAX SAVINGS... $12,565 The gift to the charitable remainder trust, as contrasted with a sale and reinvestment, actually increases Mr. White s spendable income by a very substantial amount. TAXATION OF BENEFICIARIES It is often possible to arrange a charitable remainder trust so that benefits paid to individuals will be taxed under favorable rules. For example, if you place taxexempt securities in the trust, benefits may be tax free. 14 Or the trustee may choose to invest in investments that produce long-term capital gains or dividends, which are taxed at a maximum rate of 15%. 15 The trustee will, of course, advise each beneficiary as to the taxation of the benefits received each year. Referring back to Mr. White s $100,000 charitable remainder trust, it was pointed out that he will receive $5,000 a year for his life. If the trust continues to hold the growth securities, it may have dividend income of about $500 after deducting trustee fees and other expenses that are properly allocable to income. Through 2012, dividend income is taxed at a maximum of 15%. And the balance of the $5,000 payment would be partly capital gain and partly tax free. 16 If the stock had been sold and the proceeds had been invested in growth stock (no dividends) and tax-exempt securities, the trust would have a capital gain of $48,000 and no ordinary income. As a result, the entire $5,000 annuity would be taxed to Mr. White at favorable capital gain rates. If we assume that Mr. White lives for 12 years and that the growth securities are retained, the trust will actually increase his spendable income as follows: 6

SALE AND REINVESTMENT Investment income (5% of $92,800)...$4,640 Tax rate... 15% Tax on investment income... $696 AFTER-TAX INCOME... $3,944 Accumulated for years of life... 12 TOTAL AFTER-TAX INCOME.. $47,328 BENEFITS FROM A CHARITABLE REMAINDER TRUST Capital gains subject to taxation 15...$2,160 Tax rate...15% Tax...$324 Dividends subject to taxation...$500 Tax rate...15% Tax...$75 Total tax on benefits...$399 Taxable benefits after tax ($2,660 $399)...$2,261 Nontaxable benefits 16...$2,340 AFTER-TAX INCOME...$4,601 Accumulated for years of life...12 TOTAL AFTER-TAX INCOME...$55,212 Mr. White will receive $7,884 more from the charitable remainder trust than he would receive if he had sold the stock and reinvested in stock providing a 5% return. This is in addition to a tax savings of $12,565 which results from the deduction allowable for the gift. The only point to be made by the example of Mr. White is that a carefully planned charitable remainder trust can fit nicely in your financial planning. A gift in trust will increase your spendable income... it can provide a favorably taxed income... capital gain taxes can be avoided... a large and immediate deduction is allowable at the time the trust is created... and there may be other tax and financial benefits. But it is important to note that there is a gift for our future. And there obviously is a cost to every gift. With a carefully planned charitable remainder trust, the cost can be remarkably low when contrasted with the benefits we will receive. PLANNING INDIVIDUAL BENEFITS In planning a gift to a charitable remainder trust, you will want to give careful consideration to the benefits that will be paid to you or to other individual beneficiaries. Determining the amounts of the payments, fixing the length of time payments will be made and choosing the persons to be benefited are important factors in every planned charitable remainder trust. Amounts of Payments: You have four 7

Trusts for Family and Society basic choices in planning payments to individuals: First: You can direct that a specific sum be paid each year to a named beneficiary. This sum must be at least 5% of the value of the property transferred to the trust.17 Example: Mrs. A transfers $200,000 to a charitable remainder trust, directing the trustee to pay her the specific sum of $10,000 a year for life. This specific payment must be made without regard to the investment success of the trust. It is really a fixed annuity arrangement... a specified sum that you or your beneficiary can count on receiving for the rest of your life. Second: You can direct that, each year, your named beneficiary is to receive a certain percentage which has to be at least 5% of the value of the trust assets in that year.18 Example: Mr. B transfers securities worth $120,000 to a trust under which his daughter is to receive an annual amount equal to 5% of the value of the trust each year. In the first year, the daughter will receive $6,000. If the trust grows in value, the payments will increase in subsequent years. For example, if the trust has a value of $130,000 in the second year, the daughter will receive $6,500. Similarly, if the trust decreases in value, the daughter s benefits will be reduced. Third: You can direct that the trust pay the beneficiaries all the income earned by the trust each year, but you must limit the payout to a specified percentage of the value of the trust. Example: Ms. C transfers $100,000 to a charitable remainder trust that is to pay her all the income for her life, but no more than 6% of the value of the trust each year. The top payment in the first year will be $6,000. As the trust changes in value, the top dollar limit will change. Fourth: You can direct that the trust pay the named beneficiaries all the income earned by the trust each year, limiting the payout to a specified percentage of the value of the trust. And you can provide that if the income is less than the specified percentage of value in any year, the deficiency will be made up in any subsequent year in which income exceeds the specified percentage.19 8

