A silver lining to asset values decreasing? I must be crazy! I may be crazy, but I promise you it has nothing to do with this topic. The silver lining is this – with assets (property, business interests, etc.) at their current depressed values, there is the opportunity to transfer those assets and reduce the tax-related consequences. Fair Market Value (FMV) largely determines the tax liability incurred by gift or estate transfers. Typically, the lower the FMV of an asset, the lower the gift or estate tax liability associated with the asset. Because many assets have lost considerable value over the past 12-24 months, you may be able to transfer the asset with a much lower (or possibly no) tax liability.
For instance, let’s say you have a vacant piece of property you have been planning on giving to an adult child who wants to build his or her first house. The value of the land 2 years ago was $20,000. It currently appraises at $12,500. It may be advantageous to transfer it to the child now to take advantage of the $13,000 annual gift tax exclusion. Many businesses have lost value in these turbulent times as well. There are planning methods that can lock in the current value for purposes of transferring ownership interests in the business. This may be particularly appealing to closely held businesses.
These are just a couple of examples of the benefits of the current depressed asset values. The list of estate and gift planning benefits provided is too numerous to give them all here. Please feel free to contact me if you would like to discuss the potential benefit to your family or your business.