Posted by: Heinz Brisske

In a recent article, the Wall Street Journal reported that “The wealthy are gifting less to their families these days.” There has always been a liability associated with lifetime gifts of appreciated assets, in that such gifts merely transferred the donor’s tax basis to the donee. A transfer at death, on the other hand, carries with it a “step-up” in basis for the recipient of the gift. With less than 1% of the population now subject to the federal estate tax, it makes more sense from a tax standpoint for most folks to avoid lifetime gifts, and to simply leave those amounts to heirs at their deaths. Obviously, other factors, beyond mere taxes, also need to be taken into consideration in deciding whether or not to make lifetime gifts.

This is another instance of income tax planning trumping estate and gift tax planning in our current tax environment. For many of you with older estate plans, drafted under prior estate tax regimes, you may want to take a fresh look at more flexible planning opportunities under the new, “permanent,” federal estate tax. Many of you have rigid “A/B Trust” plans that allow for very little flexibility in income and estate tax planning at death; a more flexible approach that allows for a post-mortem “second look” might be more appropriate. It might also save your heirs a bunch in taxes.