A flip unitrust may be used if you want small benefits for a period of years, with substantially higher benefits after you attain a specified age. 20 Periodic Payments: In creating your charitable remainder trust, you can direct that benefits be paid to individual beneficiaries on an annual, semiannual, quarterly or monthly basis. Duration of Benefits: In most cases, the creator of a charitable remainder trust will want benefits paid to an individual for his or her life, or to several individuals for their respective lives. However, benefits can be payable for a specific period of years. Here are some of the possibilities: Pay benefits to me for my life. Pay benefits to me for life and then to my husband for life. Pay benefits to my son for his life. Pay benefits to my wife for life and if she dies within 20 years, pay benefits to my son until the 20-year period ends. Divide the benefits among my children for 20 years in such proportions as the trustee deems most desirable. Choosing the Beneficiaries: You have complete freedom in selecting the beneficiaries of your charitable remainder trust. Frequently, the creator of a trust will name himself or herself beneficiary. BENEFITS OF A CHARITABLE LOAN Donors receive no tax deduction from merely lending cash or property to a charity. That is unfortunate, because the use of money or property can be highly valuable. And if you give something that is valuable to a worthwhile cause, you should be entitled to an income tax deduction. There is a way, however, that our friends can make temporary gifts, receive tax deductions and get their cash or property back later. In some cases, the property will come back to family members or heirs. The technical name for this gift technique is the charitable lead trust. These gifts can be arranged to provide either income tax benefits or gift and estate tax benefits. Let s look first at an arrangement that provides us with benefits for a few years, produces a large income tax deduction for the donor and eventually returns the property to the donor. Marlene owns tax-free municipal bonds that pay her $10,000 a year. She expects to have substantial, fully taxable income this year, however, and could use a large income tax deduction. Marlene has long wanted to make a significant gift to our future, but would prefer a gift arrangement that did not require her to part permanently with any property. 9

Marlene s advisers suggest that she transfer the municipal bonds to a trust that temporarily pays us the $10,000 a year. If we receive the $10,000 for five years, Marlene could deduct $45,797 according to IRS tables. 21 At the end of the five years, she receives the bonds back along with the tax-free income. Another temporary gift worth mentioning is a trust that pays us income for a number of years, and then transfers all the property directly to your children or other beneficiaries. There is no income tax deduction, although the donor s taxable income will be reduced. The real benefit is a reduction in the cost of giving property to family members. If you give property away during life to your family, there can be substantial gift taxes to pay (unless the family member is your spouse). You can reduce these taxes simply by asking family members to wait a few years before receiving the gift. During those years, we will receive income produced by the property. What you have then is a large gift broken up into two smaller gifts. The gift of income to us is fully deductible for gift tax or estate tax purposes. All you are left with, then, is the smaller gift to family members to pay tax on. ESTATE TAX CONSIDERATIONS Just as a charitable remainder trust can be a vital part of your financial and investment planning, it can also fit in with your estate plans. And, again, Congress has provided splendid tax benefits. Even if the trust continues after your death perhaps to provide continuing benefits to a family member for his or her life the full fair market value of our interest is completely free of the estate tax. 22 A CHARITABLE REMAINDER TRUST CREATED BY WILL A charitable remainder trust created during life produces the most dramatic tax and financial rewards. But the trust can be created by your will. For example, a widow could bequeath part of her estate to a trust under which a child will receive annuity payments for life with the trust property passing to us at his or her death. Because such a trust will reduce estate taxes, it will actually increase the income available for the child s security. A TEMPORARY GIFT FROM YOUR WILL Here is a thumbnail sketch of one of the finest estate planning techniques available. The basics: In your will 23 you establish a charitable lead trust that will pay a specific amount of income to us for, say, five years. After the five-year period ends, all the property in the trust returns to any beneficiary you want to name. Results? Obviously, you have conferred a substantial benefit upon us. But you also 10

