What is leveraged gifting?


Leveraged gifting is a technique utilizing discounts in the valuation of whatever has been gifted. For example, if someone owns 100% of an asset, then they own 100% of the value. If they break that into pieces, if they fractionalize the asset and they only give away a fraction of it, the IRS and the tax courts recognize that that fractional interest is not worth the fraction of the whole. It’s worth something less because it probably doesn’t carry with it the ability to control the entire asset or the ability to sell that fraction without the agreement of the other owners. When we do that, a gift is leveraged.

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.