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July 21,
2008
Dear Professional Advisor,
Greetings from
Immanuel St. Joseph's 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 complimentary service.
Please feel free to call me at 507-385-2932 if I can run a proposal
or be of assistance to you.
Cordially
yours,
Bob Weiss
Immanuel St. Joseph's Foundation
1125
Mulberry St.
Mankato, MN 56001 |
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| Immanuel St.
Joseph's Foundation |
July 21,
2008 |
GiftLaw Weekly eNewsletter -
July 21, 2008
- WASHINGTON
HOTLINE
- PLR THIS
WEEK
- CASE OF THE
WEEK
- ARTICLE OF THE
MONTH
|
WASHINGTON HOTLINE
Tax Quote of the Week
"A lottery is a
tax on people who are bad at math."
-- Anonymous
Republicans
Propose Tax Extenders With "Appropriate" Offsets
On
July 15, 2008, the Republican leaders of the Senate Finance
Committee introduced their version of the AMT relief and tax
extenders bill. Their "Substitute Amendment to the Tax Extenders and
Alternative Minimum Tax Relief Act of 2008 (S. 3098)" is very
similar in most provisions to the Democrat bill. The tax extenders
and AMT relief provisions, plus the energy incentives, are
essentially the same in both bills.
The key difference is
that the Republican bill does not include specific offsets for
either AMT relief or the tax extenders. Instead, it states that "A
section has been reserved for spending reductions and appropriate
revenue raisers for new tax relief policy."
Senators
McConnell, Grassley, Kyl and Hatch sponsored the proposed bill. In a
press release, they criticized the Democrat "pay-go" provisions
because they require tax offsets to continue any tax relief, but the
Democrat rules do not require offsets to continue increased
expenditures. These four Senators claim that this system is unfair
because "existing entitlement programs are allowed to continue
indefinitely without needing offsets" even though the projected
increases are over $1 trillion. In the view of the Republican
Senators, the tax extenders and AMT relief should be permitted
without offsets.
Editor's Note: Both Democrats and
Republicans now support the tax extenders and AMT relief. Therefore,
the probability of passage this year of the tax extenders and the
included IRA charitable rollover is now very high. But the timing is
still very uncertain. It remains possible that the agreement may not
come until after the November election. While 2008 IRA rollovers
will be completed by many who are now waiting for Congress, the
timing will be a challenge if the bill is passed after the November
election.
Estate Inclusion Final Regulations for
GRATs, CRATs and CRUTs
In T.D.
9414; 73 F.R. 40173-40179 (14 July 2008), Grantor Retained
Trusts (GRTs) - Application of Secs. 2036 and 2039, the IRS
published final regulations on estate tax inclusion of grantor
retained annuity trusts (GRATs), pooled income funds and charitable
remainder trusts (CRTs). Inclusion is generally applicable under
Secs. 2036 and 2039 if a grantor retains income for life and the
trust does not end before his or her death.
The regulations
follow Rev. Rul. 76-273, 1976-2 CB 268 and Rev. Rul. 82-105, 1982-1
CB 133, which are, as a result, obsolete. The portion of the corpus
of a CRT and GRT includible in the decedent's gross estate is the
amount necessary to generate a return sufficient to provide the
decedent's retained annuity, unitrust, or other payment. Where both
Sec. 2036 and Sec. 2039 could apply to a retained annuity, unitrust,
or other payment in a CRT or a GRT, only Sec. 2036 will be
applied.
Several new or modified examples are included with
the final regulations. In Example 5 in Reg. 20.2036-1(c)(2), the
full value of a pooled income fund interest is includible in the
estate of the donor who is an income recipient. Examples of CRTs for
a term of years with demise during that term are also
covered.
Under Examples 1 and 3 in Sec. 20.2036-1(c)(2), an
alternate valuation date calculation may use the applicable federal
rate for the valuation date or one of the prior two months to
calculate both the includible amount and the charitable estate tax
deduction. Finally, retaining a right of revocation for a
successor's income interest or a right to change the charitable
remainder recipients is covered in Example 1 of Sec.
20.2036-1(c)(2).
