U—Gifts & Split-Gifts

For families that are potentially subject to estate taxes, lifetime giving is a very important part of estate planning and can reduce the ultimate estate tax burden very substantially. However, because of increased estate tax exemptions passed into law in recent years, fewer and fewer individuals have potentially taxable estates.

Property gifted during life has a “carry-over” basis meaning that any gain at the time of the gift passes to the recipient. Whereas, property held until death has a basis “step-up” with the recipient being assigned a cost basis equal to the date of death fair market value. For most families, the ability to “wash away” gains at death can be more important than transfer tax considerations.

INDIVIDUAL GIFTS. To illustrate, assume that a donor has money that is not needed for his own support. Under the federal gift tax provisions, an individual may give – under most circumstances – up to $16,000 per person, as indexed in 2022 for inflation, annually free of gift tax. Thus, with three children the donor could give each of them $16,000 per year. This per-donee exclusion is allowed each and every year, but it isnot cumulative(i.e., an exclusion unused in any year may not be “carried over” to the following year).