Tax Planning & Planned Giving
Tax Planning:
Effective tax planning is the cornerstone of estate and business-related transactions. Our goal is to help our clients establish the most effective way to structure estate and business transfers, utilizing all of the federal and state tax rules and regulations in the way most favorable to our client’s positions and in order to assist them in accomplishing their goals.Quinlivan Wexler LLP routinely assists it clients with the formation and use of numerous entities, including, but not limited to: C corporations, S corporations, limited liability companies, limited partnerships, revocable trusts, irrevocable trust, management trusts, exempt organizations, individuals, and entrepreneurs in structuring transactions for income tax, gift tax and estate tax purposes.
Gift tax planning:
The government imposes a “gift tax” at a rate equal to 37% to 50%, depending upon the amount gifted, on transfers made by a donor during their lifetime above the annual gift exclusion. Presently individuals have an annual gift exclusion (“Annual Exclusion”) of $11,000 per year to as many individuals as they want without tax consequences. Gifts of greater than $11,000 per year give rise to gift tax consequences.Every individual may transfer up to $1,000,000 during his or her lifetime. You may give away cash, stocks, bonds, real estate or business interest. Certain gifts require valuations. If an individual does not use his or her lifetime gift amount of $1,000,000 it will be available when he or she passes away. If an individual does use his or her lifetime gift exclusion it will reduce the amount that he or she can transfer upon death. Every U.S. citizen that dies may transfer up to a maximum of $1,500,000 in 2005 (this number changes in 2006, 2007 and 2008 to $2,000,000).
There are numerous ways to leverage the Annual Exclusion as well as the lifetime exclusion so that your loved ones receive an amount greater than that which you gifted to them. Some of the techniques our clients use to accomplish this include, but are not limited to the formation of certain entities such as ILIT’s, LLC’s and FLP’s to maximize their gifts.
Estate tax planning:
The estate transfer tax, sometimes referred to as the “death tax”, is a transfer tax imposed at the same rates as the gift tax, 37% to 50%, on transfers occurring at the decedent's death. Each decedent has a unified credit exemption of $1,000,000 ($1,500,000 in 2004, $1.__ in 2005) from the tax, unless such exemption is used to exempt gifts made during lifetime. All money that is over that federal unified credit exemption is taxed at fairly high rates. Effective estate tax planning uses various tools in order to help reduce the burden of such taxes.Income tax planning
412i Defined Benefit Plans, sometimes referred to as Insured Retirement Plans, have a future benefit that is insured by an insurance company and the future guaranteed benefit depends on the claims paying ability of the issuing company at some time in the future. Plans are funded by employer with specific level dollar amounts annually but the annual payments are adjusted by interest accrued from insurance policies and or from interest earned from the fixed annuities.Any business, whether a C Corporation, S Corporation, partnership, sole proprietorship, or self-employed can establish these types of plans, but they are generally best suited for high income individuals and companies or organization with anticipated stable future earnings and with few employees. However, plans can be established for larger employee organizations and can be structured on an age- weighted, salary-weighted basis.
The key tax planning feature of these type plans is very large tax deductible contributions, which can produce a substantial retirement fund in a few years and plan provides large fixed known monthly benefits.
A 419 is a tax-advantaged way for employers to provide welfare benefits to key long-term employees and employee-owners. Contributions can be tax deductible - a 419 Plan gives you the opportunity to provide additional employee benefits while reducing taxable income.
Companies desiring to reward long-term employees with significant benefits, have fewer than five employees or high early turnover, with significant differences in income between owner-employees and non-owner employees, and that desire to reduce current income tax and have owner-employees with large life insurance needs for estate planning or other purposes might be candidates for a 419 Plan.
419 Plans have many advantages, including tax deductible funding of death and severance benefits, tax-deferred growth of severance benefits up to 200% of compensation, death benefits are income and estate tax free, plan assets cannot be claimed by creditors, and contributions are not taxable to owners or employees until benefits are paid.
Business Entity Selections
Planned Giving:Quinlivan Wexler LLP believes that estate taxes are optional - our clients can be either an anonymous taxpayer or a remembered philanthropist. We encourage our clients to achieve their philanthropic objectives through outright and planned giving arrangements. Examples of several options available are:
Charitable lead trust – This is a trust under which a non-charitable beneficiary receives the remainder of the trust after payment of amounts over time to a charitable beneficiary. These trusts are often set up to pay the charity an annual annuity payment for the term of the trust.These are just a few of the many tools in our tax planning and planned giving arsenal. Quinlivan Wexler LLP consults with clients regarding planning opportunities that allow clients to take full advantage of the federal unified credit and other tax planning strategies. Thoughtful and calculated use of such tools can greatly decrease the tax burden at the time of your death and can help assure that your beneficiaries will receive the full benefit of the fruits of your labors.
Charitable remainder trust – This trust works in the reverse of the charitable lead trust. In a charitable reminder trust, a charitable beneficiary receives the remainder of the trust after payment of amounts over time, often in the form of annuity payments, to a non-charitable beneficiary.
Irrevocable Life Insurance Trust (“ILIT”): An ILIT is a trust that owns your life insurance policy (or policies). The ILIT pays the premiums on the policy, collects the death benefits when you die, and distributes the money according to the terms of the trust. And, since you don't own the insurance (the trust does, remember?), the proceeds are not included in your estate. The idea is to keep the money your heirs will receive from your insurance policy from getting hit with estate taxes. If you have an estate with assets that might exceed the then current maximum estate tax deduction, the proceeds from your policy could get taxed. By putting it in a trust, you keep Uncle Sam from getting a slice.
To discuss a estate planning matter confidentially or for information, please contact Danny Wexler, Attorney at Law @ (714) 241.1919 or email d.wexler@qwllp.com.