have qualified your estate for a substantial federal estate tax deduction for the value of our right to receive income for five years. If the trustee invests prudently, there will be more than enough income to pay us the designated amount for five years. The eventual family beneficiary will likely get about the same amount as if there had been no trust. True, the beneficiary will lose the use of the trust property for five years. But if the beneficiary is in a high income tax bracket during that time, any lost income may be insignificant. Let s take the specific example of a widowed doctor with a taxable estate of $6.5 million. The estate tax due on this amount at his death, after applying the $1,772,800 credit applicable through 2012, is $483,000. Now suppose that the doctor s will created a lead trust funded with $1,000,000, which was to make a $60,000 yearly payout to charity for 12 years, following which the trust property was to be distributed to the doctor s son. The charitable deduction allowed to the doctor s estate for the present value of the charitable annuity interest would be about $597,240. This deduction would save nearly $274,000 in estate taxes, all of which would pass to the son. The son would receive the trust assets free of tax. Assuming the value of the trust assets neither increased nor declined during the trust term and assuming the assets generated a 6% return, the son would receive $1,000,000 at the end of the trust term. In other words, all that the son would eventually lose as a result of the trust arrangement would be the use of $1,000,000 during the trust term. If the son were quite young during this period or were in a high income tax bracket, the loss might not be significant to him. Moreover, the trust would help to solve any liquidity problems the doctor s estate had, and it would provide the charity with $720,000 over the 12-year term. SPECIAL PLANNING OPPORTUNITIES Accelerate Your Bequest: It s possible that your present will makes some provisions for our future. If you accelerate that bequest... transfer the amount of the bequest to a charitable remainder trust... you will receive a guaranteed return from the property and gain an immediate income tax saving. A lifetime gift in trust can provide all the benefits of a bequest plus: (1) greater personal satisfaction; (2) an immediate income tax savings; (3) the avoidance of probate costs; (4) a favorably taxed return; (5) freedom from investment worries and tedious details. Escape from a Locked-in Position: An investment may have so increased in value that you can t afford to sell it the capital gains tax may be prohibitive. Still, the investment may be returning a low 11

income, or future growth may seem improbable. If you give this property to a family member, the beneficiary takes your basis or cost as his or her cost. 24 In addition to potential gift tax liability you may incur, the recipient of your gift will have to pay substantial capital gains taxes when the gift is eventually sold. If you transfer the property to a charitable remainder trust, there s no tax to pay, even if the trustee sells the appreciated property and reinvests the proceeds. Your deduction is based on the full fair market value of the property. Divert Part of Your Income: It is probable that much of the income you earn on your investments will go to the tax collector. For example, if you are in a 33% tax bracket and have interest income of $5,000 a year, you ll keep only $3,350 a year. If you can arrange to have part of your investment income taxed to a member of your family who is in a low income tax bracket, you can accomplish a substantial income tax savings. And diverting income to a family member is easy to arrange when you set up a trust for the ultimate benefit of charity. Simply name a parent, child or other person as the annuitant and us as the remainderman. No part of the income will be taxed to you. Rather, the income will be taxed to the annuitant to the extent of the annuity benefits. And any undistributed income retained by the trust will be completely tax free. Note: Children under age 19 (24 if full-time students) will be taxed on trust income at their parents top tax rate, to the extent their unearned income exceeds $1,900. 25 Establish a Retirement Income: Many executives set aside substantial compensation until after they have retired and are in a lower income tax bracket. With a charitable remainder trust, you can do the same thing. Transfer property to a charitable remainder unitrust under which you receive the lesser of net income or 5% of the value of the trust. The trustee can invest in growth securities. Your income initially will be small, and may be taxed at low capital gains tax rates. The 5% payout produces the largest possible deduction and also permits the trust to grow at a rapid rate. At retirement age the trust can drop the net-income restriction and pay a full 5% of the expanded funds. Provide for Your Spouse and Our Future: You can plan your will so that your husband or wife will receive all the income from a special arrangement known as a QTIP trust, with part or all of the trust property coming to us at your spouse s death. Everything placed in the trust will qualify for the 100% estate tax marital deduction at your death and anything passing for our benefit will qualify for the 100% estate tax charitable deduction at your spouse s death. Be Creative with Your Revocable Living Trust: Many of our friends have established so-called living trusts, or revocable living 12

trusts. You can name us as one of the beneficiaries of your trust at death. If you wish, our benefit can be deferred while lifetime income is paid to a family member. You even can provide for payments to us during your lifetime and anything we receive will qualify as a charitable deduction on your personal income tax return. There are other opportunities to tailor a charitable remainder trust to your individual needs and objectives. Our staff will be more than happy to help you plan a gift in trust that will be both financially sound and personally satisfying. Please feel free to call us at any time. 13

