There are several important situations occurring that may cause some very favorable gifting opportunities to close.

Interest Rates

Many gifting techniques come right from the Internal Revenue Code ("Code") that mandates the use an interest rate which the IRS posts every month. This interest rate is at historical lows due to the current economic conditions.
In a previous posting to the Miller Cooper & Co., Ltd. website , we discussed how the recent decline in asset values creates an opportunity to transfer property at lower gift tax values. An example discussed the use of a Grantor Retained Annuity Trust which is keyed to an interest rate determined by the IRS on a monthly basis. The rate used in the article was 3.6% which was the November 2008 rate. The April 2009 rate is only 2.6% which has risen from a February 2009 rate of only 2.0%. Lower interest rates yields greater discounts and therefore less gift and estate tax consequences.

The Code mandates the use of this interest rate in various gifting techniques. Since the interest rate is currently so low, you should explore these opportunities and take advantage of the economic situation in which we find ourselves. This rate is starting to climb and as recently as 2007, the rate hit over 6%!

Discounting

When gifting certain assets, tax planners look for ways to lower the gifted asset values so that you will not incur a high gift tax, if one at all. Discounting is a technique where varying ownership attributes are valued as to their degree of control, liquidity and marketability. If our ownership attributes are restricted, it is common for the stock to be valued at a discount

As an example, if you own 40% of the stock in a company, but someone else owns 60% and can out-vote you, you own what is commonly referred to as a "minority interest." Your 40% ownership is probably worth proportionately less than the other 60% since you do not have any affective say in company matters. Similarly, if your stock is restricted in that you cannot cause the company to be dissolved or sell it to others, the value of your ownership is most likely worth less than 40% of the value of the entire company.

Congress currently has a bill in the Committee on Ways and Means (H.R. 436) which in general, proposes to only allow discounting for ownership that is "actively traded." For any privately held business, only assets that are "used in the active conduct" or are "reasonably required working capital" of the business may qualify for potential discounted values.

This proposed bill would be effective for transfers made after the date of enactment. Therefore, the use of discounted values may soon become very restricted or for all practical purposes, eliminated if and when this bill is signed into law.

Low interest rates and discounted values may become a thing of the past as time passes so act now to take advantage of the currently laws.

Please contact Mitch Pawlan, Principal at mpawlan@millercooper.com to explore these and other estate planning opportunities.