Elder Law Planning provided to West Bridgewater, MA

A common estate planning error is failing to consider the capital gains tax consequences when gifting an asset. Learn how to gift to the next generation properly.

Easton, United States - January 16, 2019 /PressCable/ —

The author Brigitte von Weiss of VON WEISS LAW OFFICE is an estate planning and elder law attorney in Easton, MA. She is often asked about common estate planning errors.

A common estate planning error is failing to consider Failing to Considering Capital Gains Tax Consequences when Gifting

There are many reasons for gifting to the next generation. The two most common reasons are (1) to reduce estate tax liability and (2) to reduce the amount of assets potentially subject to one’s and one’s spouse’s long-term-care needs.

A common estate planning error is failing to consider the capital gains tax consequences when gifting an asset. If you give property to the next generation, the recipient of the gift has a “carryover basis” in the asset. In contrast, if the next generation inherits the asset, the recipient has a “step up” of the tax basis if the asset has increased in value (or “step down” if the asset has decreased in value).

For example, Mr. Smith buys a stock for $10,000. He gifts this stock to his daughter Mary. Because the stock was gifted (and not inherited), Mary has a “carryover basis” of $10,000. If she sells the stock for $20,000, the sale triggers a capital gain of $10,000.

In contrast, if Mary inherits the stock, she has a “step up” of the tax basis on account of the appreciation in value between when Mr. Smith purchased the asset and when he died. Her tax basis is the fair market value on the date of his death. If the date-of-death value is $19,000 and she sells the stock for $20,000, the sale triggers a capital gain of $1,000.

In sum, thought always should be given to the capital gains income tax consequences of gifting. One must analyze the benefit of holding onto the asset until death in order to achieve a “step up” in the tax basis versus gifting in order to achieve a reduction in both (1) potential estate tax liability and (2) the assets potentially subject to one’s and one’s spouse’s long-term-care needs. Because of the inherent tension between gifting of assets and the minimizing of capital gains taxes, one should avoid gifting assets having a low tax basis. Cash is preferable as the transfer of cash can never trigger a capital gain. Also, because of this inherent tension, many of my married clients choose to name their children as the primary beneficiary of a portion of their assets (rather than leaving all of their assets to each other) as this is a means of reducing the assets available to the surviving spouse while at the same time minimizing the overall capital gains tax liability.

Nothing in this article should be considered legal advice as this is a complicated area of the law.

Contact Info:
Name: Brigitte von Weiss
Organization: The Von Weiss Law Office
Address: 50 Oliver Street, Easton, Massachusetts 02356, United States
Phone: +1-508-238-3005
Website: http://vonweisslaw.com/index.html

Source: PressCable

Release ID: 471886