Lifetime Gifts: Non-Tax Considerations

In some cases, a lifetime gift is inappropriate, either because of the size of the prospective donor’s estate, the donor’s age, or the nature of the estate assets. It is important, therefore, to consider whether large gifts are contraindicated.

Size of Estate an Important Factor

Examples one sees of lifetime gifts commonly involve people of wealth. Lifetime gifts are seldom the solution to the estate planning problems of the persons who own a modest estate.

Fixed rules cannot be established dictating when a gift should or should not be made, but it may be stated as a general proposition that the greatest advantages of the lifetime gift accrue to large estates, and that the advantages diminish and the disadvantages increase as the estate grows smaller in size.

Age

The younger person does not know what problems may arise in the years to come; what needs for cash or property may present themselves. Properties given away now may prove to be the ones required for future needs. The uncertainty of the future makes it difficult to determine how far to proceed with a lifetime gift program. For younger persons it may be wise to consider hedging with life insurance owned by an irrevocable life insurance trust.

Nature of Estate

The nature and character of the estate retained by the donor may enter into the picture from the lifetime gifting standpoint. Larger gifts might be justifiable where the donor retains conservative investments of relatively stable value and income-producing ability, than could possibly be justified where the estate consists principally of speculative business interests. Lifetime gifts must be carefully considered when the donor’s assets are not sufficiently diversified to assure stability of values and income, and particularly when those assets consist principally of business interests in partnerships or close corporations whose future is not certain.

Relationship of the Gift Beneficiaries

Another factor to be considered is the relationship to the donor of the person who is receiving the gift. Particularly important in this connection is the stability of the relationship between the donor and the donee. Gifts have been made to children who later became estranged from the parents and put the donated property to a use detrimental to the interests of the parents or themselves. The future of family relationships is hard to predict in some instances; and in any case, a lifetime gift program must be considered carefully.

Underlying Problem Lies in Uncertainty of Future

A prospective donor should realize that, in order to obtain the tax benefits from a lifetime gift, he or she must make the gift irrevocably. And such an irrevocable step should not be taken lightly, or without the assurance that what is left after the gift will meet all future contingencies.

One potential solution for solving the dilemma of giving away money that you might need is through the utilization of Spousal Limited Access Trusts (SLATs).

Neither foresight nor imagination can predict what the financial conditions or family circumstances an individual may be in later years, or what changes will be made in the tax or other laws. Unfortunately, some individuals who have made outright gifts of property or created irrevocable trusts have later found themselves unable to respond to changed financial, legal or family conditions. A lifetime gifting plan must be pursued carefully. The preceding discussion has been presented not with a view towards discouraging the making of large gifts, but rather in order to point up the kinds of questions that ought to be asked before such gifts are made.