Frank Spees
Special to the Bonanza

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September 23, 2013
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Should you give assets to your children and grandchildren?

You may make gifts of up to $14,000 in 2013 to as many people as you want without filing any forms and without paying any taxes. You may double this if you are married. But should you do it?

Your kids and grandkids could benefit by getting income to support themselves and experience in dealing with assets. But they may suffer because they may lose their motivation to work.

For people with very large estates (over $5,250,000) the Federal Estate Tax may be avoided by giving away assets annually during their lifetime, but keep in mind there will be no “step-up in cost basis” on assets not held at death, so there will be capital gains taxes on sale of the asset after death.

These annual gifts can build naturally into huge amounts over time if properly invested with interest and appreciation and assuming your kid or grandkid has a lower tax rate.

There are even ways to “leverage” these gifts by giving assets other than money. For years people have given interests in irrevocable trusts, limited partnerships and limited liability companies instead of cash.

Discounts were taken on these gifts for “lack of marketability,” “minority interest,” and other reasons. For example, this means an annual gift by a married person of $28,000 of interest in a limited partnership could be an actual gift of $56,000.

Unfortunately, in recent years the courts have disallowed many of these gifts. Now, if you want to do it this way you must allow unilateral withdrawal of assets, free transferability and reinvestment for income and require distribution of income and maybe even a cash buyout.

The “latest greatest” but untested tool to avoid these issues is to make annual gifts of cash to the trustee of an irrevocable trust for the benefit of your kids and grandkids. The Trustee of the trust then buys assets from you at a discounted value. Then, the assets are held in the trust for the benefit of your kids and grandkids.

In conclusion, you may make annual gifts to your kids and grandkids without filing forms or paying taxes. However, there are pros and cons to doing this and be careful about “leveraging” your gifts.

— Frank Spees is an Incline Village estate planning attorney who is licensed to practice before all the courts of California, Nevada, Hawaii, and Florida. For more information about this article, email Frank at trusts@spees.com or call Spees & Spees at 775-832-7006.


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Tahoe Daily Tribune Updated Sep 27, 2013 03:01PM Published Sep 23, 2013 05:24PM Copyright 2013 Tahoe Daily Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.