It’s that time of year again. Not only is Santa Claus coming to town, but the kids and grandchildren as well. In the spirit of St. Nick, do you know what your clients’ year-end gifting plans are? If not, now is an excellent time to approach the subject of charitable gifting with each of your affluent clients. With the repeal of the estate tax still in flux, your affluent clients should be employing gifting strategies to reduce their overall estate tax burdens. There is no guarantee the estate tax repeal will be made permanent or that it will even occur in 2010 (the Democrats’ ascendancy in Congress following last month’s mid-term elections makes permanent repeal anytime soon even more dubious), or that a given client would survive until 2010. So, if you are not addressing this issue, your clients may miss out on effective ways to transfer wealth to their families or charities.
Let Me Count the Ways
There are a variety of ways for your clients to gift. Many individuals prefer to make outright gifts; others find it advantageous to make gifts by retaining an interest so that an income stream is created for them for a specified period of time.
But, as with any financial planning strategy, understanding your clients’ specific objectives is crucial. To understand your clients’ current objectives and the solutions that would best fit their needs, you could use the following four questions to draw that information from them:
1. Why do you want to make this gift? Is it because you wish to:
- Reduce potential estate tax
- Help someone achieve a specific goal
- Leave a legacy
2. When do you want to make the gift?
- Over the course of a lifetime
- Upon death
- Combination of the two
3. How much do you want to gift?
- 100% of value
- A specific amount
4. How much control do you want to retain?
- Outright gift (relinquish all control)
- Place in a trust or some other financial structure (which allows for some donor control)
As you are well aware, for a transfer to be considered a gift requires that the donor let go of control of the assets. To help your clients avoid gifting remorse, make sure they are comfortable with the amount they have in assets and can afford to gift. Many people do not gift because they believe they are unable to afford it. Alternately, they may shy away from gifting because they do not fully understand the tax benefits, deductions, or when they may need to file the appropriate return. (See “Filing a Gift Tax Return” sidebar.)
Affluent clients may believe that they need to keep all their assets available to ensure care for themselves through an extended retirement or in case of serious illness. You will need to encourage such clients by illustrating how gifting strategies may benefit them, including estate tax savings, and the probability of achieving all of their goals with a gifting plan in place.
Gifting for the Tax Benefit
The definition of a gift is pretty simple: a gift is giving property (including money) or the use of or income from property, without expecting to receive something of at least equal value in return. If donors sell something at less than its full value or make an interest-free or reduced-interest loan, they may be making a gift.