To gift, or not to gift

By Allen J. Falke, Mirick, O’Connell, DeMallie & Lougee, LLP

The topic of gifting assets is often an important discussion in the world of estate planning. Generally, a main point of gifting is to remove assets from the estate of the donor to avoid potential estate taxes on the asset.

Even if a gift is subject to a gift tax, gifting early can remove an appreciating asset from the estate at a lower value. However, when considering making a gift, it is important not to forget the potential income tax consequences. The general rule is that when a donor makes a gift, the tax basis transfers over to the recipient. This is known as “carry-over basis”. When the recipient later sells the asset, the recipient may have to pay capital gains tax on the difference between the basis and the sale price.

However when an asset passes through an estate the basis of the asset will receive a “step-up in basis” to the fair market value at the time of death. The recipient could then sell the asset and pay no capital gains tax. Given that the federal estate tax exemption in the USA is currently relatively high, the exemption for 2016 is $5,450,000 per individual. When combined with portability for a married couple, this effectively results in the first $10,900,000 of an estate being exempt from federal estate tax.

Therefore, if a client’s estate falls under the exemption amount, careful thought should be given before low basis assets are gifted, and in a taxable estate the basis of assets to be gifted should be reviewed.

Allen J. Falke

Allen J. Falke

Mirick, O’Connell, DeMallie & Lougee, LLP, Worcester, MA, USA
T: +1 508 791 85 00
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Allen is a member of the Mirick O’Connell’s Business Group and Trusts and Estates Group. He focuses his practice on tax, estate, and business planning. Allen provides estate planning for high net worth individuals and succession planning for business clients. He advises clients on tax matters related to business acquisitions, restructuring, business formations and combinations.

Mirick O’Connell is a law firm which employs 60 attorneys, serving businesses and individuals from offices in Worcester, Westborough and Boston, Massachusetts. Founded in 1916, Mirick O’Connell offers innovative solutions to the issues facing its diverse client base.

Published: October 2016 l Photo:


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