The opportunity starts with the much-maligned Estate Tax Credit. Rail if you must, curse if you’d like. But its disappearance doesn’t appear on anybody’s agenda.
So you can presume that the Tax Credit is either going to (a) stay at $5.12 million; (b) shrink to $1 million; (c) end up somewhere in between; (d) head up GA Hwy. 372 towards Ballground, GA.
It doesn’t really matter. But what could make a big difference to you is if you’re holding on to assets which produce income that you’re not spending or using.
Example: you own voting control of a business. Ask yourself: what’s the difference between owning 90% or 51%? You still run the show. You and your accountant can figure out how to take what you want when you want it anyway.
So if that stock is worth $5 million, why leave all that out there, where it will be subject to the estate tax?
Or the reverse: you own less than 50% in some real estate thing, and so you’ll never, ever have voting control in it. You’re hoping it will go public or the company will be sold, either of which would be great. But if neither happens, the value of those holdings will be taxed in your estate.
Or how about that family land which you and your family enjoy? Do you really have to own 100% when you die, which means your interest will be appraised and then taxed?
The bottom line: if you die with an asset you don’t need, its value will be taxed at 35% or 45% or whatever serious tax rate number Congress then levies.
No, no, you’re not limited to giving assets away. Yes, that “$13,000 per person per year” gift limit still applies, and so does the $5.12 million window.
But making gifts has a built-in tax boomerang; see “Running Basis, Ruining Basis” in the May, 2007 Smoke Signals, or email me for a copy.)
Instead, peace will guide the planets and love will steer the stars if you consider something different: sell that asset to your heirs.
You can do it without having a capital gain. And there’s no dollar limit.
Best of all, you sell it to your family members – or a trustee for them – via a note with an absurdly low – and IRS-decreed – interest rate.
Try this: take non-marketable interests in a venture owning real estate. Sell them to the trustee of a trust for your children (or your spouse? your parents? your grandchildren?).
If those real estate interests are worth $500,000, the trustee can buy them from you with interest payment of $1,050.00 a year.
That’s no typo: pay interest at 0.21% for three years. Or 0.84% on a loan of up to nine years . . . that interest payment would be $4,200.00 a year.
Where’s the catch? IRS announces a new interest rate each month. The above numbers are for loans closing in September. By the time you read this, the October rates will be announced.
But historically, the rates have been low and going lower each month.
We just don’t see this happening forever. And that $5.12 million amount is slated to vaporize on December 31.
So here we sit: Jupiter (i.e., taxable assets which don’t have to be estate-taxed) is aligned with Mars (i.e., those assets which can be bought at incredibly low rates).
Why not find out more if you think these gift or sale strategies may apply to you or whoever you’ll inherit from?
Peace and love, gang. And tax savings.