Many Americans are concerned that the Bush Estate and Gift rates will revert at the end of 2010 to the rates existing prior to the 1991 tax cuts, meaning a $1,000,000 exemption for both estate and gift taxes, and a top rate of 55%. As most know, there is no US estate tax for estates arising in 2010, and a current top gift tax rate of 35%.
Consequently, there is a rush, especially among older clients, to transfer assets to the next generation prior to the end of 2010.
We have been retained by several clients whose object is to gift France-based real estate. In such case, there is the French gift tax to consider, as well as the US gift tax. For children, there is an exemption of €156,974 per donor per child. So, if both parents are involved in the gift, a total of €313,948 may be given tax-free to each child (reduced by gifts made during the 6-year period prior to the current gift). The US exemption is $1,000,000 (less prior gifts reported in IRS Form 709). A technique often used is to make a “net gift”, where the recipient of the gift (donee), agrees to pay the gift tax. The gift is thereby reduced by the amount of gift tax paid. The net gift approach is equally valid in France. Gift taxes paid in France, over and above the exemption, are also eligible for the foreign tax credit against US gift tax. There are numersous twists and turns that must be considered, especially if the gift of the real estate is being made to one of two or more children (even if all parties are non-residents of France). In one complex case, we worked with the notaire for more than 3 months to finalize such a gift.
Needless to say, if the lower gift tax rates are to be availed of, the closing of the gift transaction in France must occur before December 31, 2010.