Planning Your Gift

Recent Developments

IRA Charitable Rollover Extended

The American Taxpayer Relief Act of 2012 includes an extension of the IRA charitable rollover for 2013.  As a result, donors age 70 1/2 or older can make gifts to Hamilton (and other public charities) from their IRAs.  The amount of the gift is excluded from gross income - even though it counts toward the Required Minimum Distribution - and no income tax charitable deduction is allowed.

Note: Aggregate qualified charitable distributions cannot exceed $100,000.

American Taxpayer Relief Act

Prepared as a service to the Hamilton family, the following are highlights of the American Taxpayer Relief Act of 2012 “ATRA”:

• Tax rates remain at 2001 and 2003 levels (10%, 15%, 25%, 28%, 33% and 35%) for individuals with taxable income up to $400,000 ($450,000 for joint filers).  Those above the threshold amounts will be taxed at 39.6%.
• The long-term capital gain and qualified dividend income tax rate for individuals and joint filers in the 39.6% bracket increases to 20%.  For others it remains at 15%.
• The maximum estate and gift tax rate increases from 35% to 40% while the current estate, gift and generation-skipping tax exemptions of $5 million (indexed for inflation) are preserved.  For 2013, it is $5.25 million per person.
• Reinstatement of the “Pease” itemized deduction limitation and personal exemption phase-out for individuals with adjusted gross income over $250,000 ($300,000 for joint filers).  This provision will not impact most charitable contributions.
• A permanent increase in the alternative minimum tax (“AMT”) exemption amount (indexed for inflation).
• The IRA charitable rollover is renewed for 2012 and 2013.  Donors age 70 ½ or older are eligible to make gifts to public charities of up to $100,000 from their IRAs.

What does this mean for personal and philanthropic planning?

• Now “permanent” estate and generation-skipping tax rules present an excellent opportunity to re-visit existing, or make new, estate plans.
• Gifts of appreciated securities held long-term are attractive for all taxpayers, especially those subject to the higher capital gain tax rate and the 3.8% Affordable Care Act Medicare surtax on investment income.
• Charitable lead annuity trusts and gifts of a remainder interest in a primary residence remain favorable in the current low interest rate environment.
• Charitable gift annuities funded with cash provide donors with large tax-free payments.
• Donors age 70 ½ or older, including those who do not itemize, may find the IRA charitable rollover appealing.

A full description of ATRA prepared by Hamilton’s legal counsel can be viewed at Private Clients Alert.
 

Fixed CGA Rates Are Appealing 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.
 

Real Estate – A Timely Gift

This may be an opportune time to consider a gift of real estate, regardless of where it is located. By donating a personal residence, commercial property or undeveloped land, you may accomplish philanthropic and personal planning objectives. Read more about a gift of a vacation residence from Win and Lawry Gulick '52.

Charitable Lead Annuity Trusts Are Even More Attractive

Charitable Lead Annuity Trusts (CLATs) - Through April 30, 2013, the second lowest Discount Rate ever (1.2%) generates nearly 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 40% (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 $5.25 million free of tax to others during his or her lifetime. A total of up to $5.25 million (including lifetime transfers) may be transferred tax free via one’s estate plan ($10.5 million for a married couple).

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 nearly the lowest payout rate ever using the Discount Rate of 1.2%.

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.

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.  This incentive coincides with the final year of the Bicentennial Initiatives capital campaign.

You are encouraged to consult your financial and tax advisers for further guidance.  Please call Ben Madonia '74 at 866-729-0317 for details.