Appreciated assets can have significant tax consequences when strategic estate planning is neglected.
Many financial strategies involve appreciated assets.
Investing is a helpful means of outpacing inflation.
Most retirement planning strategies involve a mixture of stocks and bonds.
Those who own a home or other real estate will also find the value of these assets increases over time.
When property has increased in value and is sold, this triggers capital gains taxes.
By utilizing strategic gifting strategies, you can minimize your tax liability.
Gifting strategies can reduce tax liability for appreciated assets.
Giving highly appreciated assets to beneficiaries or charities can provide several financial benefits.
You can reduce your taxable estate by gifting property while you are alive.
With a smaller taxable estate, less of what you leave behind will be subject to estate taxes.
If you gift an asset rather than sell it, you may be able to eliminate or defer capital gains taxes.
Donating assets with increased values directly to charities can maximize tax deductions while supporting your beloved nonprofits.
If you gift to beneficiaries in a lower tax bracket, you can allow them to sell an appreciated asset while reducing their capital gains exposure.
By working with an experienced estate planning attorney and financial advisor, you can avoid unintended consequences and comply with tax rules while maximizing the benefits of gifting.
Although the IRS can charge gift taxes on appreciated asset transfers, there are some exemptions.
What are they?
With the annual gift exclusion, you can give up to a certain amount per person each year without triggering gift tax reporting.
In 2025, individuals can gift up to $19,000 per recipient, while married couples can gift up to $38,000 per couple.
By giving to others within these limits, you can gradually transfer wealth without leading to a reduction in your federal lifetime estate and gift tax exemption.
Although the federal estate and gift tax exemption is subject to change, it is $13.99 million per individual in 2025.
When people gift more to an individual than the allowed annual gift tax exclusion, the amount in excess will be counted towards the lifetime exemption.
This means the amount the giver can pass free from estate taxes upon death will be reduced.
Through strategic giving, people can reduce their taxable estate without reducing their available lifetime exemption.
By gifting appreciated assets, the recipients could find themselves paying capital gains taxes.
When appreciated assets are inherited, they receive a step-up based on fair market values.
In contrast, the gifted asset will retain its original basis from when the donor purchased it.
If a parent purchased stock at $50,000 and gifted it to an adult child when it was worth $250,000 and the child sells it when valued at $250,000, the child will owe capital gains taxes on $200,000.
If the child had instead inherited it and sold it at the $250,000 value, there would be no capital gains tax.
Appreciated assets may be best inherited rather than gifted to reduce the tax burden for your heirs.
By gifting assets with increased value directly to nonprofits, you can provide for charitable causes while simultaneously receiving tax benefits.
When a person gifts the proceeds of an appreciated asset after selling it, the individual will reduce the amount available as a gift because capital gains taxes will be owed on the sale.
Yikes!
If you transfer a stock immediately to the nonprofit, there will be a full charitable deduction for the fair market value of the asset.
Ultimately, the charity will benefit from the full value of the gift.
By funding a Charitable Remainder Trust (CRT) with highly appreciated assets, you can still benefit from the income stream during your lifetime.
Charitable Remainder Trusts allow the trust to reinvest the entire asset value by deferring capital gains taxes.
The charitable tax deduction will be based on the current value of the donation.
It allows the donor and beneficiaries to have a lifetime income stream while providing for charities.
Charitable Remainder Trusts allow you to leave a charitable legacy while benefitting from your assets.
You can transfer appreciated assets to a Donor-Advised Fund to receive an immediate tax reduction while allowing periodical charitable gifts to be made over time from the fund.
Donor-Advised Funds can help provide flexibility in long-term charitable giving.
It allows your donations to grow tax-free before distributions.
The funds can help simplify record-keeping if you give multiple charitable contributions.
Ultimately, Donor-Advised Funds allow you to maintain control over charitable donations while maximizing tax savings.
When assets increase in value, strategic and comprehensive estate planning is necessary.
Working with an experienced estate planning attorney to create a comprehensive plan will allow you to utilize gifting to reduce the tax burdens for you and your beneficiaries, to understand whether assets should be gifted outright or placed in a trust, and to incorporate lifetime giving and inheritance wealth transfer strategies.
If you have a large estate, gifting can provide both legacy protection and tax efficiency.
Although gifting appreciated assets can be a wise estate planning strategy, it requires strategic planning to optimize wealth preservation, favorable taxes, and philanthropy.
If you have real estate, investments, or collectibles valued far higher than when you purchased them, you should work with an experienced estate planning attorney.
You can request a consultation with our Overland Park estate planning law firm.
Strategically gifting appreciated assets can minimize your estate tax and capital gains tax liabilities.
Limiting gifting yearly within the annual gift tax exclusion can reduce your taxable estate without decreasing your lifetime gift tax exclusion.
Directly transferring real estate or stocks to a nonprofit rather than selling and then gifting the proceeds can maximize the benefit to the charity.
Donor-Advised Funds and Charitable Remainder Trusts provide tax benefits while allowing you to provide to causes close to your heart.
Working with an experienced estate planning attorney to coordinate your trusts, gifts, and other strategies will help you to have a more tax-efficient transfer of wealth to charities and loved ones.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
Reference: Charles Schwab (December 13, 2024) “Tax-Smart Ways to Gift Highly Appreciated Assets”
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