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Utilizing Gifting in 2012: The 7-Step Process. Important Information. The information presented herein is not a comprehensive analysis of the topic presented.

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important information
Important Information

The information presented herein is not a comprehensive analysis of the topic presented.

Please be advised that any information provided in this presentation is for informational purposes only and should not be construed by any person as legal, tax or accounting advice. The insurers comprising American General Life Companies strongly suggest that any life insurance owner, proposed owner, insured or proposed insured retain the services of qualified tax, accounting and legal counsel for advice on matters presented herein. The insurers comprising American General Life Companies are solely providers of insurance products.

To ensure compliance with requirements imposed by U.S. Treasury Regulations, we inform you that any tax advice contained in this presentation (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

  • Current Transfer Tax Environment
    • Gift tax
    • Estate tax
  • Gifting Process
    • 7-Step Process
  • Other Considerations
    • Generation Skipping Transfer (GST) Taxation
  • Support
current and upcoming transfer taxes
Current and Upcoming Transfer Taxes

No Estate Tax in 2010 (effectively an unlimited exemption)

Estate and Gift Tax Exemptions Equal (Unified) until 2004 and re-Unified in 2011

how do changes impact my client
How Do Changes Impact My Client?

Your client could lose ability to gift up to $4.12 million, if no action taken this year

Additionally, in 2013, clients with estate values greater than $1 million would potentially become subject to the estate tax

Summary: If your client has net worth greater than $1 million, that client should consider gifting to minimize the potential taxation of his estate after Dec. 31, 2012

* Previous taxable gifts include taxable gifts prior to 2011. Gifts made during 2011 would reduce 2012 gifting capacity, respectively.


What if Client is Worth More Than $1M?

The 7-Step Process


Determine an approximate value of the estate


Determine which assetsto gift


Determine the value of the assets to gift


Transfer ownership of gift assets


File a gift tax return


Insure against potential estate tax inclusion


Determine remaining estate tax liability and retain liquidity


Fair Market Value (FMV)

The basis for estate valuation is FMV, the price at which property would exchange hands between willing buyer and willing seller with no compulsion and reasonable knowledge of the facts

Approximate Estate Value

With assistance of advisors, client should be able to estimate the estate value in order to determine the value of assets to transfer outside of the estate. A detailed appraisal may not be necessary at this point in the process

Step 1: Estate ValuationAdvisor(s): Accountant and Qualified Appraiser


Asset selection is situational

If primary goal is to reduce estate tax liability, consider the following gifts in order ofmost-to-least desirable






High Cost-Basis Property


Income Property




Step 2: Appropriate Assets To GiftAdvisor(s): Accountant, Attorney and Ins. Professional

Two forms of propertygenerally not recommended:

Loss property and property that mayimpact income and capital needs of donor


FMV is the basis for gift valuation

Special valuation rules apply to certain property types. These include, but are not limited to, the following:

Step 3: Valuation of GiftsAdvisor(s): Accountant, Qualified Appraiser


Gift is complete when donor gives up ability to control disposition of property

Examples: Transfer of title, contractual ownership change, delivery

Means of transfer may be direct or indirect

Examples of indirect transfers: Intentionally defective grantor trusts, non-grantor trusts,special purpose trusts

Completed gifts may not qualify for

annual exclusion amount

Currently $13,000 per donee

Present interest gifts qualify

- Donee entitled to immediate use andenjoyment

Future interest gifts do not

- Use and enjoyment is based oncontingent event

- Trust “Crummey” provisions

Step 4: Transfer of OwnershipAdvisor: Estate Planning Attorney


IRS Form 709 – Gift Tax Return

Purposes: Record gifts made in calendar year;Determine gift tax liability

Must be filed for all gifts except:

Gifts that qualify for annual exclusion or marital deduction

Gifts that qualify for charitable contribution deduction(entire interest must be transferred)

Form 709 is generally required to befiled by April 15th of year followingthe year taxable gift(s) made

Any extensions granted for Income tax return filingsextend to the gift tax return

Step 5: Report Gifts/File Tax ReturnAdvisor(s): Accountant, Estate Planning Attorney


Certain transfers, made within 3 years of donor’s death, would be included in the estate valuation for estate tax purposes

If gifting potentially excludable property, consider short-term life insurance to cover additional estate tax liability for 3 years

For uninsurable donors, consider the sale of the property rather than a gift

Potentially Excludable







Step 6: Insure for Potential ExclusionsAdvisor(s): Accountant, Attorney and Ins. Professional

3 Years

Gift Excluded from Estate

Death 3+ Years after Gift

Death <3 Years after Gift

Gift Included in Estate


If client able to fully utilize gift tax exemption and potential estate tax liability still remains, consider purchase ofILIT-owned life policy

Potential sources of premiumfunding include:

Direct gifts offset by “Crummey” provisions andsplit-gifts combined

Income producing property previouslytransferred into the irrevocable trust

Private or commercial premium financingof 7-pay premium amounts

If client needs additional liquidity fornon-tax reasons, purchase sufficientlife insurance without creating asignificantly greater tax liability

Step 7: Remaining Estate Tax LiabilityAdvisor(s): Accountant, Atty., Appraiser and Ins. Prof’l


Client should consider impact of GST taxation on gift and estate planning

In 2012, GST exemption amountof $5.12 million can be used for“skip persons” within the family*

Skip person: A family membertwo or more generations removed from donor/decedent

GST exemption should be allocated to trusts which have generation skips

Generations Skipping ConsiderationsAdvisor(s): Accountant, Estate Planning Attorney

* Like the gift tax exemption amount, the GST exemption amount will return to $1 million in 2013 (absent Congressional action)


With the right team of advisors, the gifting process does not have to be daunting. Understanding the process enables you to:

Add value to the team

Help move the process along

This is the year to motivate your clients with a net worth of $1M or more to finally pursue gifting opportunities:

There may never be such an opportunity again

Start now to allow for sufficient time for valuation, drafting, etc.

Next steps:

Call American General to Assist

Write Down Your Clients/Prospects

Discuss Them with Your IMO/BGA



For Agents/Producers

American General 2012 Gifting Program

For Clients/Prospects

  • Program overview (training)
  • Consumer website
  • Email sample
  • Consumer brochure
  • Letter sample
  • eBrochure
  • One-page summary of 7-step process
  • White paper on 2012 gifting

American General Life Companies,, is the marketing name for a group of affiliated domestic life insurers, including American General Life Insurance Company (AGL) and The United States Life Insurance Company in the City of New York (USL). American General Life Companies insurers are solely providers of insurance products.

Important: Prior to soliciting business, be certain that you are appropriately licensed and appointed with the insurer and that the product has been approved for sale by the insurer in that state. If uncertain, please contact your American General Life Companies representative for assistance. These product specifications are not intended to be all-inclusive of product information. State variations may apply. Please refer to the policy for complete details.

This material does not include an exhaustive list of potential steps in the gifting process. This material is provided solely as educational information and for general informational purposes only. Each agent should verify the accuracy and reliability of the information (federal income tax statutes, rulings, and regulations contained in this material may have changed since the publication of this article). AGL and USL shall not be liable for any loss or damage caused by the use of, or reliance on, the tax and legal items contained in this material. Further, AGL, USL, its employees, its affiliates, its representatives, and its agents do not provide tax, legal, financial, or valuation advice.

Important Information