Don’t Lose Your Gifting Power

The government is planning to take away the power of gifting assets in a discounted fashion to family members. As of August 2, 2016, the Treasury Department proposed regulations under Section 2704 of the Internal Revenue Code regarding the lapse of voting rights or lapse of liquidation rights. This is in regards to closely held businesses and, more specifically, the benefit that CPAs and business valuation firms have taken advantage of, which is discounting gifts from majority shareholders to minority shareholder family members. Such discounts have historically reached as high as 35% of the value of the asset. Regulations will also include a potential three year lookback on such transfers. For example, if you were to use your lifetime exclusion, which is $5.45 million, you could, in essence, take an asset that’s worth $8.384 million, apply a 35% discount to that and transfer your entire lifetime exemption amount of $5.45 million without paying any gift tax. The kicker, that $8.384 million asset is now outside of your taxable estate and can grow estate tax free. This specific benefit will most likely go away starting January of 2017.

Something important to take into consideration, there are risks to gifting. One, there is no step-up in basis upon death so that is a potential for capital gains. Two, there’s a potential loss of control, when the asset is gifted away. However, these concerns can be mitigated through proper planning techniques. Also, there are some preferred assets to gift. One asset would be closely held business stock with large appreciation potential. The second asset would be up to $1 million of residential real estate and that cap is specifically used to avoid potential property tax reassessment. In the State of California, Prop 13 has to do with parent-to-child or parent-to-grandchild gifting and it has to be inside the family. The third asset you can give is life insurance. For that scenario, a 60 year old male with standard health could give a child $5.45 million worth of life insurance premium and the death benefit could be a factor of three times ($17 million) that gift amount then would be estate tax free. At life expectancy, the pre-tax equivalent rate of return would be 6.22%.

In summary, big proposed changes with regards to Section 2704 of the Internal Revenue Code could impact your ability to transfer assets after 2016, specifically, losing the 35% discount. This in the lifetime exclusion realm is almost a $3 million benefit. It’s important to understand the concerns associated with gifting, specifically loss of potential step-up basis and loss of control. There are a variety of different assets that you can gift and it’s important to do proper planning around any gifts so that you avoid the potential concerns and/or potential future drawbacks by the IRS if done inappropriately.

There is not much time left in the year to do this type of work and we are helping our clients with this on a proactive basis. If you are interested in learning more, please do not hesitate to contact us to set up a complimentary review of your situation. You can contact me directly at peter.waldron@lfg.com.

Presented by: Peter T. Waldron
In conjunction with Lincoln Financial Advisors a registered investment advisor


Alamo – Our New Home

I am proud to announce our new location in the Alamo Commons at 3201 Danville Blvd Suite 190, Alamo. We moved our offices from San Ramon and our first day of business was August 1, 2016. We now have the boutique feel that we have envisioned for our firm which is in line with our mission statement. Another goal of creating a more consistent culture for our team was achieved with the move. This includes having work life balance for our team, specifically access to local businesses and services. We are excited to have our business located in the town that our family has called home for the last 32 years where our company philosophy will be met.

My father and I have been building our company over the past twelve years; one of our original goals was to move the office to Alamo. It has been great to build something of our own; it has been even more magnificent to do it with my mentor and father. In 2012, we created Spectrum Wealth Partners with James Westermeyer to further expand our firm. In 2014, William C. Roland and his team joined us to bring their expertise in the area of employee benefits. Our firm now consists of four partners, Robert J. Waldron Jr., Peter T. Waldron, William C. Roland, and James R. Westermeyer. We have a team of four financial planners, William P. Harvey, Brad Byrns, James Hayes and Michael Lemas. We also have an administrative team consisting of four amazing individuals. We are ready to make our clients lives easier by bringing process driven professionalism. Our priority is to help all generations of the family with their wealth.

Spectrum Wealth Partners is a boutique financial planning firm where we pride ourselves on bringing our clients the Lincoln Financial Advisors philosophy which is “serve first, last and always™”. We believe it is imperative to provide unbiased advice and high-quality service through open communication and innovative strategies. Our goal is to help you gain a firm understanding of your financial situation and move toward achieving your most important business and personal goals. We work side by side with our clients, focused on these guiding tenets: helping our clients manage, grow, and preserve their wealth, while taking the stress out of running the financial side of their lives. Our clients are business owners, entrepreneurs, and executives. By taking care of their financial management needs, we allow them to focus on what they do best – running and managing successful businesses.

We are excited for our new home and look forward to seeing you around town.

Presented by: Peter T. Waldron
In conjunction with Lincoln Financial Advisors a registered investment advisor