Planning Your Gift

Recent Developments

Gift and Estate Tax In A State Of Flux

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 Are Even More Attractive

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? 

• A CLAT has a charitable component while other asset transfer strategies, such as a grantor retained trust, do not.
• A CLAT also allows you to make your assets productive. 
• You can select the trust term of years so your heirs receive the assets at an appropriate time.
• At termination, the CLAT will distribute its assets plus all appreciation to heirs, free of gift tax, an excellent example of leveraging asset transfers to heirs.

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.

Fixed CGA Rates Are Attractive At This Time

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.

IRA Charitable Rollover

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. 

Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

Refer to  Tax Law Updates for a summary of the 2010 Tax Act.

Estate, Gift and Generation Skipping Tax Planning Opportunities in 2011 and 2012

Refer to Private Clients Alert for a summary of planning opportunities.