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With gift and estate taxes in a state of flux, some experts are advising their clients to take advantage of the current gift tax unified credit to transfer up to $5,120,000 to heirs ($10,240,000 for a couple) in case that amount is reduced to $1 million (per person) on January 1, 2013.
Charitable Lead Annuity Trusts (CLATs) - Through April 30, 2012, the lowest discount rate ever (1.4%) generates the highest CLAT gift tax deductions yet, allowing donors to make contributions to Hamilton and transfer assets to heirs free of gift tax.
Frequently Asked Questions:
What are the tax benefits of a CLAT? A CLAT allows you to make a contribution to Hamilton and transfer assets to heirs free of gift tax.
What is gift tax? Asset transfers to anyone other than a spouse or charity (for example, children and grandchildren) are subject to gift or estate tax. A CLAT is one of several asset transfer strategies that can be used to transfer wealth to members of the next generation while saving these onerous taxes with rates of up to 35% (after the exemption equivalents are exceeded).
What is the current gift tax exemption? Under present law, the gift tax exemption allows each person to transfer a total of up to $5 million free of tax to others during his or her lifetime. A total of up to $5 million (including lifetime transfers) may be transferred tax free via one’s estate plan.*
Is there an advantage to making a gift today rather than through my estate plan? In most cases, it is better to transfer assets to heirs during your lifetime to save estate tax on future appreciation as well as on the estate tax.
How does a CLAT work? You put assets into a CLAT which makes payments to Hamilton for a term of years. The trustee invests the assets balancing the need to make annual payments to Hamilton while maximizing trust appreciation to benefit heirs. You can “zero-out” gift tax with the shortest term of years and lowest payout rate ever using the Discount Rate of 1.4%.
What other benefits does a CLAT offer?
The market has been volatile. Is it the best time to consider this gift option? Use market volatility to your advantage. The 1.4% Discount Rate is available through April 30, 2012. Prepare a trust to be funded when you believe strong stocks or other assets are near a low, the equivalent of “buying low.” Funding the CLAT with undervalued assets provides additional leverage. Further, whether assets are in your personal account or in a CLAT they will rise and fall with the market. The “productive” CLAT assets are protected from erosion by estate tax and Hamilton benefits from your gift immediately.
Can I use a CLAT to maintain ownership of our family business? Yes, a CLAT can be used to transfer closely-held or private stock to heirs.
How will Hamilton use my gift? You may select the purpose from the College’s most pressing needs to establish an endowed fund, for student financial aid for example, or for a building project such as the theater or studio arts.
*Current gift and estate tax rates and exemptions return to 2001 levels, 55% and $1 million, on January 1, 2013 (unless Congress takes action).
You are encouraged to consult your financial and tax advisers for further guidance.
Charitable gift annuity rates are greater than other investment options. For those who wish to benefit Hamilton, charitable gift annuities provide another opportunity to make your assets productive. Please call Ben Madonia '74 at 866-729-0317 or go to the gift calculator.
The provision that allows direct transfers to Hamilton (and other public charities) from IRAs expired January 1, 2012. We will advise potential donors if the legislation is extended.
Refer to Tax Law Updates for a summary of the 2010 Tax Act.
Refer to Private Clients Alert for a summary of planning opportunities.
Hamilton makes a number of resources available to you, including the following:
E-mail Ben Madonia '74 or Joni Chizzonite or call 1-866-729-0317 for more information.
