Why would anyone want to make a gratuitous transfer of property during his lifetime when such a transfer is highly likely to have one or both of the following consequences?

The answer to the foregoing question has both a tax and a nontax aspect. First, the owner who is transferring the property (known as a donor) wants to benefit the recipient of the transfer (known as a donee) by giving the donee either the title to or beneficial enjoyment or use of the property. Second, even if the donor will incur a gift tax, he is willing to do so to avoid an even larger estate tax on the property at death after it has appreciated in value. Also, the donor may be seeking to shift the flow and/or taxation of the income from the property to the donee. These income tax objectives also have an ultimate estate tax benefit because the donor’s estate at death will not include the income from the gifted property.

To ensure that this trade-off of gift tax cost versus estate tax benefits results in a net gain for the client, you must have intimate knowledge of the federal gift tax and its relationship to the estate tax.

About the Author

David Mannaioni, CFP®, MPASSM is a professor at the College for Financial Planning. Utilizing his 30+ years of experience in the financial services industry, David also maintains a financial planning practice where he works with his clients in all areas of financial planning. In addition to his certifications, David holds life and health insurance licenses in several states, as well as the Series 6, Series 7, and Series 63 registrations with FINRA. You can contact David at david.mannaioni@cffp.edu.

Complexity Level: Overview