Gifting Tips

February, 2006

To get the maximum future value out of a future taxable estate, here are some gifting do’s and don’ts:

DO give appreciating property, or property with the greatest appreciation potential; keep the appreciation from adding to the giver’s taxable estate.

DON’T give cash, if possible, or assets that generate necessary income.

DO give early; start now and let the property’s value grow in the recipient’s hands.

DO take maximum advantage of the annual gift tax exemption; fully use every year’s $10,000 per recipient exemptions, and supplement them by paying educational expenses and health costs directly to the providers on behalf of the younger generations (these payments don’t count against the annual exclusion or the lifetime credit).

DON’T give away low-basis property if you are elderly (the tax basis of appreciated property is increased at death at no tax cost).

DO make leveraged gifts; gifts of life insurance, for example, have low current value, and low gift tax cost, but “blossom” to a much larger value after the giver’s death.

DO use a family partnership (or other entity) to fragment real estate or difficult property into gift-size “bites”. Family partnerships may also enable the giver to maintain some control over the property.

DON’T give away property that is heavily mortgaged, or negative capital account partnership interests; this will generate income taxes to the giver.

Making tax-smart gifts can significantly reduce a taxable estate, and allows the giver to enjoy his generosity.