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Educational Resources

By Jeffrey R. Wolfe, Senior Vice President, Manager of Wealth Planning Strategies

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At year end, many enjoy giving gifts to loved ones. For those that may face a potential federal or state estate tax, making annual gifts may help save on those taxes in the long run. Under federal law, every person can gift up to $15,000 per person per year. Married couples can combine their gift giving ability and make up to $30,000 in gifts.  That’s a substantial amount of wealth being transferred tax free, and if you do that over multiple years, the amount of assets transferred can be staggering.  Consider that if you simply gave away $15,000 a year for 20 years, and you received a 5% rate of return on those gifted dollars, your beneficiaries would have nearly $496,000, all of which would be out of your estate for estate tax purposes.

When determining what to gift, there may be opportunities to gift actual assets (shares of stock for example) in lieu of cash. For gifts of assets versus cash, if the fair market value of the asset is close to your cost basis in that asset, now may be a good time to make the gift. Remember, when you gift an asset to an individual you also gift them your basis in that asset. Gifting assets with little or no gain may allow your beneficiary to sell that asset and utilize the proceeds with little or no income tax consequence.

On the other hand, you could gift an appreciated asset in certain situations. For example, if the beneficiary were to sell the gifted asset, the beneficiary would realize any corresponding tax liability. This could be beneficial if the beneficiary were in a lower tax bracket than you but be careful that the sale and corresponding capital gain doesn’t cause the beneficiary to fall into a higher tax bracket.  Also, if the beneficiary is your dependent child, the Kiddie Tax could come into play if an appreciated asset is sold causing the gain to be taxed at higher trust tax brackets.  For gifts to dependents be sure to consult your tax professional on the potential income tax consequences for such gifts and resulting sales.

If you want to assure your gift will apply to this tax year, gifts must be completed by year-end. It may take some time to complete the gift, especially if you are transferring stock or other non-cash assets. Start the giving process early to ensure that the transfer is made before the end of the year.

Please remember, Benjamin F. Edwards & Co. does not provide tax advice, so it is important to consult with your tax professional for guidance tailored to your specific situation.

December 3, 2019 |