Estate and Elder Law

Why You Should Consider Gifting in 2010


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