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2012 Year End Gifting Opportunities

2012 Year End Gifting Opportunities

If you're like most people, you don't like to think about planning your estate. But it's an important part of ensuring the financial security of your loved ones. One of the most common tools used in estate planning - and one that everyone should at least give careful consideration to - is a program of giving gifts. A carefully planned gift-giving program can reduce the amount of your estate that is subject to tax while still passing on wealth. 

Absent the immediate financial needs of a gift recipient, the main motivation for making large gifts now rather than waiting to pass on your wealth at death is to remove the future appreciation from your eventual taxable estate. Year-end 2012 may also present a particularly worthwhile time for making large gifts because of two additional reasons: (1) the likelihood that a $5.12 million "lifetime" exclusion from gift tax for immediate gifts will never be higher and (2) the likelihood that valuation of many gifts for tax purposes will never be lower because of the current economic downturn. 

Valuation goes hand-in-hand with maximizing the $5.12-million lifetime gift exclusion. Asset values remain relatively low due to the economic downturn, allowing a greater portion of a business to be transferred and come under the $5.12-million tax-free ceiling at this time. Further, asset values are expected to rebound, adding to the case for making a gift now. In addition to current low market values, central to valuation for estate and gift tax purposes continues to be two key discounts: lack of control and lack of marketability. In gifting interests in closely held businesses to take advantage of the $5.12-million exclusion, three factors-low current value, lowered further by discounts for lack of control and marketability-are now in favor of donors but may not remain so. In addition to the economy starting to improve, various proposals to circumscribe certain valuation discount techniques, such as the family limited partnership, may start to move through Congress, giving additional reason for moving a gift plan forward at this time.

If used properly, a program of gift-giving can benefit everyone involved. The fact that recent changes to federal estate and gift taxes may be expiring at the end of 2012 makes it all the more important for you to consider how a gift giving plan can be advantageous now.

If you have any questions about the best way of using gifts as part of your overall financial plan, please contact one of the professionals at Pritchard Osborne.

September 14, 2012

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