A down market can mean tough times and the loss of value of investments, but it can also present unique opportunities to minimize property transfer (gift and estate) taxes. While owning assets that are losing value might seem like a bad thing, it may actually be a great time to reduce your taxable estate by giving those assets away. That’s because current low asset values and interest rates enable you to make gifts at a lower gift tax cost. When the market rebounds, those assets will be growing in your next generation’s estate and not in yours. Following are three gift-giving techniques that take advantage of today’s depressing economic climate:

  1) Basic gifting: You can give away up to $13,000 to anyone you want, to as many people as you like, each year gift-tax free. This is known as the annual gift tax exclusion. You can give away twice that amount (split gift) if both you and your spouse make the gifts together. And, you can give away even more if you pay tuition or medical bills on behalf of another person (you must make these payments directly to the school or health-care provider).
  
  2) Family loans: You can lend money to your children at the current IRS minimum interest rate, and then forgive an amount equal to the gift tax exclusion each year (the gift tax exclusion amount is adjusted annually for inflation; $13,000 is the figure for 2009).
  
  3) Grantor retained annuity trust (GRAT): A GRAT is a trust into which you put assets that you expect will increase in value over time. The value of the gift is determined using the IRS’s current interest rate. The trust must terminate at a specified time for example 10 years. You receive annuity payments during the term of the trust, and at the end, your children receive the property. Hopefully, the assets will appreciate beyond the IRS’s interest rate, allowing the excess to pass tax free.
 
These great strategies, and others, can turn this current economic downturn into a mixed blessing.

1. American consumers spend more money on average in 2 months than all the consumers in China and India spend in a year (source: Time Magazine). 2/04/08 issue, bullet # 14

2. 54% of American investors do not read financial literature (e.g., newspaper or magazine articles) because they believe the content is “too hard to understand” (source: AARP). 4/28/08 issue, bullet  # 13

3. More than 1 in 4 Americans (27%) believe they will be able to withdraw at least 10% per year from their accumulated assets throughout their retirement years (source: Investment News, USA Today). 5/12/08 issue, bullet # 14

4. 46% of the mortgages taken out by US home buyers in calendar year 2006 utilized greater than 95% financing, i.e., the home buyer put less than 5% down (source: Money). 5/26/08 issue, bullet # 7

5. The average amount of money that more than 2,000 adults anticipated they will need in order to retire comfortably was $1.13 million (source: USA Today, Kelton Research). 6/16/08 issue, bullet # 4

6. Americans are projected to be assessed $52 million a day in late fees charged by credit card companies during calendar year 2008 (source: R.K. Hammer, USA Today). 8/04/08 issue, bullet # 13

7. The top 1% of US taxpayers is responsible for the payment of 40% of all federal income tax.  Ten years ago (1998), the top 1% of taxpayers paid 35% of all federal income tax.  Twenty years ago (1988), the top 1% of taxpayers paid 28% of all federal income tax (source: Tax Foundation, IRS). 8/18/08 issue, bullet # 11

8. The oil ministers from 7 of the 13 OPEC countries were educated at US colleges, including Texas A&M, University of Colorado, University of North Carolina, Tufts University, Harvard, Lehigh University and Stanford University (source: OPEC). 9/08/08 issue, bullet # 9

9. As of 1/01/34, an estimated 43.8% of all owner-occupied homes in the US that had a first mortgage were in default on that loan (source: Department of Commerce, Federal Reserve Bank of St. Louis). 10/20/08 issue, bullet # 9

10. In the 1-year following the low point from each of the 9 bear markets that have occurred since 1957 (not counting the current 10th bear market) the S&P 500 stock index has experienced a double-digit return.  The best of the 9 produced a +58.3% return.  The worst of the 9 was up +23.2% (source: BTN Research). 11/24/08 issue, bullet # 1

11. Nearly 1 out of every 3 US homeowners (32%) believes the value of his/her primary residence has increased in value over the last year (source: USA Today). 12/01/08 issue, bullet # 8

12. As of 9/06/08, the S&P 500 stock index had produced 26 days that resulted in a gain or loss of at least 4% in the previous 7,626 days, a period of almost 21 years.  In the 100 days from 9/06/08 to 12/15/08, the S&P 500 also had 26 days that resulted in a gain or loss of at least 4% (source: BTN Research). 12/15/08 issue, bullet # 3

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Have a happy holidays and prosperous new year.

This question is on every one’s mind these days; is whether or not the U.S. will sleep into a recession and further more in a depression. Technically, a recession is defined as two consecutive quarters of negative GDP growth. Surveying the current thinking among economists suggests that the potential for a recession lies somewhere between 80% and 100%. The fact is we may already be experiencing a recession and may not see depression at all. Nobody can say for sure right now. Investors are feeling quite uneasy and confused. The stock market is up 400 points one day and down 700 the next day with 40 to 50% loss to their investments.

I think that this is a period of time that will require lot more patience on the part of long-term investors as the markets work through the current issues. The stock market has been through many uncertain periods in the past, and I believe we will get through the current one as well even it is going to take much longer. Market environments like this are one of the reasons investors should have a well-diversified portfolio, long term and properly insured. A well-diversified portfolio may include investments such as stocks, bonds, cash, life insurance and alternative asset classes. Historically, individuals with well-diversified portfolios who remained invested in the financial markets, in both good and difficult times, have been appropriately rewarded.

This is probably perfect time to look at permanent insurance very closely and you will be pleasantly surprise the way permanent insurance and especially whole life insurance performs over long term period. Whole life Insurance policy provides almost 10% returns when you total guaranteed cash value, non guaranteed dividend, no cost of term insurance and the tax efficient growth of policy cash value. Whole Life Policy also avoids above worries and stock market volatilities.