Mistakes to Avoid in Lifetime Giving - Part 1

Published on: 16:50PM Sep 13, 2012

Lifetime giving of appreciating assets is one great tool to use to prevent unnecessary estate taxes.  However, if done incorrectly, these gifts can prove costly.

I will do a multi-series post on some of the mistakes to watch out for in the next few days:

  • If you will pay for someone's education or medical costs, do not make the payment to  them.  Instead, make the payment directly to the college or medical provider.  You are allowed to make unlimited gifts for these items as long as they are made directly.  None of these  gifts will count either toward your annual or lifetime gift exclusion amount.
  • In separate property states, don't overlook using gift-splitting with your spouse.  This allows one spouse to make one payment of $26,000 and they can elect to split the gift on their gift tax return.  However, if you do not want to file a gift tax return, it is better to write one check from each spouse for $13,000  (Note, gifts of community property are automatically considered to made 50% by each spouse, and no gift-splitting consent is required).
  • Avoid giving highly appreciated property shortly before a donor's death.   This will cause the donee to lose the value of the step-up to fair market value when they sell the property.  Instead, the lower basis will carry  over and that is their cost basis when they sell.
  • Avoid gifts of mortgaged property where the mortgage balance exceeds the adjusted tax cost.  The excess will be taxable income to the donor.  Also, due care must be taken when partnership interests are gifted when large amounts of liabilities are inside the partnership.


More to come later.....