At some point in your life, if you have accumulated assets, you may consider using your wealth to help others. Whether that’s a child, a parent, a friend or a charity, there can be great emotional reward in making a wealth transfer to someone, or something, in need.
Two weeks ago we talked about making gifts with retirement assets. What about gifts that aren’t associated with a tax-qualified retirement account? Because non-retirement assets are typically taxed differently, there are a couple more things to think about when choosing what assets to gift.
Here are five ideas for gifting non-retirement assets that can make sense, depending on your situation.
- Gifting appreciated assets: “Gifting Down” – If you have an investment that has significantly appreciated in value, consider gifting this to someone that would assume less tax liability than you, like a child.
- Gifting appreciated assets: “Gifting Up”– Many of you may be part of the sandwich-generation where you need to lend support to both your children and your parents. If you are in a higher tax bracket than your parents, tax savings might be realized by gifting appreciated assets instead of cash. If the receiving parents are in a low enough tax bracket, then taxes on the appreciated asset might even be avoided.
- Gifting appreciated assets: “Gifting Directly” – You could also consider gifting the asset directly to an institution like your church or a charity.
- Don’t gift assets held at a loss – If you have an investment that hasn’t worked out, and your basis (what you paid to acquire it) is more than the current value, hold on to this type of asset. If and when you choose to liquidate these assets, you will get to realize the tax relief associated with the loss.
- Know when to hold them – In the words of Kenny Rogers, “you’ve got to know when to hold ‘em”. Note that gifts made after your passing (i.e. through an estate as an inheritance) receive a “step up in basis” when transferring to another individual. This means their basis will be the value of the asset on the day you pass away, not on the day you acquired said asset. You may not want to gift highly appreciated assets in the twilight of your life.
Whatever your goals, planning serves the purpose of trying to be efficient with your resources, which includes a review of which assets to gift and when. Feel free to call us with questions. We’re here to align your personal values, vision and wealth.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
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