Professor Emeritus Larry Elison Celebrates Birthday
Larry Elison, retired professor emeritus of the University of Montana School of Law celebrates his 80th birthday in November. Please join his family at an open house on Friday evening, November 9th between 7:00 – 9:00 pm at 5648 Prospect Drive (Grant Creek area) in Missoula to celebrate.
By L. Paul Hood, Jr.
Yearend tax planning is just around the corner and really already is upon us. While federal tax law is somewhat in a state of flux at the moment, don’t overlook the Montana Endowment Tax Credit (“METC”), since it could really save your clients a lot of Montana state income tax if a gift is complete before yearend. This article will discuss the METC in a hopefully easy to understand FAQ format.
What is the METC?
First and foremost, the METC is a credit against Montana state income liability, which beats a deduction hands down, since a deduction is only worth what the client’s marginal tax rate is at the time. The METC is a dollar-for-dollar reduction in Montana state income tax. Unless the Legislature extends the METC, it will sunset at the end of 2013.
How does the METC work?
The METC is a credit equal to 40% of the charitable gift portion of a “planned gift.” In other words, a client would not get the METC for the retained portion of a planned gift. For example, suppose that Mike, age 75 and an individual income tax filer, has an estimated $15,000 of 2012 Montana state income tax before the gift, creates a charitable gift annuity with a Montana charitable organization that will be funded with $100,000 in October of 2012. According to the tables that are promulgated by the American Council of Gift Annuities, which many charities use, and assuming that payments start immediately, Mike’s annuity would be 5.8%, or $5,800 per year.
Using the IRS tables to value the gift temporally, the charitable amount of Mike’s charitable gift annuity, which would qualify for the federal income tax charitable contribution deduction, is $41,016. Therefore, Mike would qualify to use up to 40% of $41,016 as a direct credit against his 2012 Montana state income tax. Since the maximum METC is $10,000, and 40% of $41,016 is $16,406, Mike would be limited to using not more than $10,000 to offset his state income tax liability. Likewise, if Mike had less than $10,000 of Montana state income tax liability in 2012, then the METC would be limited to the amount of that liability.
What’s a “planned gift?”
Under the statute, the following gifts qualify as planned gifts:
Charitable remainder unitrust, charitable remainder annuity trust, pooled income fund, charitable lead unitrust, charitable lead annuity trust, charitable gift annuity, deferred charitable gift annuity, charitable life estate and paid-up life insurance policies. All of the foregoing techniques are specifically defined in the statute to have the definitions that are ascribed to each in federal tax law.
Is there a limit to the METC?
Yes, the limit is up to $10,000 of Montana state income tax. Therefore, a husband and wife who file a joint income tax return can claim up to $20,000 of METC per year. And the METC is limited to the client’s Montana state income tax in the year of the planned gift; you can’t use the METC to generate a refund like you can with some of the federal income tax credits.
What are the organizations that are eligible to receive a qualifying gift?
In order to meet the definition of “qualified endowment,” a fund has to be a permanent, irrevocable fund held by a Montana incorporated or established IRC Sec. 501(c)(3) tax-exempt organization or be a Montana bank or trust company that is holding the fund on behalf of a Montana tax-exempt organization.
In order to issue qualified charitable gift annuities, a charitable organization must either have a minimum net worth of $300,000 or not less than $100,000 in unrestricted cash, cash equivalents or marketable securities. Additionally, the charity (or its successor organization) must have been in existence for a minimum of three years and must maintain a separate annuity fund that has at least one-half of the initial amounts transferred for outstanding annuities.
Can qualifying transfers be carried back or carried forward?
No. There is no carry back or carry forward of the METC. However, excess amounts not used in the calculation of the credit may be deductible against Montana state income as a charitable gift.
Is there any minimum term that a planned gift must last in order to qualify?
Yes. A planned gift that qualifies for the METC has to be set up so that the planned gift or trust does not terminate in favor of the charitable organization sooner than the earlier of the beneficiary’s or (beneficiaries’) date of death or five years from the date of creation of the planned gift. This is a governing instrument requirement. Therefore, if someone simply uses, for example, the specimen charitable remainder trust or charitable lead trust documents that the IRS promulgated several years ago without modifying them to include this requirement, that planned gift won’t qualify. Additionally, a deferred charitable gift annuity can’t start later than the estimated life expectancy of the annuitant(s), or it won’t qualify as a “planned gift.”
This sounds powerful. What needs to happen before yearend? The planned gift has to be completed before yearend. Don’t be sorry. Be proactive and discuss Montana charitable planned gifts and the benefits of the METC with your clients before it is too late.
L. Paul Hood, Jr. JD, LL.M., is the director of gift planning for the University of Montana Foundation.
Professionals Abroad, a division of Academic Travel Abroad, in consultation with the State Bar of Montana, is organizing a delegation to visit Cuba for the purpose of researching the country's legal system.
Peggy Probasco and Matt Thiel will lead the delegation, which will undertake a comprehensive study of the Cuban legal system, from the teaching of law, to the criminal justice and judicial systems; civil and family code; business and commercial rights; and resolving domestic and international commercial conflicts.
As you may know, travel to Cuba is restricted by the Office of Foreign Assets Control (OFAC) of the United States Treasury Department. This delegation will be travelling under OFAC regulation 31CFR §515.564 General license for professional research. This license supports our access to the highest level professionals in Cuba. Each member of the delegation must be in compliance with the General License issued by the Office of Foreign Assets Control authorizing full-time professionals to conduct a full-time schedule of research activities in Cuba with the likelihood that this research will be publicly disseminated. To ensure compliance, each participant in the program will be required to provide a resume and sign an affidavit attesting to their status as a full-time professional, paid or unpaid, in the field. During travel, each delegation member will be given a copy of the regulation that will serve as the I icense to travel authorized by the Office ofF oreign Assets Control.
This delegation will convene in Miami, Florida on Feb. 23, 2013, at which time everyone will depart for Cuba. The delegation will return to the United States on Feb. 28, 2013. Delegates will participate in professional meetings and site visits each day; the specific meetings and topics for discussion will be determined by the research interests and composition of the team.
The estimated cost per delegation member is $4,990 per person/single hotel room; $4,495.00 per person/double hotel room. This cost includes roundtrip international air arrangements between Miami and Havana; group transportation, meetings, accommodations in double-occupancy rooms, most meals, and essentially all other costs associated with participation, as outlined in the final schedule of activities.
For U.S. citizens, expenses associated with this program may be tax deductible as an ordinary and necessary business expense. You should consult with a tax advisor to determine if tax deductibility is applicable to you.
Washington DC based, Professionals Abroad is a division of Academic Travel Abroad, a 60-year-old organization that handles the logistical arrangements for prestigious organizations, such as National Geographic, The Smithsonian, The American Museum of Natural History and many top universities.
Academic Travel Abroad is licensed by the OFAC as a Travel Services Provider for US travel to Cuba.
Due to the extensive planning and communication involved in coordinating a program of this nature, please respond with your intentions regarding this invitation as soon as possible.
Please RSVP to Professionals Abroad at 1-877-298-9677 or via the web at www.professionalsabroad.org. A $500 deposit is required to secure your place on the team. In the event that you are unable to accept this invitation, an alternate delegate candidate will be invited. You may also recommend a colleague asyour alternate for the program.
If you have questions regarding the delegation, contact the program representative at Professionals Abroad, at 1-877-298-9677. For additional program details visit https://res.academic-travel.com/professionals_abroad/reservation/index.php?X3E9dmlld19vdmVydmlldyUyRjk4NTU