Gifting now vs after passing away

I never borrowed from my parents (not a dime) partly because I wanted to make it on my own (pride) and partly because they didn't have a lot of extra cash until very late in life. By then I had my first million or two.
I never borrowed from them either. They didn't have enough money for themselves. Worked like crazy all their life and ended up with not a dime at death. We didn't have much but we had it all, and we were a very blessed and happy family though. That was worth more than all the money in the world.
 
We helped/help both of our Children and glad we have done so.

You never know what will happen with your kids. We lost our only son when he died unexpectedly at at age 34 in 2019. We are so glad that we helped him out and have zero regrets about that money.

As others have said, seeing the good it does now is well worth the tax cost to us now.

One day #1 Daughter will get the inheritance with the Step Up - we know that.

Hopefully, it will be a good while longer before we Cross Over The Jordan. For us, seeing the good the monies does for our Daughter and baby Granddaughter is worthwhile.
 
I am inquiring, please correct my understanding -

At present the Estate Tax up to 40% is levied on children on inherited Estates beyond $11.2 million when parents pass away for singles & $22.4 million for married couples.
(Although the surviving parent will be single at the time of his/her passing)

Probably in 2026 the Estate Tax exemption will revert back to $5 million each or $10 million as a married couple.

Generation Skipping Trust which is a irrevocable Trust will duplicate the above exemptions, the assets going to grandchildren instead to one's children.

In sum, beyond $ 20 millions, the government will get the 40% of remaining assets.

??
The estate exemption is $13.61M each. When one spouse passes, the survivor should select "portability" of the unused estate exemption, so the surviving spouse will have $27.22M available. That adjusts for inflation each year, but is set to be cut in half when the TCJA expires after 2025.

You are right that there is some tax penalty for gifting shares as the cost basis of gifted shares will never be reset upon your or your spouse's death. Our goal is to try to pick shares that are intermediate in appreciation (we keep the lowest unrealized gains for our ourselves, the highest for shares we expect to be in the estate).
 
The estate exemption is $13.61M each. When one spouse passes, the survivor should select "portability" of the unused estate exemption, so the surviving spouse will have $27.22M available.

"What does survivor spouse select portability" mean,

Does he/she file some form with the IRS ? What form

Thanks
 
I do annual gifts to the limit where I'd have that form. I figure gifting some now is a way to see how they'd do with a much larger inheritance. If the money seemed to be spent recklessly, I could look at a trust to dole out the money over time rather than lump sum. Fortunately I am not seeing such a problem.
 
You wrote in your first message that you are gifting the shares now. Typically that means transferring them to a new owner now.
Thank you,
yes children will not get the step up in basis gifted now, they will pay taxes when they sell those shares. Step up basis is only when we pass away & the kids inherit the assets.
 
We gift to 529 plans and custodial brokerage accounts for our grandkids. We own the townhomes each of the boys live in with their families, rent free. They’ll inherit those when we pass, along with most of what’s left.
We also give $20-25k to each of our two boys at Christmas time.
With the TCJA possibly expiring after 2025, we may set up generation skipping trusts for our grandkids. We meet with our estate attorney next week via Zoom to discuss it.
I read that the Generation Skipping Trust (GST)for grand children will not get the stepped up in basis, as the children get.

The thinking was the GST (a Irrevocable Trust) is not part of the taxable estate at the parents passing away, where as revocable trust or a taxable brokerage account is, and is given the stepped in basis.

Does a surviving spouse get the step up in basis ?

Thankyou
 
We gift several thousand $ each year to our 2 children (ages 40 & 32) in the form of VTI shares with their embedded capital gains from our taxable accounts.
Whenever they need the money they may sell them & pay the capital gains Tax.

We understand children will get a full step up when ever I & DW pass & not pay any capital gain taxes.

While giving with a warm hand vs cold one is thought to be better as the impact now is greater, it does come with the cost of taxes for them.

How do you gift, your thoughts ?
Yes, we are gifting more and more as we age. We gift to siblings (all younger) as we have no children. They are getting older too.

But we gift cash, not shares.
 
I never borrowed from them either. They didn't have enough money for themselves. Worked like crazy all their life and ended up with not a dime at death. We didn't have much but we had it all, and we were a very blessed and happy family though. That was worth more than all the money in the world.
+1 (and then some!)

Family is no. 1. Money is a distant 2nd. - if that.
 
Because 529's cannot accept stock, I set up UGMA accounts and transferred highly appreciated stock into the grandchildren's accounts. This allows more of the gift to go to them, and less of the gift to go to the IRS. No tax due for me and no tax due at the gift time for them. If they slowly sell, they can avoid future tax as well. UGMA funds can be used for college, but also for their first home, weddings and other special needs. The 529 account has more restrictions.
 
I just went through the process of gifting some highly appreciated stock to my 2 children yesterday.
We have more than enough for our needs now, so it is not a burden on us.
I am 55, I have never received anything from my parents (beyond a college education). I hope not to receive anything for many more years.

My children are 26 and 28. They could make good use of the money now, but if I wait to make them get an inheritance it would probably be like me, money coming way too late to be of any use as I have already amassed my own wealth.

I gave the appreciated stock, because we must manage our MAGI for ACA purposes and selling to gift cash would not be a good choice.
 
I don't have taxable assets to give, so capital gains are not an issue. I have to get it out of pre-tax accounts and show the income, and that has limited my ability to give. I'm finally out from under the PPACA tax credit, and now it's IRMAA.

