How does fractionalization provide leverage?


Well, if I give away an entire asset and I’ve given away 100%, I’ve given away 100% of its value, but if I break that asset into pieces, if I break it into fractions, remember, there can only be 100% of something. If I broke it into one percentage pieces or 20 percentage pieces and I gave those away, I’m giving away less than that percentage of the whole. The tax court has agreed, United States Supreme Court has agreed, the IRS acquiesces, although they don’t like, that a fraction of something is worth less than that fraction for gifting purposes, so fractionalization is the way to maximize gifting.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values