|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
 |
Katt & Company is a national fee-only life insurance advising firm. The June 2002 Forbes magazine, and a July 16, 2003 Wall Street Journal article, name Peter Katt as one of only four nationally recognized advisors. The Forbes article states that, "…advisers are well worth the money… These savants are working for no one but you…" For references please contact us. Gifting and Gift Taxes "If you are convinced that estate tax repeal isn't going to happen, it is a good time to turn to gifting that has inherent advantages and also the substantial benefit that it may mean more split dollar arrangements can finally be put right and fewer life insurance sales will be completed using premium financing." I have been a closet gifter for decades. Knowing that there aren't many of us I have largely remained silent (outside my client work). But a discussion last week with a major life insurance company advance planning attorney about the great benefits of gifting and the dismal political prospects for estate tax repeal compels me to come out. And by coming out I am referring to gifting that requires the payment of gift taxes. No limiting gifting to annual exclusions and using credits for me. As most of you know the amount of the gift tax isn't counted when the gift is valued. A $1,000,000 taxable gift will incur taxes of $435,000 (2011) for a total cost of $1,435,000. Let's say this gifted cash earns the same outside the estate as inside (6%). The net $1,000,000 gift has an-after-transfer-tax value in 10 years of $1,790,848. If no gift had been made the estate retains $1,435,000 that has an estate value in 10 years of $2,569,866 that is subject to estate taxes of $1,258,426 leaving heirs with a net of $1,311,440, or $479,408 less (37%) than if the gift had been made with the payment of the gift tax. Except for a disconnection between the mostly unified estate and gift taxing system, gifts provide excellent estate planning. Gift tax aversion causes problems that I see frequently in my fee-only life insurance practice in the form of split dollar and premium financing messes that get compounded in later attempts to unwind them with even more exotic methods intended to continue avoiding having to pay gift taxes. Whenever possible we confront these situations by analyzing the advantages of stepping up to the plate and making the level of gifts needed to clear up debts and paying the taxes that allow the policies to become financially sound. If nothing else this will free up clients and their advisors from having to spend many hand-wringing hours trying to deal with situations that don't have good solutions until the gifting is done. The dislike of taxable gifts can cause clients to miss the good planning opportunity of continuing to pay participating whole life premiums rather than their fondness for having the premiums offset by dividends. A review several years ago of a policy using premium offset showed that if the $280,000 annual premiums were paid, with gift taxes of $170,000, the increase in the death benefits and the gift /estate tax differences produced a $1,000,000 net advantage at the client's life expectancy in 11 years. If you are convinced that estate tax repeal isn't
going to happen, it is a good time to turn to gifting that has inherent
advantages and also the substantial benefit that it may mean more split
dollar arrangements can finally but put right and fewer life insurance
sales will be completed using premium financing.
|
|
||||||||||||||||||||
