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Slide 1: THE 2009 ESTATE PLANNING & TAX UPDATE PRESENTED TO OUR PLANNING PARTNERS BY: Ketra A. Mytich, Ltd. Attorney & counselor at Law 6809 N. Knoxville Ave., Suite B Peoria, IL 61614 Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members.
Slide 2: 1. BREAKING NEWS!! Under The Worker, Retiree and Employer Recovery Act of 2008 (H.R. 7327), the required minimum distributions for IRAs, 401(k) and 403(b) plans will be waived for year 2009. This enrolled bill has passed the House without objection and passed the Senate by unanimous consent and is an enrolled bill. It was presented to President Bush on 12/17/08 and it is anticipated that he will sign it. Here is the most up to date URL for http://www.govtrack.us/congress/billtext.xpd?bill=h110-7327 the enrolled bill: As a result of the decline in equities markets during late 2008, many individuals were faced with a potential sale of stocks in order to make their required minimum distributions. While the requirement to take the withdrawal will be waived for 2009, it is expected that the normal withdrawal rules will apply in the year 2010. This could affect many things. People with large IRA might want to make gifts this year to utilize higher adjusted gross income because they can have lower adjusted gross next year. There are likely many more planning applications to think about as well. Also, remember the extension of the ability to transfer IRAs to charity without realization of income and without the typical deductible limits based on income. This permits IRA owners over age 70½ to transfer up to $100,000 per year to public charities tax free. It is available for both 2008 and 2009. Emergency Economic Stabilization Act of 2008 (H.R. 1424). 2. Estate, Gift, and Generation Skipping Transfer (GST) Tax: TOP MARGINAL RATES OF TAXATION YEAR: 2001 2002 2003 2004 2005 2006 2007 2008 GIFT TAX: 55% 50 49 48 47 46 45 45 ESTATE TAX: 55% 50 49 48 47 46 45 45 GENERATIONSKIPPING TAX: 55% 50 49 48 47 46 45 45 2009 2010 2011 45 35 55 45 0 55 45 0 55 Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members.
Slide 3: THE APPLICABLE EXCLUSION AMOUNT YEAR: 2001 2002, 2003 2004, 2005 2006 – 2008 GIFT TAX: $675,000 1,000,000 1,000,000 1,000,000 ESTATE TAX: $675,000 1,000,000 1,500,000 2,000,000 GENERATIONSKIPPING TAX: $1,060,000 (inflation adjusted) 1,100,000 (inflation adjusted) 1,500,000 2,000,000 2009 2010 2011 1,000,000 1,000,000 1,000,000 3,500,000 0 1,000,000 3,500,000 0 1,000,000 (inflation adjusted) GIFT TAX: On January 1, 2009, the annual exclusion amount for gifts will increase to $13,000 per gift to an individual or entity. Under Revenue Procedure 2008-66, for calendar year 2009 the first $13,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under IRC §2503 made during that year. If spouses engage in gift splitting, this figure will be the first $26,000 of gifts. See http://www.irs.gov/newsroom/article/0,,id=187825,00.html 3. Year 20032004 2005 20062007 Retirement Plan Contributions: Overall Contribution Limit Deductible, Non-Deductible and Roth IRA (under age 50) Overall Additional Catch-up Contributions Deductible, Non-Deductible, & Roth IRA (50+) $3,000 $4,000 $4,000 $500 $500 $1,000 20082009 $5,000 (indexed for inflation) $1,000 For those who participate in an employer sponsored retirement plan, the $5,000 deduction is reduced based on adjusted gross income (AGI), and no deduction is allowed if AGI is over $176,000. The AGI levels are increased for 2009 at any AGI less than $176,000. The following table illustrates these specific deduction limits. The deduction at any specific AGI is a percentage of the corresponding limit shown on the table. Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members.
