Four Things to Consider About Holiday Gifting and Estate Planning

We have all received holiday gifts we secretly did not want or that did not fit us at all. In the same way that mistakes are a common occurrence when people gift Christmas presents, mistakes are also common when people make gifts as part of an estate plan. While there are many complex estate planning laws, by mastering them you can maximize the amount of assets that you pass on to loved ones. The following reviews just some of the critical strategies that you should remember to follow if you plan on gifting assets to a loved one this holiday season.

Consider Waiting Until Early in the Year

Many people gift during Christmas and the end of the year, but in reality, it is better to pass on gifts early in the year. By gifting early, the year’s gains are transferred to the beneficiary’s tax status. Additionally, by gifting early in the year, you make sure that you have ample time to carefully choose and plan the gift. Consider waiting a month or two and avoiding a rushed gift this holiday season.

Plan Carefully for Appreciated Assets

Many people write checks when making gifts as part of an estate plan, but it is often better to assess your property and determine which assets are best to gift. Understand that when you pass on appreciated property to someone, that individual takes the same tax basis in the property that you had. After the property is sold, a person is taxed on the appreciation that occurred during ownership of the property. After the appreciated asset is inherited, a beneficiary increases the tax basis to fair market value. All appreciation during asset ownership avoids capital gain taxes. This means that sometimes it makes more sense to hold an appreciated asset in your estate so a loved one later inherits it because these gains avoid taxes. This also might mean that you pass on an asset that is likely to appreciate substantially but has not yet done so.

Avoid Investments With Losses

When you gift an asset that has decreased in value, the beneficiary’s tax basis is either the donor’s tax basis or the current fair market value, based on which is lower. Neither person deducts the loss. If you sell the asset, however, you can both deduct the loss and transfer money from the sale to the beneficiary.

Make Unlimited Tax-Free Gifts

Some types of gifts can be tax-free in unlimited amounts. For example, education gifts fall in this category, but it is important to remember this tax-free unlimited exception does not apply to funds spent on materials associated with an education like books and lodging. Education gifts also must be made directly to an educational institute rather than the beneficiary. Similarly, medical gifts also can be made tax-free and an unlimited number of times.

Speak with an Experienced Estate Planning Attorney

The estate planning process is a complex one, but an experienced attorney can help you create a plan that is capable of achieving your goals. Contact attorney Jim A Lyon today to schedule a free case evaluation.