Formula Gifting – A New Concept

Many people are considering making substantial gifts to their children or grandchildren this year to take advantage of the current, historically-high lifetime gift tax exclusion.  There is a new approach to consider: “Formula Gifting”. 

In “Formula Gifting” the gift is defined as an amount rather than a specific asset or percentage of an asset.  For example, the gift could be defined as $3,000,000 worth of a family limited partnership (FLP) instead of 25% of the FLP.  The reason to do this is that gifting assets without a definitive market value involves valuations, which can be challenged by the IRS.  By using “Formula Gifting” if the IRS is successful in challenging the value of the gift, the donor will avoid any increase in gift tax.

Gift planning is a very important tool in 2012.  “Formula Gifting” is a new concept which is complex and requires careful planning, documentation and execution.  We will be discussing gift and estate tax planning including “Formula Gifting” at our year-end tax seminars.  The times and locations of the seminars will be posted shortly on our website. If you have any questions prior to that, please contact our Tax Department at (781) 407-0300.

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