Taxable gifts are back
20/08/2008
Practitioners are well-aware that lifetime gifts are more tax-efficient than transfers at death. But during the past seven years there's been a possibility that the estate tax might be permanently repealed, so it's been out of vogue for practitioners to advise clients to make taxable gifts that exceed the lifetime gift exemption and require tax payments.
Now that permanent repeal of the estate tax seems ever more unlikely, taxable gifts are making a comeback.
Donors, especially older parents who wish to make substantial lifetime transfers to their children, can make those transfers using a technique that reduces the gift tax payable in connection with the transfer.
This technique, which is a variation on a traditional net gift, requires the donee to assume liability not only for the gift tax attributable to the gift, but also for the contingent estate tax liability that arises under Internal Revenue Code Section 2035(b) if the donor dies within three years of making the gift. We call this technique a “net, net gift.”
