Net gain for taxpayers – Tax Court approves net gift strategy

Description

Abstract: A net gift is a technique that potentially allows reduction of the effective gift tax rate by requiring the donee to agree to pay the gift tax as a condition of receiving the gift. This reduces the gift’s value for gift tax purposes. Recently, the U.S. Tax Court approved a strategy that can reduce a gift’s value even further: In addition to paying the gift tax, the donee can agree to assume the potential estate tax liability that would result if the donor dies within three years after making the gift. This article offers an example of how net gifts work, while a sidebar explains how gifts can reduce transfer taxes.