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planning is an important factor in a family estate plan. In this Analysis, Harvey
Frutkin discusses gift taxes and transfers in general, exclusions, exemptions,
and deductions for family gifts, and the economics of family gifts. He writes:
Economics of Family Gifts
significance of a gifting program in the family will depend on the family's
financial circumstances, as well as their desired objectives. For instance, it
might be the case that parents who are not particularly well off nevertheless
wish to benefit their children by making annual or sporadic gifts of cash. Such
gifts are unlikely to serve an estate planning purpose for the parents, but they
satisfy other substantial motivations. In other cases, a lifetime gift will
serve to remove property from the estates that would subject one or both of the
estates to excessive tax.
that Executive A owns corporate stock in Corporation X. Mr. A originally
invested $50,000 in the stock, and it is presently worth $300,000. The stock is
appreciating rapidly, and Mr. and Mrs. A decide to give the stock to the son
presently, in order to avoid the needless inflation of their estates. In 2007,
they split a gift of $24,000 worth of stock under the gift tax annual
exclusion, and also split the gift of the remaining $276,000 worth of stock.
The remaining applicable exclusion amount, available for future gifts by each
of the parents, is $820,000 ($1.0 million less $138,000 each).
illustrated, a significant issue in planning for family gifts is whether, and
to what extent, a gift can be leveraged for best tax advantage. In the above
example, the amount effectively insulated from estate tax far exceeds the
present cost, namely the absorption of a portion of the couple's unified
credits. If, on the other hand, the property to be gifted out of the estate
were not rapidly appreciating, the tax planning motivation would be far less
important than for appreciating property. That is to say, if the value of the
property were to remain constant, it may not matter whether the unified credit
amount is used by the estate, after death, or by the donor during his or her
Valuation of Gifted Property
indicated above, if a gift is made in the form of property, the value thereof
at the date of the gift is considered to be the amount of the gift. In those
cases where a family's gift planning involves cash or marketable securities, the
valuation of the gifts is not an issue. By contrast, in those frequent
instances of gifting other forms of property, the valuation of the property to
be gifted may be the central issue. There are statutory rules, regulations, and
scores of court cases decided each year, in the context of the gift tax as well
as the estate tax, on this very point. The question simply is, for tax
purposes, how much value is being transferred from the donor to the donee?
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