For high-net-worth clients who have already exhausted their unified credit amounts, net gifts may offer opportunities to transfer assets to heirs, thereby removing them from the estate, while reducing gift taxes on the transfers.

A net gift requires the recipient to agree to pay any gift taxes arising from the gift. This, in turn, reduces the value of the gift, since the donee assumes tax liability. In essence, a net gift is a sale for less than adequate consideration, where the value of the gift equals the value of the property transferred less the gift tax paid by the donee.

In a traditional setting, a net gift can reduce the taxable value of the gift by approximately 27% versus a simple outright gift. But net gifts can also be leveraged with other estate and tax planning strategies, such as

• Valuation discounts for minority interests, lack of marketability, etc.;
• Grantor retained annuity trusts and unitrusts (GRATs and GRUTs);
• Charitable lead annuity trusts and unitrusts (CLATs and CLUTs).

Net gifts do have a few estate tax and income tax pitfalls, of which anyone considering their use should be aware. If you or your clients have questions about net gifts, please contact our office.