• Prudent Estate Planning Items to Consider for the New Year
  • February 10, 2004
  • Law Firm: Pepper Hamilton LLP - Philadelphia Office
  • The start of a new year is a good time to review planning issues. Here is a list of "important numbers" for the year 2004:

    Things That Stay the Same:

    • The annual exclusion from federal gift tax remains at $11,000 per donee. The applicable exclusion amount for federal gift tax remains at $1 million.
    • The maximum amount that can be transferred in one year (using five year forward averaging) to a 529 Plan for a single beneficiary without incurring a federal gift tax remains at $55,000.

    Things That Change:

    • The applicable exclusion amount increases to $1.5 million for federal estate tax and for generation-skipping transfer tax.
    • The maximum federal gift and estate tax rate is lowered to 48 percent (from 50 percent) for amounts in excess of $2.5 million.
    • Mileage deductions for federal income tax purposes in 2004 are: for business - 37.5 cents; for medical - 13 cents; charitable - 14 cents.

    Limits for 401(k) Plans and IRAs:

    • The maximum amount that can be contributed to qualified plans (401(k) plans, 403(b) plans, etc.) is increased to $13,000. If you are over 50, and the specific plan permits, you may add an additional $3,000 to qualified plans.
    • The maximum amount that can be contributed to an Individual Retirement Account (pre- and post-tax) remains at $3,000. If you are over 50, you may add an additional $500.

    Things to Do:

    • Because the applicable exclusion amount for federal estate tax has increased to $1.5 million, more assets will be allocated to the non-marital deduction trust under standard allocation formulas. If the beneficiary of the non-marital trust does not include the surviving spouse or includes other beneficiaries, a review may be in order to ensure that adequate provisions have been made for the surviving spouse.
    • Make sure you have a durable power of attorney in effect. The Pennsylvania statute governing powers of attorney was amended in 1999 and imposed new requirements for creating powers. While powers of attorney executed before that date remain effective, it is a good idea to periodically review your power of attorney to ensure that the individual you have appointed as your agent should still be your agent and that any successor agents are properly identified.
    • Review your beneficiary designations of your qualified plans, individual retirement accounts and life insurance policies to ensure that they are in line with your estate plan.
    • Review the appointments of guardian of the person of your minor children, and of executors and trustees to ensure that the proper individuals or corporations have been named.

    Alternative Definitions of Trust Income in Existing Trusts:

    At the end of 2003, The Internal Revenue Service released the final regulations under IRC ยง643. This is important because the regulations address trust income for federal fiduciary income tax purposes and the final regs were the last part necessary for consideration by trustees of using a new definition of trust income. In recent years, Pennsylvania, New Jersey and Delaware have each adopted new statutes that allow a redefinition of income to reflect the trend toward asset investment on a total return basis.

    If you are a trust beneficiary or a trustee you may want to consider how these changes may affect your interest or duties. Call any one of us if you wish to talk about these changes.

    Do You Need to File a Gift Tax Return?

    If you made gifts in 2003, a federal gift tax return may be necessary. If the gifts were in cash or publicly traded securities, were made directly to the individual and all gifts during the year to that individual were less than $11,000 in total value, a return may not be necessary. However, if gifts to one individual exceeded $11,000, were not in cash or were to a trust, or if you paid life insurance premiums on a policy owned by a trust or by someone else, a return may be necessary. A married couple may give any individual up to $22,000 in one year, but a return is required if more than $11,000 of the donated assets were in the sole name of the husband or the wife.