Gifting to Heirs: How to Strategically Pass Down Wealth

If you’re fortunate enough to have a sizeable nest egg, you may be planning to pass down some of your wealth to your children or grandchildren. Gifting can benefit your family members today, while also reducing the impact of estate taxes when you pass away. But it’s not quite as simple as writing a big check. The IRS takes a keen interest in what you give away, how much you give and exactly when you do it. And know that an apathetic approach to gifting and estate planning could create a sizable tax bill. 

Here are some important tips to consider as you gift to heirs. 

• Make it a team effort. Your CPA, estate planning attorney and wealth advisor can help you navigate the tax code and create a strategic gifting plan based on your level of wealth, goals and lifestyle needs. 
• Plan ahead. The deadline for gifts to count toward the current tax year is December 31. So, don’t wait until the last minute, as it can take time to meet with your financial team and get the process underway.
• Know your limits. In 2023, you can gift up to $17,000 per person to as many people as you like before you’re subject to filing a federal gift tax return and possibly paying federal gift taxes. Any overages will also be deducted from your lifetime gift tax exemption of $12.92 million. Be aware these numbers can change from year to year, so it’s best to revisit your plan annually.
• Mind the cost basis. If you gift stock or real estate, the recipient will inherit your cost basis (the original purchase price), which could trigger a big income tax bill for them when they sell the appreciated assets. For that reason, you might consider letting these assets transfer to your heirs when you pass on, at which time the cost basis is “stepped up” to the date of death valuation. Additionally, more complex strategies include gifting part of the entity that owns the assets rather than gifting the assets outright.
• Consider different forms of giving. Unlike giving cash or investments, paying directly for a family member’s medical or educational expenses is not subject to gift tax limitations. And if you want to dictate how and when your financial gifts can be used, consider putting the assets in an irrevocable trust. This strategy is especially common when making large gifts to kids.

Not sure where to begin? Contact Evans Attwell at 713.388.1367 or Evans.Attwell@frostbank.com to find the right balance of gifting while preserving your estate for future generations investment.
Management services and trust services are offered through Frost Wealth Advisors of Frost Bank. Investment and insurance products are not FDIC insured, are not bank guaranteed, and may lose value. Brokerage services offered through Frost Brokerage Services, Inc., Member FINRA/SIPC, and investment advisory services offered through Frost Investment Services, LLC, a registered investment adviser. Both companies are subsidiaries of Frost Bank. Additionally, insurance products are offered through Frost Insurance. Deposit and loan products are offered through Frost Bank, Member FDIC. Frost does not provide legal or tax advice. Please seek legal or tax advice from legal and/or tax professionals.