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Estate Planning – Retirement Benefits

Estate Planning – Retirement Benefits. The Nuts & Bolts Rules. Introduction to Estate Taxes Unlimited Marital Deduction Exemption amounts (Unified Credit). Federal Exemption Amounts & Rates. Economic Growth Tax Revenue & Recovery Act of 2001. * Reflecting repeal of the 5% surtax

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Estate Planning – Retirement Benefits

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  1. Estate Planning – Retirement Benefits

  2. The Nuts & Bolts Rules • Introduction to Estate Taxes • Unlimited Marital Deduction • Exemption amounts (Unified Credit)

  3. FederalExemption Amounts & Rates Economic Growth Tax Revenue & Recovery Act of 2001 * Reflecting repeal of the 5% surtax ** The GST Exemption will be as indexed for inflation. IRC § 2631(c).

  4. State Exemption Amounts Comparison of Federal & Massachusetts Exemptions YearMass. ExemptionFederal Exemption 2003 $700,000 $1 million 2004 $850,000 $1.5 million 2005 $950,000 $1.5 million 2006 $1 million $2 million 2007 $1 million $2 million 2008 $1 million $2 million 2009 $1 million $3.5 million 2010 $1 million No Federal Estate Tax 2011 $1 million $1 million

  5. • IRAs are subject to double taxation Referred to as “Hot Assets” Assume IRA of $5,000,000 Estate tax is $2,500,000 (@50%) Income Tax on the balance is $1,125,000 (@45%) • Net after taxes $1,375,000 • Only 27.5% remains after taxes HotAssets

  6. Solutions • Leave IRA to the University upon death • Simply change the beneficiary designation • No estate tax or income taxes • $5,000,000 goes to the University instead of $3,625,000 to the Government (one charity is much better than the other) • Cost to the family is only $1,375,000 • In many situations, Donor will purchase life insurance for $1,500,000 in trust for children to replace after tax amount family would have otherwise received.

  7. MarriedCouples with Large IRAs • Consider using Charitable Remainder Trusts to provide income to the spouse for his/her life. • Any funds remaining will go to the University upon the second death • Great for couples with no children • Donor can control final destination of funds to University rather than relying on the surviving spouse to leave funds to University

  8. Steps • Establish Charitable Remainder Trust NOW (CRT) • Designate CRT as beneficiary of IRA (rather than the spouse) • Upon death, the IRA is paid over to CRT • CRT pays fixed percentage of assets to spouse for his/her life each year • Income interest for spouse is eligible for marital deduction so no estate taxes are due on either death

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