Home October 2011 Good News for JNF and Heirs

Good News for JNF and Heirs

In the middle of the night in mid-December 2010, Congress passed the extension of the Bush-era tax cuts. In addition to continuing the current income tax rates through the end of 2012, the provisions included a reunification of estate and lifetime gift exclusions of $5 million per person.  Individuals can exclude the first $5 million from their estate before the federal tax is applied, and married couples can combine their exclusions for a total of $10 million.  People can give away an additional $5 million, on top of $13,000 a year, without incurring a gift tax.
The extension gives Jewish National Fund supporters an opportunity to participate in estate and gift planning through the end of 2012 with amounts that may not be available after the deadline.  Shrinking your estate by making lifetime gifts to loved ones is a terrific idea.  For many JNF donors, estate planning is a necessity, enabling them to pass wealth on to heirs and charities at the most efficient cost possible.
The current economic climate, with its historic low interest rates, has made a charitable lead trust a very attractive estate planning tool.  A charitable lead trust is a gift plan offered by JNF’s Planned Giving Department that allows a donor to transfer assets to family members at a reduced tax cost while making a generous gift to JNF.  During its term, a charitable lead trust pays an annual income to JNF.  At the termination of the trust, its principal or primary assets are distributed to the donor’s heirs.  The benefit to JNF is the annual income stream the trust pays.  The value to the donor’s heirs is they can receive assets at a very low tax cost.
Here’s an example: Judy and David, both 65, own apartment buildings and have accumulated an estate in excess of their combined exclusions (currently $10 million).  In doing their estate planning, they realize the estate tax could significantly reduce the value of the estate they wish to pass to their heirs.  They support Israel and insist philanthropy be a part of their plan, but are looking for ideas that will not disinherit their children and grandchildren.  One of their buildings was appraised at $3 million, down significantly over the last four years.  The building has stable tenants and produces a 6-percent annual return after expenses are paid.  JNF’s Planned Giving Department presents the idea of transferring this apartment building to a JNF charitable lead trust with a 15-year term, which could produce the following results:
•    The gift tax deduction for a $3 million gift put into a 6-percent charitable lead trust for 15 years is about $1,794,570.  As far as the IRS is concerned, even though Judy and David are transferring a gift of $3 million to their children, it is only worth $1,205,430 for estate and gift tax purposes.
•    Since Judy and David are using a portion of their combined $10 million gift and estate tax exclusion, the gift is tax free to their kids.
•    For the next 15 years, JNF will receive an annual income of $180,000 (6 percent of $3 million).
•    At the end of the 15-year term, the building will be given to Judy and David’s children without any taxes owed.  If the children wish to sell the property, they will owe capital gains taxes.
Judy and David consult with their legal and tax advisors and realize they can increase the amount of tax-free gifts, reduce their estate tax burden, give their children a very valuable asset that will most likely increase in value and provide Jewish National Fund with a significant donation for 15 years – all for very little tax cost.  We like to call it a win-win scenario.
To learn more, call Jewish National Fund’s planned giving department at (800) 562-7526 or contact Adele Bilewitz at (949) 260-0400 or abilewitz@jnf.org.

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