Taxation & Estate Planning

Making Gifts in Tough Economic Times

By Joel A. Schoenmeyer

Professor Beyer has a post (here) about why a bad economy is a boon for estate and gift planning.

The idea can be a fairly simple one. You believe stock in company X is undervalued, so you either give your shares in company X to someone (let's say your daughter), or you give your daughter money to buy shares. In either case, your daughter's buying power has increased because the market and company X's stock price have tanked. It's like the old broker's saying: "stocks are on sale." Hopefully, by the time your daughter needs the money, there will be a seller's market.

Let's take a more concrete example. You are convinced that GM is going to rebound. It's currently at $6.19 per share, and you think it will eventually (maybe in 5 years, maybe 10 or even 20) get back to $50.00 per share. You don't want to file gift tax returns, so you and your spouse decide to give your daughter shares of GM equal in value to your annual gift tax exclusion (currently $12,000 for each of you). That's 1938 shares each (or 3876 total shares). You make the gift, and GM goes to $50.00 per share. Your gift to your daughter is now worth $193,800!

Of course, the problem with making a gift like this in times like these is the psychology. It's already difficult for people to get over the idea that, if they make a gift, the gifted property is permanently gone. Add on the fact that many people feel like any current market conditions are somehow different than what we've seen in the past (this recession/depression will never end, house prices will always go up, etc.). The bold can make a lot of money at times like these, but are you really bold enough to act now?

Full post as published by Death and Taxes Blog on October 23, 2008 (boomark / email).