But I believe in gifting when they could put it to work or use it as assurance in making various life plays that have a financial risk. By that I mean if one encounters a proposition with a big payoff, but it has a 1% chance of the poor house and having the savings would improve it to a 1% chance of a comfortable reset, it's easier to take the risk.

I see a lot of specifics when giving (money for a down payment or remodel, etc). If there are any ever grandkids, I'll probably start 529's. But so far, I've not given for a specific thing. My approach has been "no strings". Big wedding, down payment, trip of a lifetime, all on red, it's up to you.
 
This is so different than how I was raised, but after reading and thinking and watching my Mom, we have started giving smaller amounts (think hundreds) to our kids and grandkids now, when they can use it or at least not just put it in savings like an older person would. Big mindset change, but I am enjoying it. Our assets our moderate, but certainly enough to do some sharing now. We have always done nice Christmas money gifts.
 
Our children have been very generous to us. We're doing well financially, and pick our spots to send a gift, or transfer bits of wealth. There's a 529 for grandhild now. In the last 4 years we paid for a wedding, gifted cash and stocks to other adult child. Everyone seems satisfied at the moment.
 
I read that the Generation Skipping Trust (GST)for grand children will not get the stepped up in basis, as the children get.

The thinking was the GST (a Irrevocable Trust) is not part of the taxable estate at the parents passing away, where as revocable trust or a taxable brokerage account is, and is given the stepped in basis.

Does a surviving spouse get the step up in basis ?

Thankyou
You’re correct that the grandkids would not get the stepped up basis and would have to pay capital gains tax when selling any assets in the trust. It’s still better than having to pay the 40% Estate Tax if over the exclusion limit. Seeing that there is a strong possibility the TCJA will expire in 16 months, and we will possibly be over the exclusion amount if our assets continue to grow, we want to be prepared.
Yes, a surviving spouse can get a step-up in basis: What is step-in basis and how can it affect me?| Fidelity
 
For a couple of years, we've been paying for our grand daughter to go to Montessori pre-school. Kinda pricey but worth it we think.
 
We have 3 IRAs in our portfolio. I've been taking annual withdrawals from them to pay the premiums on our life insurance policies. Kids won't have to pay any taxes for lump sum payouts and they get to avoid the 10 year drawdown rule for inherited IRAs. They don't get the $s now, but get a real nice future payday.
 
We have 3 IRAs in our portfolio. I've been taking annual withdrawals from them to pay the premiums on our life insurance policies. Kids won't have to pay any taxes for lump sum payouts and they get to avoid the 10 year drawdown rule for inherited IRAs. They don't get the $s now, but get a real nice future payday.
Do I understand? You are using your IRAs to fund life insurance which will eventually go to the kids? By then, your IRA's will be depleted? So no IRA inheritance? Should w*rk but seems perhaps a bit convoluted. You could instead just Roth your IRAs and pass those without taxes to the kids and avoid "funding" the insurance company.

Not criticizing as I don't know your situation. I actually do still have some insurance on both of us. Beyond final expenses, it's handy to have cash upon the death of a spouse to deal with any taxes, etc.
 
Do I understand? You are using your IRAs to fund life insurance which will eventually go to the kids? By then, your IRA's will be depleted? So no IRA inheritance? Should w*rk but seems perhaps a bit convoluted. You could instead just Roth your IRAs and pass those without taxes to the kids and avoid "funding" the insurance company.

Not criticizing as I don't know your situation. I actually do still have some insurance on both of us. Beyond final expenses, it's handy to have cash upon the death of a spouse to deal with any taxes, etc.
Or fund the kid's Roth for them if they are unable to do so themselves?
 
I'm doing both. With only one kid who is not interested in marrying or having kids, our situation is uncomplicated. He's not making a lot of money, and lost his most recent job (which he hated) and is trying to find work that he enjoys. He knows he doesn't have to go through the years of job burnout that I went through, and I'm fine with that. He's an adult, takes good care of himself, goes to the gym, never has had a drink, and is frugal.

So he'll have some gifts that he will pay capital gains tax on, and some inherited funds that he won't. My sister struggled until my dad passed and as Executrix, she about passed out when I told her she was a millionnaire. It changed her life for the better. But the sudden wealth caused some serious marital friction which I helped iron out. She's now retired with a pension, and the inheritance is funding her and DH spending time during the winter months in Mexico, and still married, now for 36 years. She developed a lot of health problems due to working on her feet overtime and running to food as a coping mechanism.

I wish that on no one.
 
An interesting topic. I inherited nothing, in fact I paid for mom’s cremation. Dad did give me $1,000 for college in 1976.
Wife and I built our $4.5 mill estate on our own. Mostly dumb luck and frugality.
My kids spend like crazy. All pretty poor financial managers. Not very charitable. Frugality is skipping a generation. “Money is for spending”
As a result, we’ve earmarked 1/4 of our estate for charities. Estate Lawyer was shocked to see that we were not giving all to kids.

We will do some warm hand gifting but I have to accept that anything I offer my kids will turn into season football tix, tattoos, new F150 pickup. Not much for generational wealth building, paying off the mortgage or investing.

After watching our kids, my frugal wife has become an advocate for blowing our own dough.
 
This is so different than how I was raised, but after reading and thinking and watching my Mom, we have started giving smaller amounts (think hundreds) to our kids and grandkids now, when they can use it or at least not just put it in savings like an older person would. Big mindset change, but I am enjoying it. Our assets our moderate, but certainly enough to do some sharing now. We have always done nice Christmas money gifts.
This is us, too.
Our kids are so appreciative of anything we give to them, and we feel blessed to be able to share with them as we can and is appropriate, without harming our own retirement.
 
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