Slide 4: MAXIMUM DEDUCTION FOR RETIREMENT PLAN PARTICIPANTS: Status Single Married Spouse Participant 2008 AGI $53,000 $58,000 $63,000 $159,00 0 $164,00 0 $169,00 0 $85,000 $95,000 $105,00 0 $0 $5,000 $10,000 2009 AGI $55,000 $60,000 $65,000 $166,00 0 $171,00 0 $176,00 0 $89,000 $99,000 $109,00 0 $0 $5,000 $10,000 Deduction $5,000 $2,500 $0 $5,000 $2,500 $0 Deduction $5,000 $2,500 $0 $5,000 $2,500 $0 Married Both Participants Married Filing Separately $5,000 $2,500 $0 $5,000 $2,500 $0 $5,000 $2,500 $0 $5,000 $2,500 $0 A taxpayer age 50 or over and married with an AGI less than $166,000 could therefore contribute $6,000 to an IRA even if the taxpayer participates in an employer sponsored retirement plan. Roth IRAs Like the standard IRA, the maximum Roth IRA contribution permitted for 2009 remains $5,000, with age 50 or over catch-up contribution limit staying at $1,000. The $5,000 permitted contribution is reduced ratably if AGI is between $105,000 and $120,000 for single taxpayers and between $166,000 and $176,000 for Married taxpayers. These limits are up increased from the 2008 numbers of $101,000 and $116,000, and $159,000 to $169,000 respectively. NOTE: Be aware of the IRS’s continuing apparent “prejudice” against naming trusts as beneficiaries of IRAs. Know the difference between an “outright,” “conduit,” and “accumulation” trust and how that bears upon considering all (even contingent) beneficiaries when figuring required minimum distributions and stretch-out techniques. However, the most recent Private Letter Ruling (PLR) that we feel we can depend on for getting individual life expectancy treatment for separate trust shares of a trust directly named as beneficiaries on the IRA beneficiary designation form is PLR 200537044. If interested, please see http://www.irs.gov/pub/irswd/0537044.pdf 4. Income Tax: Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members.
Slide 5: Before the Jobs and Growth Tax Relief Reconciliation Act of 2003 (“JGTRRA”), the marginal income tax rates were 10, 15, 27, 30, 35, and 38.6 percent. These were the tax rates for 2003 that were put into effect when Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). JGTRRA changed the marginal rates for 2003, retroactive to January 1, 2003, to 10, 15, 25, 28, 33, and 35 percent. 5. Capital Gains Tax: JGTRRA 2003 dropped the maximum tax rate on capital gains from 20 to 15 percent for all taxpayers except those in the lowest brackets. Taxpayers in the 10 and 15 percent brackets under JGTRRA pay five percent on any capital gains recognized (down from 10 percent) on transactions occurring for gains able to be recognized on or after May 6, 2003. Further, in 2008, taxpayers in the 10 and 15 percent brackets were taxed on their capital gains at zero percent, with the capital gains rates set to return to 20 and 10 percent levels Jan. 1, 2009, the levels where the rates were prior to JGTRRA 2003. However, TIPRA 2005 extended the zero percent for taxpayers in the 10 and 15 percent brackets beyond 2008 through the end of 2010, which includes the year 2009!! The reduced rates and the temporary nature of the reductions call for immediate revisions in many taxpayers' investment strategies. Under current law, in 2011 capital gains tax rates return to their previous 20 and 10 percent levels. For your information, the 2009 projected top of the 15% tax bracket for married couples filing jointly is $67,900 while for single filers it is projected to be $33,950. 6. Dividends: JGTRRA also lowered tax on dividends paid on stock, which had been taxed at the same rate as ordinary income but has been taxed at 15 percent for most taxpayers since January 1, 2003. Lower income taxpayers in the 10 and 15% brackets pay taxes on dividends at five percent effective January 1, 2003. This rate was also set to remain in effect only until December 31, 2008, with lower bracket taxpayers paying zero percent in 2008. Similar to the above, however, TIPRA 2005 extended the zero percent for taxpayers in the 10 and 15 percent brackets beyond 2008 through the end of 2010, which includes 2009!! You will want to read further on this, as not all corporate distributions are entitled to tax-reduced dividend treatment, creating a new web of complex rules for both shareholders and corporations alike. Tax on stock dividends will revert to ordinary income taxation in 2011. 7. 2009 Illinois Medicaid Numbers (effective 1/1/09). Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members.
