Elderly woman with estate planning attorney

Give Your Heirs A Leg Up Through A Step Up

If you are a long-time reader of this blog, you have probably noticed that we often emphasize gifting as a great way to avoid estate taxes. Federal law includes an annual gift tax exclusion, which allows an individual to pass up to $16,000 per person, to as many individuals as one would like, each year, tax-free. Couples can double up and pass $32,000 tax-free. Consistently taking advantage of this law can help you pass a significant amount of wealth on to the next generation without worrying about estate taxes. 

However, it is important to note that gifting assets only avoids estate taxes. Other taxes, like capital gains taxes, must still be paid if an asset that has significantly appreciated in value is sold after being gifted to someone else. 

When you have an asset that has significantly appreciated in value since you obtained it, there are often tax advantages to allowing that asset to pass through your estate rather than gift it to a loved one before you pass on. 

Palmer & Slay’s experienced team of estate planning attorneys can help you identify assets that would benefit from being passed through an estate rather than gifted. We will then craft a custom estate plan that meets your unique needs. 

The Basis Basics

When you sell an asset that has appreciated, you must often pay capital gains tax on the difference between your basis in the property and its current value. Your basis depends on the way you obtained the property. 

The basis of property you buy is usually its cost. The cost is the amount you pay in cash, debt obligations, other property, or services. Your cost also includes the amounts you pay for the following items.

  • Sales tax.
  • Freight.
  • Installation and testing.
  • Excise taxes.
  • Legal and accounting fees (when they must be capitalized).
  • Revenue stamps.
  • Recording fees.
  • Real estate taxes (if assumed for the seller).

You may also have to capitalize (add to basis) certain other costs related to buying or producing property.

The basis of property inherited from a decedent is generally fair market value of the property at the date of the individual’s death.

Calculating the basis of an asset that is received as a gift is a bit more complicated. To figure the basis of property you receive as a gift, you must know the donor’s basis in the property, its fair market value at the time it was given to you, and any gift tax paid on it.

Covering All Your Basis

At Palmer & Slay, PLLC, we understand that avoiding taxes is not your only concern when you are crafting your estate plan. However, it is a plus when you can accomplish your other goals while also reducing your family’s tax burden and protecting your wealth. 

If you are ready to speak with someone about your estate planning needs, the Palmer & Slay team is ready to listen. We provide skilled legal counsel for high-net-worth clients in the Brandon, Mississippi area and beyond. Please contact us today to schedule a meeting.