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Gift Tax Valuations

Gift tax valuations and charitable contribution valuations are used for both philanthropic and tax planning purposes. For example, when Howard Hughes donated Hughes Aircraft to the Howard Hughes Medical Institute, it was to both fulfill his long-term objective of furthering medical research and to fulfill his immediate need of reducing federal income taxes.Gift tax valuations are prepared for many reasons. Gift tax includes market value of gifts to charity, market value of conservation easements and gifts in excess of annual limit. Well-reasoned planning of gifts can minimize gift taxes, income taxes, and estate taxes. Advanced planning is essential to minimizing estate taxes. In some cases, it requires planning decades before death.

Gifts to charity are included in the gift tax laws. They provide an opportunity to combine philanthropic and tax reduction efforts. Gifts to charity can reduce taxable income and income tax. Donate appreciated assets and you do not have to pay capital gains tax. However, you receive a deduction for the current market value of the asset. Donating property that has sharply appreciated in value is clearly superior to donating cash. This is particularly true if you planned to sell the asset.

Gifts made prior to death are often made to transfer wealth and reduce estate taxes.There are no gift taxes if the gift per person is below a specific amount per recipient. Both husband and wife can each give the max amount to each other and not pay the gift taxes.

Advanced planning and proper structuring can maximize the transfer of wealth without relinquishing control. Artful structuring and a long series of periodic gifts are a powerful combination. Consider XYZ Company, owned by Mr. and Mrs. Carnegie, which is worth $10 million. Clearly a taxable estate.

  • Split into 100 A shares which own 10% and have 100% of control and 100,000 B shares which own 90% and have no voting rights;
  • B shares are transferred to ABC Company which has stocks and other liquid assets worth $1,000,000.

Assume market value of all ABC assets are worth $5.5 million (1.0 million + 50% x 9.0 million). Mr. and Mrs. Smith own 90% of ABC and the remaining 10% is owned by employees of XYZ Company. ABC is not a public company and shares may not be sold without prior approval of Mr. and Mrs. Smith during their life (sole discretion). Assume a 40% discount for illiquidity and lack of control, 1% of ABC is worth $27,000 (4.5mm x .01 x .6). While the Carnegies mitigate the estate tax burden of their heirs, they maintain complete operational control of their business since the B shares have no voting rights.

Hence assets worth $10,000,000 ($9million + $1million) are reduced in value to $2.7 million. If they have four children and each give the maximum, they can give 4.74% per year and not pay gift taxes.

O'Connor & Associates is the largest independent appraisal firm in the southwestern US and has over 40 full-time staff members engaged full-time in valuation and market study assignments. Their expertise includes gift tax valuations, feasibility studies, valuing real estate, business personal property, business enterprise valuation, purchase price allocation for businesses, valuation for property tax assignments, partial interest valuation, estate tax valuation, expert witness testimony and valuation for condemnation.

To obtain a quote or further information for a gift tax valuation, contact either George Thomas or Craig Young at 713-686-9955 or fill out our online form.


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