I was visiting with a wonderful married couple today. They had seen me speak to a big church group a while back and they attended my Barnes & Noble book signing and mini-seminar. They were telling me how fantastic their children and grandchildren were.
They have owned some acreage for many years. It has appreciated significantly in value, but they are not at risk for paying federal estate tax (at least not unless there are some major changes in estate tax laws - which might happen). They were considering selling this property to one of their grandchildren. I pointed out that if they sell this property to their grandchild, they will pay approximately $100,000 of capital gains tax because there has been so much appreciation since their original acquisition.
However, if the grandchild inherits this property, then the grandchild will inherit it at a stepped-up basis. All of that appreciation that would be taxed if they sold or gave away would no longer be taxed.
Here's my rule: If you are certain there will be no federal estate tax, DON'T GIVE AWAY APPRECIATED ASSETS. If you give them away, your donees will receive your basis (called a "carry-over" basis). Let your heirs inherit the asset and let them enjoy the stepped-up basis.
Of course every circumstance is different and other factors may affect your decision, but make sure you know the rules before you take action.
Good thank you.
Posted by: Adana Emlak | September 06, 2009 at 05:14 PM