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Make a Contribution to Your IRA: Consider making an additional contribution to your IRA. (See your own tax adviser for details.)
Prepay Some Bills: You may want to prepay mortgage or predictable medical expenses such as eyeglasses, hearing aids, etc.
Deduct for Job Search Expenses: If you have been unemployed or looking for a better job you can deduct the expense of the search. These expenses are for such things as travel, lodging, phone calls, resume preparation and career counseling.
Foreclosure Relief: Hopefully you have been able to maintain your home mortgage payments but if not then you are entitled to relief. If your loan was reduced, restructured or foreclosed you may qualify for relief.
New Home Credit: If you purchased your first home you will be eligible for a tax credit of as much as $7,500.
Estate planning is a little more difficult, but just as important. Estate taxes are not exactly clear. The current law is set to expire at the beginning of 2011. No one knows just what Congress will do.
Under the current law, the exemption for 2009 is $3.5 million. In 2010 there will be no federal estate tax. When the tax returns in 2011, the exemption will be $1 million. Will this be changed by Congress? Now is the time to see your estate planner to make sure you are able to take advantage of whatever may happen.
There are several innovative ideas you may want to consider, three of which are: the Family Limited Partnership (FLP); the Grantor Retained Annuity Trust (GRAT), and the Grantor Trust (also known as the Intentionally Defective Grantor Trust). They are all very sophisticated investment techniques which require the assistance of your lawyer to properly draft and help you understand them. Here is a very brief description of each one.
The Family Limited Partnership (FLP) is something like a family investment club. What happens is the family pools its assets (stocks, bonds, real estate, etc.) into a family-owned partnership. The individual interests are equal to the percentage of contribution by each member of the family.
The advantages are that the family is able to take advantage of a larger account to obtain lower management fees and obtain better investment opportunities. Also the FLP cannot be reached by creditors or divorcing spouses. Interest in the FLP may be gifted to easily take advantage of the annual gift tax exemption.
The Grantor Retained Annuity Trust (GRAT) is great for minimizing the gift tax. The donor establishes a trust funded by cash or various other assets. He then is required to take an annual payment from the trust, the amount of which is engineered to return the donor's original investment plus a minimum rate of return. This rate is known as the "hurdle rate" which is set by the IRS. The August 2009 rate is only 3.4 percent. Any left-over assets are then donated to the donor's children without gift tax. For an example of the actual benefit to you, see your tax adviser or lawyer.
The final idea is a Grantor Trust (also known as the Intentionally Defective Grantor Trust). This trust is used by the donor to transfer assets to his beneficiaries. It is a better way to transfer money to your grandchildren and is a more effective way to shelter the gift. It also is great way to avoid the generation-skipping tax. Again this plan requires special drafting by your attorney.
NOTE: The Bank of Sullivan has compiled the first 12 articles in this series into a booklet titled "Planning Ahead to Protect Your Estate." If you would like a copy write the Trust Department of the Bank of Sullivan at 328 E. South Service Road, Sullivan, MO 63080, and one will be mailed to you.
