Passing Property To Kids – Give It Now Or Leave It Later?
Recall the Prodigal Son, whose insistence led to his receiving his inheritance during life thus enabling him to proceed to squander his wealth in riotous living. Among the lessons in the tale is the not so gentle admonition about gifting property before the next generation will accept the responsibility that attends.
But even in the case of children rightly raised, there are several planning considerations when deciding whether to pass property now or at death.
Among other things:
- The effect on the property’s income-tax basis is different – A recipient of a gift takes the same basis in the property as the gift-giver. Sale of the property later could result in a high capital gains tax. But an heir gets a “stepped-up-basis” in inherited property to its fair-market-value. As a result, sale of the property later results in less taxable gain.
- Planning strategies – Gift only high-basis property or property that is unlikely to be sold later. Otherwise consider waiting and bequeathing the property to the intended recipient.
- But… remember that a Will can be easily changed – If property is promised at death, the instrument that would make that happen (either a Last Will & Testament or the dispositive provisions of a revocable trust) can be changed with no duty to inform the initial intended beneficiaries.
- Make sure there are no remaining first generational needs – As an example, sometimes a family business is left to children by a deceased managing parent overlooking a surviving spouse who might still need distributions from the company’s revenue stream. Make sure that the potential for income from any asset to be transferred will not be needed down the road by those passing the property.
We are ready to help you fully inform clients regarding the planning issues that are involved with transferring property to their next generation either during life or upon death. We are ready and available to take part in conversations with you and your clients and eventually, if needed, with their advisors. Contact Tom Virkler at tom@cpsadvancedmarkets.com or 706-614-3796.
For what it’s worth: As for the Prodigals to be found in any clientele, astute planners keep in mind the adage regarding family wealth that has proven reliable enough to still be around: The first generation builds it, the second maintains it, the third loses it.”