Academic journal article Journal of Accountancy

Estate Planning Strategies

Academic journal article Journal of Accountancy

Estate Planning Strategies

Article excerpt

Making gifts during a taxpayer's life.

Given the complexity of the Internal Revenue Code, many estate planning techniques can be used to lower (or eliminate) the tax burden over the course of an individual's life. One method taxpayers can use is simply taking advantage of lifetime-giving opportunities through the annual exclusion amount, the applicable estate and gift tax exclusion and taxable gifts.

Lifetime-giving techniques can work for all taxpayers, but are probably best for those with small estates as they can avoid the costs often associated with more sophisticated planning. These strategies can also significantly benefit high-net-worth clients, especially if combined with other (more involved) planning.


Every taxpayer may transfer up to $10,000 each year to any donee, free of estate and gift taxes; these amounts are not counted against the applicable exclusion amount. There is no limit on the number of permissible donees; a taxpayer can give as many of these gifts as he or she wishes. (Note: The annual exclusion amount is indexed annually for inflation, but only in increments of $1,000. It did not change for 2000 and 2001.)

In general, a married couple can elect to treat a gift as if each gave half, thus doubling the benefit and making it possible to give $20,000 each year without tax consequences. Note, however, that if a husband and wife elect to split gifts, this election applies to all gifts made by both spouses during the year to third parties; they cannot decide to split only the annual exclusion gifts and not others.

Valuation discounts. If taxpayers use the annual exclusion to make gifts of property other than cash (for example, real estate or an interest in a family-owned business), discounts for minority interests or for lack of marketability may be available, thereby allowing for the transfer of larger business interests. The donors would need to document these discounts and also adequately disclose them on a gift tax return. …

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