Gifting assets to family members or other beneficiaries during your life not only helps to establish your legacy for future generations, but it also provides an opportunity to reduce the size of your taxable estate. However, before making any gifts, it is important you consider how certain assets will be treated differently for tax purposes – both during your life and after death.
The Tax Cuts and Jobs Act (TCJA) substantially increased the federal estate and gift tax exemption through 2025, temporarily reducing the number of taxpayers who will be subject to a 40 percent estate and gift tax. For 2020, individuals can transfer up to $11.58 million to their heirs during life or at death free of estate taxes. For married couples filing joint tax returns, the exemption is $23.6 million.
If you do not foresee the estate tax to be an issue for your family, it may make sense for you to hold onto your assets and allow them to appreciate in your hands during your living years. Upon your death, those assets will transfer to your heirs with a step-up in tax basis to the fair market value on your date of death. As a result, your heirs may sell those assets after you pass and potentially avoid or minimize both income tax on their appreciation in value during your life and capital gains tax on the asset sale.
If you have investments that have decreased in value, you may consider selling them before your passing, so that you may claim a tax loss to offset gains and potentially gift sale proceeds to your heirs.
Estate planning involves many moving parts and critical consideration of a broad range of tax issues for you and your heirs during life and at death. No matter your income or the size of your estate, you should consult with professional financial advisors before making any decisions. A strategy that works for another individual may not yield the same results for you.
About the Author: Brendan T. Hayes is a financial planner with Provenance Wealth Advisors, an Independent Registered Investment advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with Raymond James Financial Services. He can be reached in the firm’s Boca Raton, Fla., office at (561) 361-2001 or via email at firstname.lastname@example.org.
Provenance Wealth Advisors (PWA), 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Brendan T. Hayes is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
The information contained in this report has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.