Estate Planning Still Needed


In the Winter Issue of The Society Page, I wrote about the need for estate planning. At the time of the publication, Congress had not passed any legislation to avoid the potential fiscal cliff. In early January, Congress did pass legislation addressing federal gift and estate taxes. While the exclusion did increase, there is still a BIG need for careful estate planning for not only clergy but also for many of our church members. 

To the surprise of many, including myself, Congress increased the gift and estate tax exclusion to $5.25 million per person and indexed for inflation in future years. This means an individual’s estate is subject to federal estate taxes only on the amount above $5.25 million. For the vast majority of us, we will not have estates approach the exclusion amount; however, for family farmers and small business owners, the $5.25 million exclusion is very much within reach. 
Farmland prices continue to rise to unprecedented levels. This past fall a farm in northeastern Iowa sold for a record amount of $17,000 per acre. On average, farmland in Illinois is currently valued at $12,000 per acre, making the $5.25 million exclusion a very real issue. 
For example, a farm of just 500 acres valued at $12,000 acres exceeds the $5.25 million exclusion on land value only. This does not take into account any retirement funds, machinery, life insurance that they own, autos, and personal items. The value of all these items will be taxed as high as 35% of the value after the $5.25 million exclusion. 
As you can see it is still fairly easy for a family farm or a small business owner surpassing the $5.25 million exclusion, causing estate tax issues. In fact, even with the increased exclusion amount, we will see many families lose the family business or farm because of the lack of estate planning. 
We, as pastors, can educate our members about the very real need for estate planning. While most clergy will not reach the exclusion amount, there may be several in the church who will. Through some very simple estate planning techniques, federal estate taxes can be greatly reduced and even avoided. And, the local church can receive a nice gift in the process. 
A few of the techniques are listed below. In each situation a charity or charities will receive some level of income through a person’s estate planning. An estate attorney or estate planning professional will be needed to set up these instruments to make sure that the desired outcome will happen. 
Charitable Lead Trust (CLT)
An irrevocable transfer of property is made to a trust. The earnings or income (it can be a set amount, the entire earnings, or a percentage) of the trust is paid to a charity/church for a certain number of years with the remainder of the trust going back to the donor or to the donor’s beneficiaries.  
Charitable Remainder Annuity Trust (CRAT)
Property is irrevocably transferred into a trust. The trust will pay the donor or designated beneficiaries a fixed income for life. When the donor/beneficiaries die, the trust assets are transferred to the charity/church.
Charitable Remainder Unitrust Trust (CRUT)
Very similar to the CRAT except the annual income paid to the donor or beneficiaries is a fixed percentage of the annual fair market value of the trust. 
Charitable Gift Annuities
Property is transferred to a charity which promises to pay a fixed annual annuity for the life of the donor or beneficiaries. The amount depends on the ages of the persons to receive the annuity, applicable interest rates, and the annuity starting date.
Qualified Personal Residence Trust (QPRT)
A donor contributes a personal residence to the trust. Instead of receiving an annuity in terms of dollars, the donor is granted the right to live and/or use the personal residence. At the end of the trust term (most of the time when the donor and beneficiaries such as spouse die) the personal residence is transferred to the charity/church. 
These are but a few of the many different tools that can be utilized. It is important for pastors and churches to educate our members on the possibility of estate taxes and the many different ways to avoid estate taxes while helping their church. 
If you are interested in hosting an estate planning seminar or would like more information regarding estate taxes, please contact me at 217-529-3221 or