Gifting: As Simple as Writing a Check

November 2008

Starting in 2009, Congress allows you to gift $13,000 per person per year. A husband and wife therefore can gift to a child $26,000 per year.

People often think they have to establish some form of elaborate gifting process to take advantage of this law, but they don't. It is as simple as writing a check.

For example, Mom and Dad decide to gift $13,000 to each of their adult children. They write a check to each child, who in turn deposits the check in a bank. The gift is completed.

Such transfers can be made from parent to child or from grandparent to grandchild in a way that will reduce the tax burden on the giver's estate and help the recipient. The advantage is obvious.

Stocks Can Be More Effective. Still, conveying publicly traded stock or any asset that you think will appreciate can be a more effective method of gifting than giving cash. The asset will appreciate outside of the giver's estate, reducing the giver's estate tax burden.

A downside of gifting is that you are giving away cash or assets that you could be using today. Naturally, you want to give only what you won't need.

Usually, gifting shares of stock to a child is a big advantage if the child is in a zero to low capital-gains tax rate. (Note: This assumes no kiddie tax issue.)

Remember that if Dad gives stock to his son or daughter, then the son or daughter assumes Dad's basis in the stock. If Dad bought the stock when it was trading at $1 per share and later gifted it at a $100 per share, then his children would receive his basis. When the children go to sell the stock, they would pay a capital gains tax based on what dad paid for the stock, not the value of the stock when they received it. This is contrary to what would happen if the children had inherited the stock.

As a planning tip, when the basis of the gift is greater than its fair market value, then stocks or other proprty should not be used for gifting.

Adapted from the Daily Plan-It newsletter.

Hoopes, Adams & Alexander, PLC, is a Chandler, Arizona, law firm offering services to Phoenix-area clients in the areas of estate planning, entity formation, commercial and real estate transactions, and civil litigation.