We know you are interested in minimizing the amount of taxes that will be due upon your death and maximizing the amount of property that is transferred to your heirs. The purpose of this letter is to discuss some of the opportunities that you may wish to consider prior to the end of the year to reduce your overall taxable estate and benefit selected family members.

You can decrease your taxable estate dramatically by making gifts to family members, trusts for their benefit, and charitable organizations throughout your lifetime. Not only is the value of the gifted property excluded from your taxable estate, but so too is any future appreciation of the gifted property. Because of the current market conditions and the relatively low values of many assets, now is an excellent time to give away assets that may increase significantly in value.

CURRENT ESTATE PLANNING DEVELOPMENTS

There have been several recent developments that may impact your estate and gift planning as follows:

· The IRS has announced that the annual gift tax exclusion will be increased to $13,000 beginning on January 1, 2009.

· North Carolina has repealed its state gift tax for gifts made on or after January 1, 2009 (including gifts previously subject to the $100,000 “cap” on the gift tax exclusion).

· The current interest rates which are used in many estate planning transactions, such as family loans and grantor trust sales, are at historical lows. For example, the mid-term Applicable Federal Rate (AFR) for December is only 2.85 percent. Accordingly, it may be possible to refinance existing transactions at a lower interest rate.

ANNUAL GIFT TAX EXCLUSION - USE IT OR LOSE IT

One simple but important technique for reducing your estate is to make efficient use of the $12,000 ($13,000 beginning January 1, 2009) per donee annual exclusion from gift taxes.

· By splitting gifts, a husband and wife can together make $24,000 ($26,000 beginning January 1, 2009) per year of annual exclusion gifts to each donee without incurring gift tax.

· Gifts made outright to family members can qualify as annual exclusion gifts, as well as gifts made to certain trusts for their benefit.

If you wish to maximize your gift tax annual exclusions, it is important to consider the timing of the gifts since the end of the year is approaching.

· Only gifts made and completed prior to December 31, 2008 will qualify as annual exclusion gifts for the current year.

Remember also that certain amounts paid directly to providers of medical services or educational services may be fully excludable from gift tax.

USING YOUR $1,000,000 EXEMPTION EQUIVALENT - THE GIFT OF A LIFETIME

Another important estate reduction technique is to use your $1,000,000 exemption equivalent during your lifetime.

* Each taxpayer is provided a $1,000,000 exemption equivalent, which can be used to shelter transferred wealth from gift taxes, if transferred during lifetime, or estate taxes, if transferred at death.

* To the extent the exemption equivalent is used during lifetime is not available at death.

To take advantage of the compounding effect of investments, many taxpayers prefer to use their $1,000,000 exemption equivalent during their lifetime so that any appreciation after the gift has been made is not included in their estate upon their death.

* For example, if a 40% interest in a closely held business is valued at $250,000, you can gift the interest to your children (or a trust for their benefit) now in anticipation that 20 years from now that same 40% interest would be worth over $1,000,000 using an 8% rate of appreciation. As you can see, there is a tremendous amount of leverage if you carefully select appreciating assets for lifetime gifting.

INCOME TAX OPPORTUNITIES IN A DIFFICULT ECONOMY

Finally, if you or a business you own has a break-even or loss year in 2008, you may face significant opportunities to claim tax losses, which in turn, may qualify you for a refund of income taxes paid in prior years. For example, an asset sold at a loss to a person who is not “related” to you as described in the narrow definition used by the IRS, could result in a significant refund of taxes paid in any of the last two years. The opportunity to get money back from the IRS already has helped provide significant relief to some of our clients in these difficult days.

We are available to assist you with your year-end estate, gift, and tax planning, including maximizing your annual gift tax exclusions and exemption equivalents through sophisticated tax avoidance techniques. Please contact us to discuss your options in greater detail.

Sincerely,

CULP ELLIOTT & CARPENTER, P.L.L.C.

IRS CIRCULAR 230 DISCLOSURE:

Under requirements imposed by the U.S. Internal Revenue Service, we inform you that any advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein. The scope of the Firm’s work does not include advice or planning to avoid penalties that may be imposed by any taxing authorities.

If you have any questions or need additional information, please contact Bill at 704-944-4260 or bgallagher@superiorschoolnc.com.