GIFTING OPPORTUNITIES FOR 2012

Presented by

Robert Le ChevallierATTORNEY AT LAW

1. The Federal Gift/Estate Tax Exemption is $5.12 million in 2012

2. Oregon has no gift tax; its estate tax exemption is $1.0 million

3. In 2013 the Federal estate and gift tax exemption will revert to $1.0 million unless Congress acts to extend or modify the exemption.

4. Obama proposal is $1.0 gift tax exemption; $3.5 million estate tax exemption

5. In addition you can make gifts of $13k per year per person that does not count toward the lifetime exemption.

2012: The year to make gifts to family members

Why should I make a gift now instead of waiting until death?

1. Federal Estate tax rates 35% go back to 55%. Obama proposal is 45%

2. Oregon Estate Tax rates 10% to 16% 3. Measure 84 on the November ballot would repeal the

Oregon estate tax over 3 years and allow unlimited transfers to family members --unknown whether this will pass in our current economy.

4. A large estate can pay as much as 55 or 60% out in estate taxes!!

5. Tax on the IRA’s or 401k plan of a survivor of a married couple can be as much at 80 to 85% if you factor in unpaid income taxes that will have to be paid by heirs.

What kind of gifts are good ones to make in 2012?

1. Gifts of closely held stock in a business2. Gifts of LLC interest in real estate, timber or farmland3. Gifts of recreational property such as beach houses—

consider qualified personal residence trust.4. Most of my clients want to retain income producing

property and dividend paying stock that are financing their retirement. If you make a gift of 10% of an apartment building, 10% of the net income has to go with it.

5. Gifts in assets that are likely to appreciate-- example stock in a high tech company i.e. future Google or Apple?

Gifts in Trust

1. Some client want to make gifts in trusts for children.

2. Most gifts are in revocable trusts which is not a gift until death.

3. Gifts made to irrevocable trusts can constitute a completed gift this year.

4. Gifts made to an irrevocable trust can be for a spouse and children. These are called “Spousal Access Trusts” Usually income distributed and principal restricted or as needed for “health, education maintenance and support”.

Gifts in Trust

5. Gifts can be made in Education Trusts to educate children or grandchildren. Look at today’s cost of education versus when we went to school. What will be cost for our grandchildren?

6. Gifts of voting stock in a controlled corporation can be pulled back into the estate under 1983 proposed IRS regs that were never adopted.

7. We recommend that non-voting stock in a controlled business be gifted in irrevocable trusts unless there is an independent trustee to vote the stock.

8. Gifts to a life insurance trust using your $13,000 per person allowance that will purchase insurance on your life or spouse’s life. If done properly the life insurance will go to your heirs’ tax free.

Who should be Trustee?

1. You can be the trustee for an irrevocable gift as long as you, your creditors or your estate does not benefit from the gift.

2. Trusted relative or advisor—choose carefully!3. Trust company or bank trust department for larger

gifts.4. Important to compensate trustee so they do a good

job and take it seriously as any other work. There is also liability being a trustee

5. Typical fee –hourly or 1% of value of trust annually depending on duties performed.

6. Important to name a successor trustee if your named trustee cannot serve for some reason.

Other Non-Trust Gifts

1. Gifts into 529 plans for college. This is a good gift for grandparents-- income earned in the 529 plan not taxed if used for college. Can be transferred to other family members

2. Gifts to a custodian of Uniform Gifts to Minors accounts—usually to 18 or 21 can be restricted up to age 25 in Oregon.

How to make a Gift?

1. Gift letter2. Completed gift requires a transfer of the title

to the real estate, an assignment of interests in the LLC or transfer of stock certificate in the corporation or gift of cash or investment account.

3. File Gift Tax Return by April 15th of next year. Form 709

4. Testamentary Gifts can be made in a will or revocable trust

How to value the gift made?

1. Appraisal of interest in real estate or closely held corporation

2. Appraisal of units in LLC and stock3. Minority and lack of marketability discounts –can be up

to 35%4. Need qualified appraiser, tax assessment not sufficient5. Attach appraisals to gift tax return—if done properly, 3

years for IRS to challenge value of gift.6. If not possible to have appraisal this year—make

formula gift and appraise after first of year “For example $1.0 million of my stock in xyz corp.”

What if I need the money?

1. Work with a financial planner to determine your income needs and life expectancy.

2. Give assets that you do not “need” for retirement.

3. Plan for a reserve in the event of disability or long illness.

4. Purchase long term care insurance.

5. Set up a spousal access trust so spouse has access to assets of trust if needed.

What about gifts to your charities once your family is taken care of?

1. Estate tax deduction received for gifts to charity at death.

2. Income tax deduction for gift to charities now.3. Charitable remainder trusts can provide income for you

now and gift to charity at death. This works well for highly appreciated assets and avoid paying capital gains taxes. Income can extend for life of spouse and up to 20 years for children.

4. Gift Annuities can provide for income now and gift to charity at death.

5. Gifts of IRA’s on death of survivor to charities avoid income tax to heirs and provides for estate tax deduction.

6. Gifts of unneeded life insurance policies to charities at death.

7. Gift to donor advised funds allow you to keep giving after death and to teach gifting to your children and grandchildren. For example you can set up a donor advised fund with Oregon Community Foundation or other foundation that will provide scholarships to students or grants to other charities whose causes you support.

8. Make gifts to charities that do good work such as the SSMO Foundation.

9. This can be done during your life or after death when you no longer need the assets.

10. Many people start a gifting program now and add to it at death.

Gifts are one way to share your accumulated assets and to leave a legacy of your values and of your goals for succeeding generations.

Warren Buffet: “The perfect amount to leave children is enough money so that they would feel they could do anything, but not so much that they could do nothing.”

QUESTIONS ARE WELCOME!

For more information, please contact me:

Rob Le Chevallier

Shareholder, Buckley Law P.C.

rlc@buckley-law.com

503.620.8900

www.buckley-law.com