Slide 6: Community Spouse Resource Allowance: 109,560.00 Maximum Monthly Maintenance Needs Allowance: $2,739.00 Resource Allowance for an Individual: $2,000.00 Resource Allowance for a Couple: $3,000.00 (both husband and wife in nursing home) Monthly Personal Needs Allowance: $35.00 As a quick refresher, the 11 main changes under DRA 2005 are as follows: 1. Changes the “look-back” period to five years for all transfers 2. Postpones the penalty start date for transfers within the five-year lookback. Now begins at application, when applicant “otherwise qualifies but for the implementation of a transfer penalty.” 3. 4. 5. 6. 7. 8. 9. 10. 11. 8. Eliminates the “rounding-down” technique for monthly transfers Restricts the use of annuities Limits the value of Medicaid Applicant’s homestead Requires use of the income-first rule in providing support to the Community Spouse Establishes new rules on the treatment of the “buy-in” at Care Retirement Communities Restricts the use of notes and loans Permits the purchase of a life estate in real property Expands of the Long-Term Care Partnership Program Requires states to implement a “hardship waiver” policy Continuing Social Security and Medicare Adjustments (Effective 1/1/09): *Medicare Part A: Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members.
Slide 7: Hospital Deductible: Hospital Co-Insurance: $1,068.00 $267.00 per day for days 61 to 90 $534.00 per day for days 91 to 150 Skilled Nursing Facility Co-Insurance: $133.50 per day for days 21 to 100 *Part A Premiums (Voluntary Enrollees): Less than 30 quarters of Social Security coverage: $443.00 per month More than 30 quarters of Social Security coverage: $244.00 per month *Part B: (these two numbers are unchanged from 2008, the first time this has occurred since the year 2000). Deductible: Premium: *Social Security: Cost of Living Adjustment: SSI Federal Payment Standard: 5.80% $674.00 (eligible individual) $1,011.00 (eligible couple) $338.00 (essential person) See http://www.ssa.gov/OACT/COLA/SSI.html and http://www.cms.hhs.gov/apps/media/press/factsheet.asp? Counter=3272&intNumPerPage=10&checkDate=1&checkKey=&srchType=1&numDay s=7&srchOpt=0&srchData=&keywordType=All&chkNewsType=6&intPage=&showAll =1&pYear=&year=0&desc=&cboOrder=date for more 9. Inflation Adjustments Provided for 2009 (Rev. Proc. 2008-66) Each year, the IRS releases a publication regarding inflation and cost of living adjusted items. In Rev. Proc. 2008-66 and IRB 2008-45, the IRS issued inflationadjusted rates and tax tables for 2009. You can view Rev. Proc. 2008-66 at http://www.irs.gov/pub/irs-drop/rp-08-66.pdf You can view the 60 page PDF IRB 2008-45 here: http://www.irs.gov/pub/irsirbs/irb08-45.pdf Here are some of the key points: Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members. $135.00 per year $ 96.40 per month
Slide 8: Personal exemptions and standard deductions will rise and tax brackets will widen in 2009. The value of each personal and dependency exemption will be $3,650, up $150 from 2008. Other key changes include increases in the standard deduction and tax bracket status. The new standard deduction will be $11,400 for married couples filing a joint return and for surviving spouses (up $500), $5,700 for singles and married individuals filing separately (up $250), and $8,350 for heads of household (up $350). The standard deduction for dependents will be $950, or earned income plus $300. Tax bracket thresholds also will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket will be $67,900, up from $65,100 in 2008. For all except trusts and estates, the 35% bracket will be reached at $372,950 of taxable income. Trusts and estates with taxable income over $11,150 will reach the 35% bracket. Other miscellaneous adjusted income tax numbers of interest under Rev. Proc. 2008-66 are as follows: 1. Kiddie tax exemption - $950 2. Adoption credit - $12,150 3. Hope scholarship credit - $1,800 4. Standard deduction - $11,400 married $8,350 for heads of households, and $5,700 single 5. Aged or blind added deduction - $1,100 or $1,400 if single and not surviving spouse 6. Itemized deductions - reduced by 1% over AGI of $166,800 7. Personal exemption - $3,650 8. Low cost gift articles - low cost article is $9.50 or less, gift threshold is $47.50 and 2% of gift maximum is $95 The IRS also announced many other miscellaneous inflations adjustments for 2009 in Rev. Proc. 2008-66. Please go to the web sites indicated at the beginning of item #8 here or feel free to send me an e-mail if you’d like more detailed information. 10. Continued importance of the Pension Protection Act (PPA), signed into law on August 3, 2006. Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members.
