cheapgurus.com

Advertisment

The economy has experienced substantial volatility over the past 18 months. Many common economic indicators such as the stock market, unemployment and real estate prices continue to reflect a significant level of uncertainty.

With the dramatic fluctuation of the market and other unsettling economic developments, uncertainty can breed irrational decision making. During good times and bad, those who are properly prepared and have a clear plan are going to be the ones who have the best opportunity for success.

The Time to Gift

What steps can you take in the midst of the current recession that can have a positive financial effect? One serious consideration for many surrounds gift and estate tax planning. When you are planning to make a significant gift or transfer a portion of your personal wealth there are two common key questions: 1) Is this the right time to make a gift? 2) Do I need to get an appraisal?

When contemplating if now is the right time to make a gift, consider these two current facts as they relate to estate and gift tax planning:

A.Values are down ? The simple truth is that lower values of business interests (i.e. common stock or ownership units in a privately held business) provide greater flexibility in gift and estate tax planning, and result in greater overall tax savings.

B.Government has changed ? One major piece of legislation that threatens certain gifts is the Certain Estate Tax Relief Act of 2009, H.R. 436, also commonly known as the Pomeroy Bill that recently passed through the House on December 3, 2009. If it is also passes through the Senate to become law, this bill will negate the lack of marketability discount in certain instances, which has a significant impact on the valuation of certain gifts and estates.

The Value of Your Gift

It is common knowledge that when you make a gift of a closely held business interest (nonpublic stock or ownership interest), lower values have more tax advantages than higher values. Therefore, information and circumstances that result in a lower value translate into better timing for a gift, as compared to a time when the information and circumstances result in a higher value.

Generally speaking, at present, we have a vulnerable economic outlook resulting from poor recent financial performance in many sectors, declining values in real estate and a stock market that is now in a recovery after losing as much as 50 percent of its value. As a result, in many instances, values are down to their lowest levels in years, if not their lowest levels ever. While this may make it a bad time to sell investments, from an estate and gift tax planning perspective, it provides a great opportunity to gift business interests that have reduced values. However, with signs of recovery on the horizon, the window of opportunity is beginning to close.

Another timely consideration is the Pomeroy Bill. For gift and estate tax purposes, the bill disallows lack-of-marketability discounts for non-business assets when there is a transfer of an interest in an entity that is not publicly traded. The difference between the public and private markets is significant and can result in valuation discounts of more than 50 percent, depending on the facts and circumstances of the particular investment.

According to Jonathan Rikoon, a partner with Debevoise & Plimpton in New York City, and chair of the law firm?s Trusts & Estates Department, because of the prospect of H.R. 436 becoming law, ?There?s never been a better time in history to make gifts to family members.?

It?s Your Gift ? Wrap it Up

The current economic downturn and potential gift and estate tax law changes mean a current gift could benefit in tremendous comparative overall tax savings. Substantiating the fair market value of your gift on the associated income or gift tax return is a requirement under the full and adequate disclosure provision.

A qualified, independent business valuation specialist is the best choice for properly calculating and reporting the fair market value of your business interest.

It is said that ?every cloud has a silver lining.? History tells us, however, that the clouds do not linger forever and when the clouds leave, they take those silver linings with them.

---

PS&Co. is San Antonio’s leading accounting firm for business valuation. Find out how to get the conversation started at: http://padgett-cpa.com/business-valuation.php

Tags: accounting, and, benefits, bil, Business, estate, firm, gift, planning, pomeroy, tax, trusts, valuation