The holiday season is a traditional time for giving. It is also a traditional time for considering estate planning, either beginning estate planning or more substantial estate planning as you grow older. Remember, gifts of a “present interest” of up to $14,000 are considered exclusion gifts and do not require any reporting or filing of a gift tax return. The limit of $14,000 is per recipient. Recipients do not have to be related but must be of legal age or the gift must be given in form to a custodian or trustee with the proper drafted trust for the benefit of a minor.
Gifts are complete when the donor has parted with dominion and control over the gift. In other words, the donor can not establish a trust or an account over which he or she maintains control and considered transfer of funds or assets into that trust or entity as a gift of a present interest.
It is sometimes beneficial to consider making gifts beyond the annual exclusion amount in order to accomplish the transfer of those assets from the estate of the donor. Remember, however, that under the tax laws today a lifetime gift, while valued at the time of the gift, does not get a step up in basis and the donor’s basis is the basis of the asset distributed by the lifetime gift. In other words, stock that has a present value of $100 but a basis (cost) in the hands of the donor of $50 is considered a gift of $100 but the recipient has a cost basis of $50 and thus on sale at $100 would have a $50 gain.
Making gifts can be a critical part of an estate plan but doing so should be done with proper planning and with the advice and knowledge of a competent attorney and/or financial advisor or accountant.