NOTES FOR TAX ADVISERS 1. The deferred gifts discussed in this booklet are absolute and irrevocable transfers of property. 2. The trust property will not be includible in the donor s probate estate (on which the executor s commissions and legal fees are generally measured). 3. The tax law provides that to gain a deduction for the present value of charity s deferred interest, an annuity trust or unitrust must be used. There are exceptions to this rule, however. A gift of a remainder interest in a personal residence or farm can give rise to an immediate tax deduction. 4. In most states, a trust can continue for any number of lives in being at the time of its creation, plus 21 years. 5. I.R.C., 664(c). 6. The rate of payout provided by the trust agreement determines the value of the charitable deferred interest. The IRS tables use a monthly interest rate, based on 120% of the federal midterm interest rate. The actual life expectancy of the income beneficiary is immaterial; the mortality assumptions are controlling. 7. The $100,000 figure is merely a convenient multiple. The tables assume quarterly payments and an applicable federal midterm rate (interest/discount rate) of 3%. Deductions vary monthly; please call our office for exact deduction information. 8. To calculate the charitable deduction, determine the value of the annuity and subtract this amount from the amount transferred to the charitable remainder annuity trust. The value of the annuity is determined by multiplying the annual payment by the appropriate factor determined from IRS tables S and R(2). The deduction also will vary depending upon the midterm rate used. A trust providing a variable payout a charitable remainder unitrust produces a somewhat different tax result. 9. I.R.C., 170(b)(1)(A). 10. I.R.C., 170(b)(1)(C). 11. I.R.C., 170(d). 12. This example assumes annual payments and the use of a 3% federal midterm rate for a charitable remainder annuity trust. 13. Net long-term capital gains on assets held more than 12 months are taxed at 15% (zero percent for 10% and 15% tax bracket taxpayers). 14. Assuming the trustee chooses to retain the taxexempt securities. 15. Generally, the character of income to the trust passes through to the beneficiary. Thus, ordinary income to the trust is ordinary income to the beneficiary; the same is true for capital gains and tax-exempt income. I.R.C., 652(b), 662(b). 16. To pay the $5,000 annuity to Mr. White, the trust would have to sell $4,500 of securities each year. Each sale would result in a capital gain of $2,160 (determined by allocating the total gain of $48,000 on a per sale basis). Thus, $2,340 would be a tax-free return of capital; $2,160 would be long-term capital gain, and $500 would be dividend income, both taxed at a maximum of 15%. 17. This is the classic form of the charitable remainder annuity trust. The advantage of this gift is the security of a fixed annuity. 14

18. This is the classic form of the charitable remainder unitrust. The advantage of this type of gift is that the annual payments to the income beneficiary take into account the fluctuations of the value of the trust assets on an annual basis. Thus, assuming inflationary and long-term growth nature of the overall economy, the unitrust arrangement may be preferable where the income beneficiary is young. 19. This is a net income unitrust with a make-up provision a permissible variation of the classic unitrust form. 20. Reg. 1.664-3(a)(1)(i)(c). Trusts may provide for a change from a net-income unitrust payout to a fixed percentage in the year following a triggering event. 21. Assumes annual payments and the use of a 3% federal midterm rate for a charitable lead annuity trust. 22. I.R.C., 2055. 23. Lifetime gifts of income interests are governed by different rules. To be able to immediately deduct the fair market value of a lifetime gift of the entire income interest, the donor must be the owner of the income interest (i.e., the income paid to the charity is currently taxable to the donor) [I.R.C., 170(f)(2)(B)]. This still can result in a sizable tax benefit to the donor. Lifetime lead trusts can save considerable gift or estate taxes if heirs are remainder beneficiaries. Charity s intervening income interest (deductible for gift tax purposes) shrinks taxable gift to heirs. 24. Where an individual acquires property by gift, he or she will carry over the donor s adjusted basis in the property. I.R.C., 1015(a). Gift tax paid increases the property s basis. 25. I.R.C., 1(g). The materials contained in this booklet are intended to show only some of the ways you can benefit our future and minimize your federal tax liability with examples of anticipated federal tax liability. Thus, you should not take any action without first consulting your attorney. 1009 West Green Street Hastings, MI 49058 (269) 945-3651 www.pennockhealth.com/foundation.html Copyright Published by R&R Newkirk. All Rights Reserved. 15