Is It Better to Transfer Assets Before Death?

Many people like to give inheritances after they have passed. However, another approach is to gift while living, which has some definite advantages for both the giver and the recipients. As explained in the article, “Gifting While You’re Alive: Tax Benefits and Practical Tips,” from Kiplinger, giving while living allows you to see how your legacy helps others, provides for greater control, and has tax advantages.

Reasons for gifting while living vary widely. Therefore, be sure that your gifting strategy is part of a comprehensive estate plan and makes sense for your financial needs during your lifetime. Don’t give assets you need to cover living expenses, surrender investments early to incur additional costs or create a significant tax burden for yourself. Gifting while living should only be done if you and your spouse can afford it.

In 2024, individuals can give up to $18,000 per person to as many people as they want. In 2025, the level will increase to $19,000 per person for an individual and $38,000 for a married couple.

The IRS defines a gift as a property transfer where no equal value is received in return. Whether your gift is used for a down payment on a house, adding an owner to real estate property, paying off a debt for someone else, or forgiving a previous loan, check with an estate planning attorney to be sure that you are staying within the exclusion levels. Anything over the limit will incur taxes.

If your generosity extends to helping with educational costs or medical debt, be sure to make payment directly to the hospital, care facility, university, or private school. Only direct payments are gifts.

Gifting assets like shares in a business or real estate requires a professional appraisal to document the value of the gift. You don’t want to draw any attention from the IRS, so be sure to follow the guidelines.

If you hope to help a family member buy a home, you could structure your gift as an intrafamily loan. There are guidelines you’ll need to follow to make sure this is not considered a taxable gift by the IRS.

When gifts are made could matter as much as their size. Be careful when gifting appreciated assets and discuss this with your estate planning attorney beforehand. Inherited assets receive a step-up in basis at death. Still, inherited assets retain their original cost basis and could lead to capital gains taxes for the recipient if they sell the assets. If you gift your home to your children, for instance, they may be subject to a big tax bill if they sell the house in the future.

Section 529 educational savings plans are a great way for grandparents to help with their grandchildren’s education. Contributions can be front-loaded, allowing up to five years’ worth of contribution to be made at once—as much as $90,000 in 2024 and $95,000 in 2025 to a single 529 plan. Any additional gifts to the same beneficiary during the five-year period following the big funding could trigger gift taxes.

At The Werner Law Firm, we help clients explore strategies like gifting while living as part of a comprehensive estate plan. Our team of experienced estate planning attorneys can guide you through the advantages and potential pitfalls of transferring assets before death, ensuring your financial goals and legacy align.

If you have any questions, schedule a free appointment with us through our online appointment page.

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Reference: Kiplinger (Dec. 4, 2024) “Gifting While You’re Alive: Tax Benefits and Practical Tips”