Leveraged Gifting: Now is the Time!
December 2, 2010
Economic conditions have created depressed values. When abnormally low values are combined with historically low interest rates and available discounts, the result is an extraordinary and optimal time to transfer interests.
The “Perfect Storm”:
- Uncertainty in expected earnings is affecting value. Current revenues and profits are suffering, and growth expectations remain low.
- Realities and perceptions also affect value. Some industries or companies are struggling more than others; some are simply perceived negatively.
- Financing remains tight, which contributes to lower equity values.
- Mergers and acquisitions have increased; valuations are just beginning to rebound.
- A down economy exacerbates normal risk factors for capitalization rates.
- Proposals in the past year have threatened to disallow certain valuation discounts.
- An absence of ready market in which to liquidate investment contributes to higher marketability discounts; various marketability discount factors can be stressed during hard times.
- Interest rates are at historic lows.
- Small business sentiment is still at very low levels.
Some examples of leveraged gifting include:
- Gifts outright or in trust of depreciated and/or discounted assets
- Maximized annual exclusion gifting
- Funding of credit shelter trusts to greatest extent possible at death of first spouse
- Life insurance, particularly purchased within an irrevocable life insurance trust
- Generation-skipping transfer tax-exempt trusts
- Prepaying taxes for future generations (e.g., Roth conversions)
- Split interest trusts (charitable and noncharitable; e.g., CLTs, CRTs, GRTs)
- Sales to defective grantor trusts
- Dynasty trusts—appreciating assets over numerous generations, avoiding gift/estate tax
Contact your Wipfli relationship executive or Pam Schneider at 920.662.2864 with any questions or to take advantage of this fleeting opportunity for leveraged gifting.
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