Slide 9: Although the primary focus of the new law was on reforming defined benefit plans, there were a few intriguing provisions with regard to IRAs and other qualified defined contribution plans. Specifically, the PPA provides: *Permanency of the pension and individual retirement arrangement provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). *Non-spousal beneficiary transfers of inherited qualified retirement plan benefits into inherited IRAs. However, although this clearly appeared to be offered under the Pension Protection Act of 2006, in a case of “Congress giveth and the IRS taketh away,” this has been curtailed by IRS Notice 2007-7. Under that Notice, a company plan must allow such a non-spousal rollover by the terms of its own documents. See a timely update on this issue at http://www.investmentnews.com/ apps/pbcs.dll/article?AID=/20080204/REG/786671285/1037 *Direct rollovers of qualified retirement plans to Roth IRAs, rather than first having to rollover to a standard IRA and then to a Roth IRA. Again, please feel free to send me an e-mail if you’d like more detailed information. 11. Previous Tax Law changes during this current decade impact alternative minimum tax (AMT), limitations on converting traditional IRAs to Roth IRAs, etc. See Money article at http://money.cnn.com/2006/05/16/pf/taxes/tax_bill_and_you/index.htm for some specifics. One provision allows all taxpayers, not just those with modified adjusted gross income of $100,000 or less, to convert their traditional IRAs to Roth IRAs starting in 2010. Congress didn’t change the income eligibility requirements for contributing to a new Roth IRA. Singles with AGI of more than $120,000 can’t invest in a Roth; for married couples, the cutoff is $176,000 (these are 2009 numbers). But lifting the conversion cap would provide a way for high-income workers to bypass those limits. They could invest in a non-deductible IRA, and then convert it to a Roth. 12. Family Limited Partnership (FLP) and Limited Liability Company (LLC), etc., planning for high net-worth clients for valuation discounts, etc. The most recent case in this arena is Estate of Thelma G. Hurford v. Commissioner, T.C. Memo. 2008-278; Nos. 23954-04, 23964-04 (11 Dec 2008) The IRS continues to aggressively attack these valid estate planning devices, so it is very critical we clearly know what we are doing and carefully “dot our I’s and Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members.
Slide 10: cross our T’s.” Many of the IRS’s arguments of past years have either been weakened or gone by the wayside. Successful IRS attack is largely focused presently around Internal Revenue Code Section 2036(a)(1) “retained right” argument and Section 2036(a)(2) “retained right to direct” argument. 13. Many additional miscellaneous changes in EGTRRA, JGTRRA, TIPRA, Pension Protection Act, etc. NOTE: IRS CIRCULAR 230 TAX ADVICE DISCLAIMER: Any federal tax advice contained in this communication (including attachments or enclosures) is not intended or written to be used, and it cannot be used, for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing or recommending any transaction or matter. Copyright © 2009 National Network of Estate Planning Attorneys, LLC For specific use by its members.