Tags: estate | tax | step-up | gift

WSJ: High Estate Tax Threshold Leads to Less Gifting From Wealthy

By    |   Monday, 31 March 2014 09:29 AM

Wealthy people are giving away less in gifts to reduce the size of their estates now that you only have to pay taxes on estates bigger than $5.34 million, $10.68 million for couples, The Wall Street Journal reports.

At the end of 2012, the wealthy were giving gifts hand over fist amid concern the government would cut the federal estate tax exemption to $3.5 million or less, according to the paper.

You can dole out $5.3 million of gifts tax-free during your lifetime, including gifts of up to $14,000 a year to as many individuals as you choose.

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But with the estate tax threshold now so high, many financial planners recommend holding on to your assets until you die, The Journal reports.

Doing so can save your heir on capital gains taxes. If you give someone assets as a gift while you're alive, when they sell the assets, their cost basis for capital gains taxes would be the price you originally paid for the assets.

But if you give them the assets as an inheritance, the cost basis would be the value of the assets when they are inherited.

That's called a step-up in basis.

"With the estate-tax exemption so large and the capital gains rate so high, you might be better off holding on to an asset so that heirs get the step-up in basis," Tara Thompson Popernik, a director at Bernstein Global Wealth Management, tells The Journal.

An interesting example of the step-up in basis tax break emerged after the recent death of Buffalo Bills owner Ralph Wilson.

Wilson was determined not to sell the team before he died. If he did, he might have had to pay capital gains taxes using the $25,000 cost basis for his original 1959 investment, The Buffalo News reports. The team is now valued at $870 million.

But if his heirs sell the team, they will likely get a step-up in basis to the value of the team at Wilson's death, according to The News.

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Wealthy people are giving away less in gifts to reduce the size of their estates now that you only have to pay taxes on estates bigger than $5.34 million, $10.68 million for couples, The Wall Street Journal reports.
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2014-29-31
Monday, 31 March 2014 09:29 AM
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