Common Gifts And Factors Influencing Their Value

The American Taxpayer Relief Tax Act of 2012 (the "Act"), enacted on January 2, 2013, ended an 11 year period of uncertainty relating to estate tax exemptions and rates by making the agreed upon exemptions and rates "permanent". [1]

For those of you who still have the assets and inclination to make gifts in 2013, we offer the following summary to help you identify potential assets to gift and factors influencing the value of the gift.

Brief Background on Gift Tax

IRS defines a gift as "any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return."[2] A gift may be taxable or nontaxable. Gifts are generally taxable for IRS purposes except in the following cases:

Gifts that are not more than the annual exclusion for the calendar year; Gifts to a political organization for its use; Gifts to charities; Gifts to one's (U.S. citizen) spouse; and Tuition or medical expenses one pays directly to a medical or educational institution for someone. Under current law, an individual can transfer up to $5.25 million (as of 2013, and inflation-adjusted) over his or her lifetime without being subject to the gift or estate tax. This is referred to as the basic exclusion. However, an individual can also transfer up to $14,000 tax-free under the annual exclusion.

Types of Gifts

The types of assets that an individual can gift are numerous and diverse. The table below compares some traditional and non-traditional assets that can be gifted outright.

Traditional Assets Non-Traditional Assets Cash Life insurance policies and annuity contracts Publicly-traded stocks and bonds Patents and other intangible assets Real estate Promissory notes Jewelry and gems Qualified conservation contribution [3] Art and other collections Vehicles such as cars, boats, and aircraft Other personal property In addition to gifting assets outright, an individual can gift a fractional interest in an asset or entity. Examples of fractional gifts include the following:

Fractional Gifts Interests in closely held operating businesses Interests in entities such as Family Limited Partnerships and Limited Liability Companies that hold investments and/or real estate "Vertical slices" of private equity/hedge funds Oil and gas interests Undivided interests in real estate Undivided interests in art Factors that Impact Value for Fractional Gifts

Market prices, cash flow expectations, and risk can obviously affect...