The reason: low interest rates and depreciated assets.
For this post, consider low-valued assets in estate planning. The U.S. federal estate tax is actually a two-tiered system, resting on both estate and gift taxes. At least at present, the unified amount that one may give away in lifetime gifts or after-death bequests without facing taxation is $5 million.
When assets - such as stock or real estate - are depreciated, gifting is an exciting way to estate plan, especially if one supposes the assets may rebound in value in the future. The reason is that one can fit more assets under the $5 million threshold than one could in the past.
Suppose a simple cas where an individual is 70 years old and had $12 million in assets four years ago that are now worth $7 million. $5 million of those assets may be gifted to heirs now. In another five years, the equity and real estate markets may have digested the toxicity they're presently ailing from, and the $5 million may be worth $8 million. The individual has effetively gifted away with no tax hit far more than s/he could in better economic times.
Consider too that the estate and gift tax exclusion of $5 million is presently set to endure only until the end of 2012. After that time, it's anybody's guess where Congress will reset the threshold. But the smart bet is that, even if it's reset to $2 million, Congress will not retroactively declare that gifts during the 2011-2012 window taxable.
Low asset valuations, therefore, may have come at the ideal time for gifting to family. In two years, we may see high valuations and a low gift tax exclusion, effectivly closing the door on such aggressive gift planning for an indefinite amount of time.
Tanner Pittman, LLC is a West Georgia and Atlanta-area law firm specializing in estate planning and complex planning to avoid estate and gift taxation for affluent individuals and families.