Estate and Elder Law

Gifts in Difficult Financial Times

By Adam J. Gottlieb

If a person has any desire to make any gifts at all, now may be the best time to make those gifts.  I wrote a blog entry here more than a year ago which described certain gifting techniques and the reasoning therefor.  I now revisit that concept now to update the financial benefit of making certain gifts.

The dismal financial conditions which plague us these days are the best impetus to make gifts.  I know it seems counterintuitive at first-making gifts when the donor has less property-but the conditions are really ripe for the picking.

  1. Interest rates are at historic lows.  Low interest rates assist in two major ways.  First, in loan transactions between family members, a lower interest rate can be used without the Internal Revenue Service seeking to impute interest under §7872. The rules for intrafamily loans are a bit complex, so please make such loans very carefully.  Second, for certain complex gifting strategies, the Internal Revenue Code requires that the donor compute the gift using rates based on current interest rates.  Since the interest rates are so low, the IRS rates are also very low.
  2. Property Values Are Down. Values of property have been depressed for quite a while, and that will assist in determining the value of the donor's gift.  While this is obvious to most people, there is clearly an emotional component to gifting. So when a potential donor considers making gifts, he or she usually looks to see if he or she will need the asset later.  If the conditions are not so clear, and the potential donor doesn't feel that he or she can live without that asset, he or she is less likely to give it away.  This is not unusual.  However, holding emotions aside, the donor can minimize the transfer tax cost by making the gift when the value is low.  This applies with a gift of any type of property, be it real estate, a stock portfolio, artwork or anything else. 
  3. The Federal Exemption is $5 Million. Since the federal gift tax exemption is $5 Million for 2011 and 2012, up to $5 Million can be gifted without any federal gift tax.  This change, made at the end of 2010, permits an immense transfer of wealth without any gift tax consequences.

The combination of low interest rates, low valuations and the increased federal gifting exemption are a great combination for gifting.  Many years from now, when we look back on this time, we are likely to see the alignment of these factors as an incredible opportunity to make substantial gifts.  The only question is: Will those potential donors act and make the gifts?

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