As inflation rises to its highest level since 1981 and interest rates continue to increase, now is a good time to reconsider certain gift strategies that work well in this economic environment.
Gifting to an irrevocable trust for the benefit of loved ones is a great way to remove appreciating assets from your taxable estate while also protecting those assets from potential creditors and divorce. When interest rates are high, certain variations of this technique can be utilized to increase the overall benefit. Below are two of those strategies, each designed to increase the value of gifting by moving appreciated assets outside of the taxable estate at a reduced IRS value, thereby preserving more estate and gift tax exemption for future use.
Reach out to see if any of these strategies could work for you:
- Qualified Personal Residence Trust (QPRT): designed to receive a gift of a personal home. The IRS values the gift at less than the current value of the home because the person making the gift reserves the right to live in the home rent-free for a period of time they select, such as 10 years. If the donor survives the term, then the home and all appreciation pass down to the next generation.
- Charitable Remainder Trust (CRT): designed to receive a gift of appreciated assets that, once transferred to the trust, can be sold and used to generate an income stream for the donor for a period of time the donor selects, such as 20 years. The donor can take an income tax deduction at the time of the gift based on what is expected to pass to charity in the future. At the end of the trust term, any remaining trust assets pass to the charitable organizations named in the CRT and are excluded from the donor’s taxable estate.
Be sure to understand all the products and tools available to protect your estate by meeting with knowledgeable legal counsel.