Sunday, November 24, 2019
Often, allowing your loved ones to have gifts before your death can have tremendous benefits, not least of all watching them enjoying the presents during your lifetime. If you have an estate that is more than the federal exemption amount which, as of 2019, is $11.4 million, giving away assets before you pass can lower any estate taxes due. Any amount lower than $15,000 per year is tax-free, and an be used as an effective way to gradually help children and grandchildren understand and appreciate their family’s wealth.
From a tax perspective, a downside of gifting assets during your lifetime is that assets that have appreciated in value do not receive a “step-up” income tax basis. This means if you gift appreciated property or securities, the recipient will be subject to capital gains tax on the built-in appreciation when they sell the assets. It is important to consider when to gift these types of assets so that the loved one can receive the greatest benefit, rather than a possible burden.
There are numerous other vehicles that can be utilized to gift children and grandchildren assets or even funds during ones lifetime, including:
- 529 College Savings Plans, which acts similar to a retirement account in that the money placed in it grows without being subject to federal income tax.
- Uniform Transfer to Minor Act accounts, and any property placed in the trust are taxes at the child's tax bracket
- Delaware Dynasty Trusts, which are notorious (or famous, however you choose to look at it) for lasting in perpetuity.
See When it Comes to Gifting, There's No Time Like the Present, Franklin Templeton, November 18, 2019.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.