In a recent article for Forbes Magazine, Deborah Jacobs examined the implications of the estate tax lapse and the uncertain economy for the gift tax. She indicates that the following five tricks may reduce gift tax burdens in the current climate:
- Lending: Family members making interfamily loans are legally obligated to charge a minimum interest rate called the Applicable Federal Rate. Jacobs points out that this rate though is often cheaper than that which would be offered by a regular lender but higher than the rate that is made on CDs or money market accouts--amounting to gains for bother the recipient and giver.
- Selling: With asset values down, it is advantageous to establish a trust and sell to it at with the lower prices.
- Establish New GRATs: Says Jacobs,
- Revisit Existing GRATs
- Charity: Says Jacobs,
Grantor retained annuity trust allows someone to put assets into an irrevocable trust and retain the right to receive distributions back over the trust term.
Current low interest rates and depressed asset values also make the charitable lead annuity trust especially appealing for some people. This structure resembles a GRAT except that the initial payout is to one or more charities rather than to you. After that, the remainder goes to family or friends.
Posted by Joshua Hock, Associate Editor, Wealth Strategies Journal
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