Attorney discusses estate planning in uncertain times
This is a time of uncertainty for estate planners, according to local attorney Eric Archer. In reality, he said, no one yet knows if – or how – the federal government will change the estate tax, sometimes known as the “death tax.”
But Archer, who spoke at the Jamestown Philomenian Library on Feb. 22, said the current arrangement is supposed to “sunset” on Jan. 1, 2013. Therefore, people may want to act before the end of the year to preserve their family wealth and take advantage of benefi cial deals the government is still offering.
The seminar – “Riding off into the sunset: What will tax laws look like on 1/1/2013?” – combined a wine and cheese reception with finance presentations. Archer was joined by Zeldy Lyman, a development officer at the Rhode Island Foundation in Providence.
Lyman went on to explain the role of the Rhode Island Foundation, which she described as one of more than 700 U.S. community foundations that help “philanthropically minded people” set up various types of trusts to benefit their favorite charities and nonprofi t organizations. Some charitable trusts may also create income for the donors to enjoy during their lifetimes and reduce tax liability.
The Rhode Island Foundation manages more than $600 million in assets and charges 1 percent in fees for its services as a trustee. Minimum contributions apply. For example, an individual would need to commit $250,000 or more to start a charitable remainder trust. For charitable gift annuities, the smallest gift would be $50,000.
But people of modest means can still make a difference by signing over a life insurance policy to the foundation, for example, or by naming the foundation as the benefi ciary of a retirement plan. A gift of $10,000 would suffice to establish a fund in the donor’s name, according to a foundation brochure.
The library trustees sponsored the discussion to suggest ways islanders might help preserve the library’s long-term future by “large or small” planned gifts, which the Rhode Island Foundation can facilitate. In 2013, Archer said, the federal estate tax could revert to the old scenario that existed in 2001.
That would mean a dramatic change from the current arrangement, which essentially has allowed “99.8 percent” of U.S. taxpayers to avoid paying any estate tax at all because their assets are valued under the $10 million threshold.
But, according to Archer, Congress might do nothing and allow the laws to “sunset.” That would mean a return to 2001 rules. If that were to happen, each taxpayer could shelter only $1 million from the federal death tax, prompting married couples who want to limit their liability to draw up trusts and segregate their assets.
Congress could also repeal the so-called “death tax” altogether or enact some compromise. In Archer’s view, the most likely scenario would be to allow individuals to shelter $3.5 million each. However, Archer was unsure if a compromise law would still require couples to segregate their assets. Rhode Islanders also must consider state estate taxes, which do require couples to separate their assets.
Archer summarized tax liability issues, while Lyman focused on legacies. Estate planning, both said, also creates opportunities for people to leave a legacy by channeling money into a favorite cause or community organization, such as the Jamestown Philomenian Library.
Archer said that giving to charities will likely not reduce the federal estate tax but could help ease the bite from income taxes. He predicted income taxes will be rising and suggested the trusts can help preserve income and keep a lid on tax liability.
One strategy, he said, takes advantage of the fact the government has temporarily suspended the gift tax. For this year, people are being allowed to make unlimited gifts without incurring a tax. Many are reducing income tax liability by making donations to support community organizations or their favorite charities. Some options, such as charitable gift annuities, also repay the donors with income for life.
Archer said the gift tax suspension is behind the numerous “$1” real estate sales being reported in the newspaper. Many of those gifts are going to relatives, but some are going to charities.
“Charitable giving shouldn’t be all about income taxes,” he said, “but charities survive on them.”
Archer said uncertainty about the federal estate tax will probably continue through the end of the year. The government will not have to act on the death tax until after the 2012 presidential election, and Archer predicted the candidates would not include the estate tax issue in their platforms due to the controversy.
Archer said that people could still “do things in wills,” and also could consult an attorney about establishing a trust.
“Anything you can do in an estate, you can also do during your lifetime,” he said.