can affect older taxpayers. Estate and
gift tax laws also have undergone
major revisions, effective in 1998.
Congress also increased the estate
and gift tax unified credit, indexed
the annual gift tax exclusion and the
generation-skipping tax exemption,
and provided tax relief for heirs to
small businesses.
With rates of gift and estate taxes
ranging as high as 55 percent on
cumulative taxable transfers made
during life and upon death, any
reduction can be called good news.
And the 1997 tax law contains some
very good news.
The Taxpayers
Relief Act of
1997 rewrote the
book on estate
planning.
Before now, individuals have been
able to effectively exempt taxable
transfers worth $600,000 from gift
and estate taxes by making use of a
unified credit.
It enables you to offset up to
$192,800 in gift and/or estate taxes
— the tax due on estates and gifts
totaling $600,000.
The unified credit equivalent, or
amount excluded, will rise by incre-
ments from $625,000 in 1998
through $1 million in 2006.
The $10,000 annual gift tax
exclusion will also now be indexed to
inflation, with the amount rounded
to the next lowest multiple of
$1,000. The indexing of the genera-
tion-skipping tax exclusion will be
rounded as well — to the next lowest
multiple of $10,000.
But the best news may be changes
that will ease the way for older tax-
payers to pass ownership of family-
owned businesses to younger-genera-
tion family members.
Under the new law, special estate-
tax treatment can be elected for qual-
ified "family-owned business inter-
ests" that comprise more than half of
a person's estate — provided certain
other requirements are met.
As a general rule, estates that
include such family-owned business
interests may exclude from the tax-
able estate the value of those inter-
ests. But that's only if the exclusion,
plus the amount effectively exempted
by the unified credit, does not exceed
$1.3 million.
Unfortunately, this new exclusion
only applies to the estates of individ-
uals dying after 1997.
The new tax law also eliminates
the need for a gift-tax return in cases
of gifts to charity in excess of
$10,000.
The new law now treats transfers
from a revocable trust as if they were
made directly by the grantor. Thus,
an annual exclusion gift from such a
trust would no longer be included in
the gross estate.
David Jaffa called attention to
another option for older taxpayers
seeking retirement planning.
Charitable gift annuities can be an
ideal means of supporting a favorite
charity, while continuing income to
you for life as well as providing a tax
deduction. The amount of income
you receive depends on your age
when you create the annuity.
If you are 75 years old and create
a $10,000 annuity, you will receive
$840 a year for life and a $4,612
charitable income tax deduction.
If your spouse is 70 years old and
you would like the payments to last
as long as either of you is alive, you
will receive monthly payments of
$720 and be able to take a $3,768
tax deduction.
Closely related to the above are
charitable remainder trusts, to which
a donor can contribute assets, retain-
ing trust income for himself or her-
self and/or another beneficiary for
life, or a term of years. At the end of
the trust term, the assets pass to one
or more qualified charitable organi- .
zations.
If all the requirements were met,
the donor receives an income and
gift-tax charitable contribution
deduction or, if the trust is set up in
a will, an estate-tax charitable deduc-
tion.
But the law placed limits on the
size of the retained income interest
and provides that the charity's
remainder interest must be a mini-
mum percentage value. ❑
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