IRS Will Permit Private Family Trust
Company Firewalls
In Notice
2008-63; 2008-31 IRB 1 (11 July 2008), the IRS set forth the
priciples for a proposed revenue ruling on family members serving as
officers of private trust companies created to manage family
assets.
In a typical private trust company (PTC), the assets
held in trust are often from irrevocable trusts created by parents
for children and grandchildren. In addition, the children may also
have funded irrevocable trusts for the grandchildren. Because any
discretionary powers over distributions may lead to Sec. 2036 or
Sec. 2038 estate inclusion for children serving as officers of the
PTC, there was reluctance to create private family
trusts.
The Notice and proposed revenue ruling will resolve
that issue. Under the proposed safe harbor, a grantor or beneficiary
may not be a member of a "Discretionary Distribution Committee
(DDC)." Provided that the members of the DDC are not prohibited
parties and the trust complies with state standards to qualify the
PTC firewall, the private trust company may serve as trustee and
there will not be estate inclusion for family members who are
officers of the PTC.
Applicable Federal Rate of 4.2%
for August -- Rev. Rul. 2008-43; 2008-31 IRB 1 (17 July
2008)
The IRS has announced the Applicable Federal Rate
(AFR) for August of 2008. The AFR under Sec. 7520 for the month of
August will be 4.2%. The rates for July of 4.2% or June of 3.8% 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 2008, 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.
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PLR THIS
WEEK
PLR - 200825017 Judicially Reformed Trust Is Valid
CRUT
A and B created
Trust, intending that it qualify as a fixed percentage charitable
remainder unitrust (CRUT) under Sec. 664(d)(2). Although the Trustee
administered Trust as a fixed percentage (standard) CRUT due to an
error, Trust's document was actually drafted as a net income plus
makeup charitable remainder trust (NIMCRUT). Court granted the
Trustee's request amend Trust in an attempt to correct the error,
subject to a Private Letter Ruling from the Service that the
reformation would not disqualify Trust as a CRUT.
Under Sec.
664, a CRUT is a trust from which a fixed percentage of the net fair
market value of its assets, valued annually, is paid to one or more
persons for a term of years or for life or lives and with the
remainder distributed to a qualifying charity. Sec. 664(d)(3)
permits a CRUT instrument to pay income based on the lesser of a
percentage of the trust assets valued annually or the income earned.
The Service ruled that the judicial reformation of Trust does not
violate Sec. 664 because the amended Trust terms may be treated as a
valid CRUT under Sec. 664(d).
To view the full PLR Click
Here.
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CASE OF THE
WEEK
Decide Now, Deduct Now but Give
Later
Carol Garcia is CEO,
President and Founder of Widgets, Inc. After many years of blood,
sweat and tears, Widgets, Inc. has become a very strong and
established corporation. As a result, Carol has slowly cut back her
long hours at the office and has been spending more time with her
family and personal endeavors. One such endeavor is her
philanthropic goals.
Carol is actively involved with many
local charities. She has made major contributions to at least six
local charities in the past three years. Not surprisingly, she has
more tax deductions than she can handle (i.e., she has
reached her AGI limits and has numerous carry-forwards).
So
even if Carol decided to make a 'nondeductible' gift this year, she
has not even begun to consider what charity she should benefit.
Given the short amount of time left in the year and her excess
charitable deductions, Carol regretfully decided not to make a gift
this year. Taking into account the time constraints and Carol's AGI
limitations, how could Carol make a gift in 2009, yet receive a tax
benefit for doing so in 2008?
To view the solution to
this Case of the Week Click
Here.
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ARTICLE OF THE
MONTH
Mega-Income Inheritance
Based on Federal Reserve statistics, an estimated
300,000 to 500,000 Americans now have mega-estates of $10 million or
above. Most charities with gift planning programs have 20 to 60
potential donor prospects with estates at this level. These families
are able to provide added economic security for children and many
have thought carefully about the best way to provide a substantial
inheritance.
To view the full Article of the Month Click
Here.
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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 1999-2008
Crescendo Interactive, Inc.
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| Immanuel St.
Joseph's Foundation |
July 21,
2008 |
| |
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,
Bob Weiss
Immanuel St. Joseph's Foundation
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