Gifting Investments/Capital to Future Generations

Transferring wealth to future generations is a rewarding but complex endeavor. By planning strategically, you can maximize your investments and minimize taxes on gifts transferred.

  1. Potential Direct Financial Impact

    • Transfer of gifted cash or investments during your lifetime or as part of your estate.
    • Any changes to your net worth and/or balance sheet based on the transfer of assets.
    • Limit on annual gift tax exclusion per recipient and lifetime gift exemption.
    • Legal fees associated with setting up living or testamentary trust(s) that meets your specific needs.
    • Capital gains tax implications on assets sold that were transferred before your death.
    • Potential step up in cost-basis on inherited assets transferred at death.
    • Potential gift taxes or generation-skipping transfer (GST) taxes triggered by the transfer of assets.
    • Costs associated with securing additional life insurance as part of your wealth transfer strategy.
    • Potential annuity payment received annually from a Grantor Retained Annuity Trust (GRAT) for a fixed period.
    • Potential contribution to a 529 savings plan that is up to five times the annual gift limit and spread over five years for tax purposes.
  2. Potential Secondary Impacts

    • The need to file IRS tax form 709 to disclose gifts above the annual gift exclusion to track your gifting up to the lifetime gift tax exemption.
    • The impact of the remaining lifetime gift tax exemption on your overall estate tax exemption.
    • The need to put a sophisticated estate plan in place to maximize the after-tax value of transfers to future generations.
    • Understand the role that charitable contributions and itemized deductions for those may play into your transfer strategy.
  3. Self Completion/Execution Risks

    • Not optimizing your gift transfer for tax-efficiencies.
    • Not taking advantage of the annual gift tax exclusion per recipient, as there is no limit on the number of recipients per year.
    • Missing out on the step up in basis at death on highly appreciated assets transferred during your lifetime.
    • Triggering unintended taxes for children/ grandchildren.
    • Not filing the IRS tax form 709 necessary to disclose gifts beyond the annual gift limits to track against your lifetime gift tax exemption.
    • Not realizing that assets transferred under the lifetime gift tax exemption lower the amount of your estate tax exemption.
  4. Situations where expertise adds the most value

    • Tax Adviser
      Working with a tax adviser can help ensure that you not only understand how to take advantage of the annual gift tax exclusion and file the IRS tax forms to track gifting under the lifetime exclusion, but also.identify the types of assets and accounts that are best suited to transfer during your lifetime or as part of your estate.
    • Legal Adviser
      Depending on the complexity of your situation and the value of your estate relative to the estate tax exclusion, working with a trust and estates attorney can pay dividends. It is highly recommended that you set up a trust if you meet any of the following circumstances: have children from a former marriage, have a special needs child, your spouse is not a US citizen, and/or you have assets (or a business) with a low cost-basis that are likely to appreciate significantly over time that you plan to gift or transfer upon your death.
    • Financial Adviser
      As your life evolves, it is critical to reassess your financial goals, estate planning needs and insurance coverage. The best way to identify any gaps in your plan and cover your bases is to work with a financial adviser who can look at all of the pieces of your financial picture holistically. Additionally, a financial adviser may be able to help you factor in your legacy planning into your retirement distribution strategy to determine how much you can sustainably withdraw each year during retirement and which accounts to draw down from first.

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