¨   Paying Gift Taxes Can Be a Good Investment.   Under the law now in effect in the U.S., very wealthy U.S. residents face a very high estate tax at death, but these “ death taxes ” can be reduced or avoided by making gifts. When substantial assets are involved, this may even involve paying gift taxes early. Yet, under existing law paying gift taxes can still be less expensive in the long run than later paying estate taxes.   Details   Since paying gift taxes early may often be cheaper, this cost can be analyzed like any other investment opportunity. What is the expected return on the investment in paying gift taxes to save estate taxes? How does this compare with the risk-reward projected in other investment opportunities? We have, for example, seen instances in which estate taxes were reduced by millions of dollars by making a much, much smaller upfront investment in gift taxes and planning.     Details

¨   Even in the Face of Possible Estate Tax Repeal. Certainly, the above analysis now must account for the possibility that estate taxes may be repealed in the U.S. As a result of the new tax act in 2001, repeal of the estate tax is scheduled to take place -- for one year only-- as of the year 2010. There is some chance that this repeal will take effect and, by further legislation, be continued beyond that one year. You Call This Repeal? How can this uncertainty be taken into account in deciding whether to make gifts to save estate taxes in the future, when those taxes may be repealed? The answer is to take that factor into account in the risk-benefit analysis. This can be done first by adjusting the gift plan to minimize the upfront cost of making the gift, and then by comparing that cost with the possible estate tax savings. In this way one can logically decide whether the cash-on-cash; investment “ return ” in saving taxes is high enough to justify the risk that the savings may not be achieved (because estate taxes would have been saved in any event because the repeal took effect when scheduled). If this rate of return is high enough, then the decision to go ahead with gift planning can be warranted even in the face of the uncertainty of the result, just as with other investments. A rate of return of 20 to 40% per year, for example, cannot be found elsewhere without incurring the risk that it will not materialize.   Details   This analysis, combined with a consideration of the practical benefits of making gifts rather than passing property at death, should be considered whenever substantial assets are at risk. Details