Commentary: As 2010 fades away, so do some estate opportunities

The old adage that there is “no time like the present” has never run truer than the end of this calendar year in terms of estate planning opportunities. As families look forward to a season of gift giving, perhaps the greatest gift they can give themselves is sound, practical financial footing. In that spirit, here are some time-sensitive opportunities to take advantage of before the New Year.

’Tis the season for gifting

Currently at 35 percent, the gift tax rate is the lowest it has been since 1934, but barring Congressional action it will rise to 55 percent next year.  This fact, when combined with the temporary repeal of the generation-skipping transfer (GST) tax during 2010, means that there has never been a better time, nor will there likely be a better time in the foreseeable future, to transfer wealth.

Gifts to grandchildren are particularly appealing right now as a person wishing to give a grandchild $1 million would pay $350,000 in taxes in 2010 rather than approximately $1.4 million in 2011, assuming the donor had utilized her $1 million lifetime transfer tax exemptions prior to making any gifts in 2010 or 2011.

Moreover, unlike gifts, which are tax exclusive, property passing at death is tax inclusive. Therefore, tax savings from making a gift can be significant when compared to the taxation of bequests, even if the tax rate is the same.  For example, assuming a gift and estate tax rate of 50 percent, a gift of $1 million would require assets of $1.5 million, whereas a bequest of $1 million would require an estate of $2 million.

Depressed assets

In addition to low gift tax rates, the current financial environment presents an opportunity to transfer assets that are currently appraised at much less than their future expected value.  Combine an already low fair market value with discounts available for the transfer of business entities and real estate, and significant amounts of wealth can be transferred with little gift tax.

Trust distributions

As mentioned above, the repeal of the GST tax in 2010 presents the opportunity to prevent estate taxation for several generations.  If you currently serve as the trustee of a trust that is not exempt from GST tax, you should consider making outright distributions to grandchildren or even great-grandchildren as in all likelihood this is a once in a lifetime opportunity that can save an enormous amount in transfer taxes. Know that if you are hesitant to make such an outright gift, the transaction may be structured so that benefits to the grandchild can be managed-for instance by using an LLC interest or nonvoting corporate stock.

One technique involving gifting that is particularly effective right now is the use of a Grantor Retained Annuity Trust (GRAT).  A GRAT is established by transferring assets into a trust for a specified length of time. You would then receive a fixed-dollar annuity payment during the trust’s term.  At the end of the term, any appreciation in the trust beyond the so-called “hurdle rate” (currently at an all-time low of 1.8 percent) is passed gift tax-free to your designated beneficiaries.  Therefore, if assets that are expected to have a sharp increase in value during the term of the GRAT are used, significant wealth can be transferred free of gift or estate tax.

CLATs and charitable giving

For the charitably inclined, the time has never been better for establishing a Charitable Lead Annuity Trust (CLAT).  A CLAT is structured similarly to a GRAT, but provides a charitable organization with the fixed-dollar annuity payment during the term of the CLAT with any assets remaining in the CLAT passing gift tax-free to your designated beneficiaries.  CLATs are particularly attractive as they can be designed to offer a large income tax deduction at their creation.

Low interest rate family loans

Given that interest rates applicable to intrafamily loans are at all time lows, taxpayers can make loans to family members, either outright or in trust, and shift considerable wealth to the younger generations. The Applicable Federal Rates published by the IRS are currently 0.35 percent for a loan term of up to three years and 1.59 percent for a loan term of up to nine years.  If the borrower invests the money, any appreciation will completely escape transfer taxation and will be taxed at the borrower’s potentially lower income tax bracket.

These are significant opportunities that may be available for a limited time only. With a new Congress set to be seated, it is anyone’s guess as to what the future tax law will bring.


Lara Gilman and Evan Abrams are attorneys in the Family Wealth Practice Group at Farella Braun + Martel LLP, a San Francisco law firm with a St. Helena office. Ms. Gilman serves as the group’s chair and counsels individuals and families on estate planning and succession planning. They can be reached at and or via the firm website:

Show Comment

Our Network

The Press Democrat
Sonoma Index-Tribune
Petaluma Argus Courier
Sonoma Magazine
Bite Club Eats
La Prensa Sonoma
Emerald Report
Sonoma County Gazette