Gifting stock can be an excellent way to share the wealth during your lifetime. Under the current circumstances, it's also an effective way to put a positive spin on declining stock prices, especially if the recipient is in a lower tax bracket (the long-term capital gain rate is currently 0 percent for taxpayers in the 15 percent ordinary income tax bracket). One caveat: If your stock is worth less now than what you paid for it, it might be better to sell the stock and give the cash. This way you can realize the loss to offset any other capital gains.
Use Declining Home Values To Save On Gift and Estate Taxes.
While younger homeowners holding big mortgages find little positive in the recent decline in home values, older homeowners may see a silver lining. That's because now may be an excellent time to give their property to their kids and save significantly on gift and estate taxes. This doesn't force Mom and Dad out of their house. It merely gives them an opportunity to remove the home's value from their taxable estate through a qualified personal residence trust (QPRT).
A QPRT is an irrevocable trust that allows you to live in your home for a certain number of years before passing it on to your heirs.
How it works:
-- You choose the term of the trust -- 10 years, 15 years or any length you want -- and continue to live in the home and pay all expenses during that time.
-- Your home is moved out of your taxable estate.
-- At the end of the term, the property is transferred to the beneficiary(s) of the trust, for instance your kids.
-- If you wish to remain in the home at the end of the term, you can pay a fair rent.
Why it makes sense:
-- If you set up a QPRT now when prices are low, you'll lock in a low-gift tax rate. Because of how the IRS calculates the value of your home for a QPRT, your gift may very well fall within the $1 million lifetime gift exclusion, so chances are you won't pay any gift tax at all.
-- Your kids will benefit from future appreciation of your property, but won't pay any inheritance taxes on it.
There is one catch however. If you die before the end of the term of the trust, your home reverts back to your estate. So plan carefully, and choose a term that you feel confident you'll outlive. An estate tax attorney can help you decide if a QPRT makes sense for your situation and how best to set it up.
These positive moves may not be right for everyone, but they're certainly worth considering. At the very least, you'll be looking closely at your alternatives and deciding how to make the best of today's stormy financial climate. When the sun finally comes out, you'll be glad you did.