Gifting Strategies

Inter Vivos Gifting
An inter vivos gift is one that is made while an individual is still alive. It is a great way to reduce the taxable estate – since the individual no longer owns the property when they die (though it may be subject to taxes if it is made during the three years before that individual's death, in accordance to section 2035 of the Tax Code). Gifts that exceed an annually determined, permissible amount are subject to income taxes if they are made to someone other than a spouse or qualified charity. Gifts below that amount are excluded on to the extent they qualify and are a gift of present interest (see below.)

Gift-Giving Techniques and Strategies
For gift tax purposes, a gift can be broadly defined to include a sale, exchange or other transfer of property from one person (the donor) to another (the recipient) without adequate and full consideration.

Common types of gifts can include:

  • Cash, check or other tangible item
  • Transferring title to stocks or real property without receiving anything in exchange of value
  • Forgiving debt
  • Below market loans

Appropriate Gift Property
To take full advantage of gifting strategies discussed in this section, it is most advantageous to gift property away that will appreciate substantially in the future, especially if it hasn't increased in value already. The basic principal behind this idea is that giving away property that will increase substantially in the future will exclude its present worth from the donor's estate, and also eliminate future appreciation from the estate as well.

By contrast, gifting away property that has already increased significantly in value is not as advantageous. The principal behind this is that the recipient will have the same tax basis (called carry over basis) in the property as the donor did. If the recipient were to inherit (after death) rather than receive a gift during the donor's life, the recipient obtains a basis that is stepped up to the fair market value of the property at the time of death.

Life insurance is also an excellent gift for a donor, as is out-of-state property (avoiding ancillary probate).

Strategies for Closely-Held Business Owners

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