|
Making a lifetime gift is often the most effective way to reduce estate taxation. Economic necessity will temper one's willingness or ability to make significant lifetime transfers of wealth. It is common practice in the design of a financial plan to model the asset base and cash flow requirements of a potential donor before making significant gifts. This is a simple, but practical step used to give up control of the assets.
Gifts can be made outright or in trust. The basic benefits of gifting include:
-
Shifting the income and growth of an asset out of a higher income tax bracket;
-
Shifting growth out of a high estate tax bracket;
-
Tax leverage. Even though the estate and gift tax rates are the same, the calculation process favors lifetime transfers (see the table above);
-
Allows a "testing ground" for future management skills.
|
