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For several
important reasons, gifting assets to family members and other
beneficiaries in 2010 could be a very good idea.
Changes
in tax rates.
The federal gift
tax rate currently is 35%. In 2011, the federal estate tax exemption will
be $1 million and the transfer tax rates will range from 41% to 60%,
unless U.S. Congress changes the laws that are in place. Because of the
looming rise in transfer tax rates, 2010 may be a good year for shifting
wealth.
Low
asset values.
We all are aware
of the recent decline in asset values. Some real estate and closely-held
businesses, for example, have decreased in value to the extent that
transferring the assets has become more realistic.
Low
applicable federal interest rates.
Some gifting
techniques involve the donor retaining an interest in the property for a
term of years. A Grantor Retained Annuity Trust ("GRAT") is an
example of this type of gift. When a grantor creates a GRAT, the grantor
transfers a rapidly-appreciating asset (closely-held stock, for example)
to a trust for the benefit of family members or other beneficiaries, and
the grantor retains an annuity for a term of years. The amount of the
retained annuity is set by the applicable federal rate (2.6% for August,
2010). All appreciation in excess of the applicable federal rate is a
tax-free gift to the beneficiaries. Thus, gifting a rapidly-appreciating
asset in a low-interest-rate environment can be very effective.
Restrictions
on intra-family transfers.
Congress is
considering restrictions that will make intra-family transfers less
favorable in the future. For example, GRATs may have a required minimum
10-year term in the future, making techniques such as two-year rolling
GRATs impossible to create. Because restrictions actually have been
proposed and are being discussed, gifting during this calendar year
should be considered.
Valuation
discounts.
A person who is
considering making a gift in 2010 should also consider methods that will
reduce the value of the gift. Examples of techniques used to discount
values are creating a charitable lead trust, transferring a minority
interest in an asset, and utilizing a family limited partnership to
transfer discounted partnership interests.
For more information,
please contact:
Marilyn J. Maag
Porter
Wright Morris & Arthur LLP
513.369.4229
email
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