KELLY FINANCIAL GROUP, LLC

Estate Planning During a Declining Market

A down market can mean tough times, but it can also present unique
opportunities to minimize property transfer (gift and estate) taxes. While owning assets that are losing value might seem like a bad thing, it may actually be a great time to reduce your taxable estate by giving those assets away. That’s because current low asset values and interest rates enable you to make gifts at a lower gift tax cost. And, when the market rebounds, those assets will be growing in your child’s (or other heir’s) estate and not in yours. Here are a few gift-giving techniques that take advantage of today’s depressing economic climate:

Basic gifting: You can give away up to $13,000 to anyone you
want, to as many people as you want, each year gift-tax free. This is
known as the annual gift tax exclusion. You can give away twice that
amount if both you and your spouse make the gifts together. And,
you can give away even more if you pay tuition or medical bills on
behalf of another person (you must make these payments directly
to the school or health-care provider).

Family loans: You can lend money to your children at the current
IRS minimum interest rate, and then forgive an amount equal to
the gift tax exclusion each year (the gift tax exclusion amount is
adjusted annually for inflation; $13,000 is the figure for 2009).

Grantor retained annuity trust (GRAT): A GRAT is a trust into
which you put assets that you expect will increase in value over time.
The value of the gift is determined using the IRS’s current interest rate. The trust must terminate at a specified time (e.g., 10 years). You receive annuity payments during the term of the trust, and at the end, your children receive the property. Hopefully, the assets will appreciate beyond the IRS’s interest rate, allowing the excess to pass tax free.

These strategies, and others, can turn this economic downturn into a mixed blessing. Consult your financial advisor to see which gifting strategy works best for your situation.

Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member
FINRA/SIPC and Investment Advisor Representative. Cambridge Investment Research Advisor, Inc. a Registered Investment Advisor. The Kelly Group and Cambridge are not affiliated.