Secure Your Legacy: Essential Considerations for Gifting to Family Members
Giving gifts is a very popular hobby around the world. But when people think about sending gifts to their family members, they feel hesitation for various reasons. A few of them are given below.
· Worries about losing control of assets
· Concerns about recipients’ maturity to handle gifts
· Desire to avoid spoiling or creating an entitlement
· Uncertainty about how to distribute gifts
Moreover, if you want to give gifts to your family, then plan the whole activity of giving gifts. For this purpose, we suggest you read about the good and bad aspects of giving gifts like stocks, property, or cash. Plus, learn about the money stuff you should think about before you give a gift.
Why Learning about giving gifts is Really Important
As we know, many people think that giving gifts is a good way to escape taxes and hand over wealth or money to the next generation. But if you plan this activity carefully, you can pass your wealth on to your family members without any hurdles. This might seem obvious, but when you dig deeper into your reasons, it helps match your values and makes your gift intentions clearer. It also becomes the main idea that guides how to Get Gift Ideas for Friends Who Have Everything.
Many of you want to give gifts by keeping in mind the following examples.
· Support a family member dealing with job loss or health problems
· Aid elderly parents with housing and care expenses
· Help your kids purchase their first home
· Create an education fund for future generations
· Pass on a family business to the next era
· Enhance the financial security of loved ones even after you’re gone
Therefore, we suggest that you have a grip on your own reasons so that you will become more purposeful at the time of giving gifts. This helps you talk about it with your family and set reasonable expectations. No matter why you’re giving a gift, there are important rules and exceptions you should remember while thinking about it.
Know Your Cost Basis
It is important to know the cost of assets you are going to give as gifts. Different assists have different values. So make sure to first learn the cost basis.
To put it simply, it’s the initial price of an asset along with adjustments made for things like depreciation, dividends, and changes in value. This phenomenon is known as “tax basis.” Therefore, keep in mind that when you are going to give assets away, understanding your cost basis matters. In addition, you can give gifts in customized packaging. For this purpose, custom-printed gift boxes are the best option.
The cost basis of property
The cost basis of a property (like land or a home) is the original purchase price plus any upgrades.
However, if you are thinking about giving property to a family, then the cost basis is calculated like stocks. Moreover, if improvement is needed, then this basis will not be applied.
It must be noted that, when you gift something to your family members, you pass on the original cost. But if you leave property through a will, the beneficiary gets a step-up in cost based on the date of your passing.
If your gift is a property, then your cost basis will transfer to the receiver. It doesn’t get a step-up like it would if passed to beneficiaries after you’re gone. Further, if you know this kind of basis, then it would be helpful for you to figure out the gain or loss when the donor sells the property.
Moreover, if you gift property that has already been lost, the receiver has a double basis. For gains, it’s your basis. For losses, it’s the property’s value when gifted. If they sell between your basis and the value at gifting, no gain or loss happens. This means the capital loss is gone. Instead of gifting property with a loss, sell it to claim the loss and then gift the cash.
The Cost Basis of Stock
The cost basis of the stock is the initial purchase price. For instance, if the donor bought a stock for $1,000 and it grew to $15,000 before gifting it, the cost basis remains $1,000. In order to give stock to the family as a gift, you must care about the cost basis and not the current value.
The Cost Basis of Cash
The cost of cash is its value when given as a gift. For example, if the giver (donor) gifts $15,000 in cash to the recipient (donee), the cost basis is $15,000.
In addition, if you are gifting depreciated capital assets, first get information related to them. Moreover, when you are deciding to gift property or stock, there are rules that apply to gifts of depreciated capital assets.
· If the gift’s market value is lower than the donor’s cost basis, the donee must use the donor’s cost basis for figuring out future capital gains, not the gifted value.
· If the donee sells the asset for less than the gifted value, the capital loss is the gap between the gift value and the selling price, not the donor’s cost basis.
Do you know that there is no gain or loss when the stock is sold for a value between the gift’s worth and the donor’s cost basis?
Other ways to Gift to Family Members
There are other ways to give to family without using up your lifetime gift and estate tax exemption. Paying for someone’s medical or educational expenses isn’t subject to gift tax limits.
If you will pay directly to the service provider, then you can qualify. Moreover, you can understand why you should write a check to the hospital for medical costs or to a college for tuition.
You can give five years’ worth of your annual gift tax exclusion in one go to a beneficiary’s 529 plan. This means you could give up to $75,000 today, spread over five years. This lets you enjoy tax benefits and growth on those assets. If you live past five years, the whole gift is excluded from your estate.
Gifting to family, whether kids, grandkids, or siblings, involves picking the right assets and considering taxes. Before gifting, talk to an attorney, accountant, or financial advisor to choose the best way that suits your goals.
