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UT Austin Gift Planner – May 6, 2010

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Welcome to The University of Texas at Austin Gift Planner, an online resource for professional advisors in the estate and financial planning industries. The Gift Planner provides practical information on gift planning issues, reports new developments in charitable giving techniques, connects you with leading professionals, and informs you about key events and resources at UT Austin.

May 6, 2010

UPCOMING EVENTS

Professional Advisors Day is May 14th

Professional Advisors Day 2010 is rapidly approaching. Have you registered yet? This half-day seminar, which takes place Friday, May 14, in the ACES Building on the main campus of UT Austin, is your chance to earn two free continuing-education credits. This year’s topic is “Estate Planning Now to Avoid Litigation Later.”

Our featured speakers are Michael Whitty, who will present “Turning Over the Helm without Losing Sail: Navigating Financial, Estate, and Business Succession Planning for Family Business Owners,” and Trey Cousins, who will discuss “Aggressive Estate Planning without the Necessity of IRS Litigation.”

In addition, Charlie Cooke, principal associate director of the UT Energy Institute, will give a presentation on energy security, and Paul Navratil will provide a tour of the Texas Advanced Computing Center Visualization Laboratory, which features Stallion, the highest-resolution tiled display in the world.

Sponsored by The University of Texas at Austin and the University Development Office’s Gift Planning team, Professional Advisors Day is a free half-day seminar for professional legal, accounting, and financial advisors.  Professional Advisors Day gives you the chance to hone your professional skills, earn continuing-education credit, and get an inside look at exciting work being done on campus.

Learn more and register online at https://giving.utexas.edu/pad2010/.

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Recent events

Smart Planning for Smart Women

On Jan. 27 and 28, more than 200 women attended “Smart Planning for Smart Women, an Estate and Financial Planning Seminar” hosted by the UT Austin University Development Office.  The half-day event, held at the Lady Bird Johnson Wildflower Center and at the Blanton Museum of Art, featured keynote speakers Luci Baines Johnson and Nikki DeShazo, retired probate judge of Dallas County. In addition, attendees heard presentations from Deborah Green (“When Life Comes at You Fast: Planning for the Impossible — Basic Disability and Special Needs Planning for the People You Care About Most”), Rhonda Brink and Laura Hansen Dean (“Beyond the Will, Beyond the Family: Special Assets and Special Gifts”), and Frances Bennett (“Blending Families, Lifestyles, and Assets”).

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Legislative update:

IRA charitable rollover legislation approved by House and Senate

Both the U.S. Senate and the House of Representatives have approved different versions of the Tax Extenders Act of 2009, which would extend tax-free distributions from Individual Retirement Accounts (IRAs) to charitable organizations through the end of 2010. The House and Senate are currently working to reconcile some significant differences between the bills before the legislation can be sent to President Obama. The legislation would allow for qualified charitable distributions (QCDs) from the IRA accounts of individuals older than 70½. To qualify as a QCD, the contribution must be from a traditional or a Roth IRA and cannot be from an employer-sponsored IRA or from a defined contribution retirement plan [401(k) or 403(b)].

Legislative changes to grantor retained annuity trusts (GRATs)

The House of Representatives recently passed the Small Business and Infrastructure Jobs Tax Act of 2010. Among the provisions in this bill is one that would require grantor retained annuity trusts (GRATs) to have a minimum term of 10 years.

GRATs have historically provided an excellent vehicle for passing highly appreciating assets to children outside of the owner’s estate without paying gift taxes.  During the term of the GRAT, the grantor receives an annuity from the trust, and at the end of the term there will be assets left in the trust that will be distributable to the grantor’s children. However, if a grantor dies during the GRAT term (which currently can be as little as two years) the assets come back into the grantor’s estate and get taxed at their current value.

In order for the GRAT to provide benefit to the grantor and the grantor’s heirs, the grantor must survive the term of the trust. In general, if the grantor dies during the GRAT term, the amount that passes to the beneficiaries will be subject to estate tax. For this reason, GRATs have generally been structured to exist for a short period of time, often just a few years. Under the House bill, a GRAT would be required to have a term of at least 10 years. This would substantially increase the likelihood that the trust will fail, and the property in the trust would then be subject to estate tax. In addition, the proposal includes a requirement that the remainder interest have a value greater than zero and would prohibit any decrease in the annuity during the GRAT term.

Even with this proposed legislation, there are still many benefits to GRATs. The proposed legislation would only apply to GRATs created after the date of enactment, so if you have clients for whom a short-term GRAT would be advantageous from an estate-planning perspective, now would be an excellent time to establish such a trust.

