Estate planning techniques for today's economy.

• Author: Joseph, Donita M.

Estate planning techniques regarding the transfer of assets to heirs are especially beneficial now that interest rates are low.

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The following tactics can help your clients to minimize taxes, review their estate plan, make adjustments to their plan based on market conditions and values, and initiate an estate plan to protect their beneficiaries. These techniques are not all encompassing, but are some of the most frequently recommended to clients.

Make Gifts of Assets While the Values are Low

By gifting assets now when real estate, securities and other assets are are valued lower than they have been in the recent past--clients can take advantage of a correspondingly reduced gift tax.

If the gifts at death are large (more than $1 million) and would trigger a gift tax, consider that large lifetime gifts can be more advantageous than leaving assets to beneficiaries at death. This is because gift taxes paid on gifts more than three years before the donor's death are not includable in the donor's gross estate, which makes the gift lax rate about 30 percent less than the estate tax rate [IRC Sec. 2035(b)].

Since the estate tax is tax-inclusive, estate taxes are paid on the assets used to pay the estate taxes, similar to federal income taxes. By contrast, the gift tax on gifts made more than three years before death is tax-exclusive. The gift tax is based on the value of the property gifted without adding to the gift the amount of the gift lax paid. Also, gifts produce tax savings that cannot be achieved through transfers at death because any future appreciation after the gift is made, and income from the gift, escapes taxation.

Gift Partial Interests in Property to Take Advantage of Discounts and Leverage Lifetime Gifts

For example, Mom gifts an undivided interest in an asset directly to Son or trust for the benefit of Son. A 50 percent interest in a piece of property is worth less than 50 percent of the- total appraised value of the properly. Because Mom is giving away less than 100 percent of her property, a fractional interest discount can be deducted from the value of the property. Therefore, a donor can gift more with less .gift tax cost.

Example: If the properly was worth $500,000, but a 50 percent interest was only worm $212,500 $250,000 less a 15 percent discount), the portion subject to gift tax would be $212,500, not $250.000.

Gift Interests in a Family LLC to Take Advantage of Discounts and Leverage Lifetime Gifts

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