It appears that Congress MAY not pass any transfer tax reform in 2010.  As a result, 2010 could be an excellent opportunity for making lifetime gifts to family members.

Consider the following factors that encourage gifts in 2010:

• Historically low applicable federal rates create unique opportunities.
• Low asset values, including stock portfolios, real estate and family businesses.
• Intra-family transfer “adjustments” could be curtailed by Congress or the IRS in the future.
• A gift tax rate of 35% for 2010.  The 2011 rate is 41% – 60%.
• The benefit of “incoming shifting” (by gifting income generating assets to family members that are in lower tax brackets) has more importance, given the likely significant increases in state (yes, Washington State) and federal income tax rates in the coming years and the resulting spread in income tax rates at the upper and lower ends of taxation.
• The increasing probability of restoration of the 2001 transfer tax rules in 2011, with the estate tax exemption going back to $1.0 million and the transfer tax rate at 41 – 60%.
• Because the gift tax is a tax exclusive tax, the effective tax rate for gifts in 2010 (when the donor survives the gift by three years) is only 25.93%. (see Tax exclusion planning below)

Tax Exclusion Planning- Payment of gift taxes can have a significant advantage over the payment of estate taxes.  The principal reason is that gift tax is calculated on a tax-exclusive basis (on the value of te property transferred), while the estate tax is calculated on a tax-inclusive basis (on the value property transferred plus any amount used to  pay the estate tax).  If the donor pays the gift tax, the donor effectively transfers $1.35 of value for each dollar gifted (when compared to estate tax), but is only subject to transfer tax on one dollar.

Asset Selection- Selecting the “best” asset to gift to family members requires careful attention to all of the details and variables to achieve the maximum intended results, minimize potential tax traps, and other undesired consequences.

Please contact Ron Nagle, Scott Jaeger, or Keith Tyacke for assistance in developing your 2010 gift plan or to discuss your current estate plan.

This entry was posted on Thursday, August 26th, 2010 at 12:55 pm and is filed under Tax. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.