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Unique charitable giving opportunities in 2010

Changes to the tax laws in 2010 have created some unique opportunities for charitable giving, particularly for high-income taxpayers.  For 2010, taxpayers have no income limit for taking itemized charitable deductions — unlike in previous years. For most of the past two decades, high-income taxpayers (defined in 2009 as individuals with AGI above $166,800, or $83,400 AGI for married filing separately) could lose as much as 80 percent of their itemized deductions for interest expenses, state and local taxes, charitable contributions, and miscellaneous expenses on their federal income tax returns. This provision expired at the end of 2009. And while nothing is certain after 2010, the Obama administration has proposed a new method to cap the income tax savings from charitable contributions for high-income taxpayers that would take effect in 2011 and beyond. That makes 2010 an ideal time for individuals with philanthropic intent to consider making a significant charitable gift while the full amount of the gift will be tax-deductible.*

Another unique opportunity for 2010 is the ability to convert a traditional Individual Retirement Account (IRA) to a Roth IRA without regard to income limits. Roth IRAs offer greater flexibility on withdrawals, and there are no taxes on the distributions, earnings, or growth. It is important to note, however, that the conversion from an IRA to a Roth IRA is a taxable event.

Nonetheless, many retirement planning experts suggest that now is a good time to convert to a Roth IRA, even if it means paying income taxes to do so. Individual income tax rates are likely to rise, not fall, in coming years, and the top income tax rate is set to increase in 2011. By reporting all the converted income in 2010, a taxpayer could pay a smaller amount in taxes; meanwhile, as the economy recovers, his or her investment can grow in a tax-free rather than a tax-deferred account. For 2010 only, taxpayers can choose to pay tax on the conversion now or can report half in 2011 and half in 2012.

For many taxpayers, a charitable gift made with funds outside the IRA could completely offset the converted income and result in tax-free income in retirement, no required minimum distributions, the ability of heirs to enjoy tax-free growth and income, and the possible reduction of estate taxes.

For more information about how a donor could make a charitable gift to the University of Texas at Austin, please contact a member of the Gift Planning team at 512-475-9632.

* Charitable gifts are still subject to the 30 and 50 percent ceilings, depending on the type of gift made and the type of property contributed.

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Donor advised funds as a vehicle for charitable giving

A donor advised fund is a simple and cost-effective vehicle for individuals or families to manage their charitable giving. Donors who conduct their philanthropy through a donor advised fund receive immediate tax benefits while avoiding the administrative burden and costs associated with operating a private foundation.  At the same time, a donor advised fund provides donors with a flexible vehicle for making their charitable gifts.

Traditionally, community foundations have administered donor advised funds, although today public charities, commercial sponsors, educational institutions, and religious organizations also offer these services. Donor advised funds are the fastest-growing charitable giving vehicle in the United States, requiring little or no fees to establish and minimal operating costs. Because donor advised funds are housed within public charities, donors receive the maximum available tax benefits when they contribute assets to the fund, and unlike with private foundations, donors are not responsible for the associated operating and administrative costs.

Donor advised funds provide special advantages to donors who wish to donate appreciated assets and who wish to support more than one charity. When a donor establishes a donor advised fund using appreciated assets, the donor receives a charitable tax deduction while simultaneously avoiding potentially significant capital gains tax liability. The donor also avoids the complications of trying to transfer appreciated property to more than one organization. This combination of tax savings and ease of giving make donor advised funds an attractive option for many donors.

Donor advised funds also offer donors greater flexibility in their philanthropy.  For donors who wish to support multiple charities, the donor advised fund provides a single vehicle for making those gifts without the administrative burden and cost of running a foundation. Donor advised funds also allow donors to make gifts on their own timetable.  Once the fund is established the donor may direct the foundation that holds the fund to make a gift at any time, whenever it best suits the donor.

For donors concerned about privacy, donor advised funds also provide advantages over private foundations. Unlike private foundations, donor advised funds do not have to make annual filings that require information about assets, grants, and the names of directors or trustees. Donors who don’t want credit for their philanthropy or who don’t want to call attention to their wealth can remain anonymous when they give through a donor advised fund.

A donor advised fund allows donors to build a legacy of philanthropy. Responsibility for the fund can be held by an individual or shared by a family and can even be passed on to a donor’s heirs.  A donor can retain control over the fund while involving family members in the grant-making process. Donors can even establish multiple funds with different family members as advisors. In this way, a donor can involve future generations in the philanthropic process without having to directly transfer assets to children or other heirs.

For more information about how a donor could make a charitable gift to the University of Texas at Austin, please contact a member of the Gift Planning Team at 512-475-9632.

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