If a person has the desire to make any gifts, now may be a great time to do so. There are sometimes financial benefits to making certain gifts. A tough economy is often the best impetus to make gifts. It may seem counter-intuitive at first—making gifts when the donor has less valuable property—but the conditions are really ripe for the picking.
- Interest rates are at historic lows. Low interest rates assist in two major ways. First, in loan transactions between family members, a lower interest rate can be used without the Internal Revenue Service seeking to impute interest under §7872. The rules for intrafamily loans are a bit complex, so make such loans very carefully. Second, for certain complex gifting strategies, the Internal Revenue Code requires that the donor compute the gift using rates based on current interest rates. Since the interest rates are so low, the IRS rates are also very low.
- Property values are down. While there has certainly been some rebound, property values are still depressed in many areas, and that will assist in determining the value of the donor’s gift. There is clearly an emotional component to gifting. So when a potential donor considers making gifts, he or she usually looks to see if he or she will need the asset later. If the conditions are not so clear, and the potential donor doesn’t feel that he or she can live without that asset, he or she is less likely to give it away. This is not unusual. However, emotions aside, the donor can minimize the transfer tax cost by making the gift when the value is low. This applies with a gift of any type of property, be it real estate, a stock portfolio, artwork, or anything else.
- The federal exemption is $5.45 million. Since the federal gift tax exemption is $5.45 million for 2016, up to $5.45 million can be gifted without any federal gift tax. This exemption permits an immense transfer of wealth without any gift tax consequences.
The combination of low interest rates, lower valuations, and the increased federal gifting exemption are a great combination for gifting. Many years from now, when we look back on this time, we are likely to see the alignment of these factors as an incredible opportunity to have made substantial gifts. The only question is: will potential donors take advantage of the opportunity?