The estate and gift tax exemption was raised to $11,180,000 per person for 2018, and will increase based on inflation each year until 2026 when it will return to the amount before it was increased (approximately $6,000,000), but still be subject to inflation.

A gift during your lifetime has a “carryover basis,” but a gift on your death receives a step-up in basis to the fair market value as of your date of death (except for individual retirement accounts).

For example, you bought stock for $100,000 ten years ago and the stock is now worth $300,000. You decide to give the stock to your son. You may give it to your son without paying any gift tax, but when your son sells the stock, he will have to pay income tax on $200,000 gain. Instead of gifting the stock to your son now, you leave it to him in your Will (or revocable Trust) upon your death. The new basis of the stock on your date of death is $310,000 (the value of the stock on your date of death).   When your son sells the stock a few years after your death, the stock is valued at $320,000 and your son only pays income tax based on the gain of $10,000.

Some of the factors in determining when to gift or when to hold various assets are: (i) the value of the asset when you purchased it; (ii) the value of the asset now; (iii) the significance of the difference in basis between when you purchased it and now; (iv) your current financial circumstances; (v) the income tax rate of the person to whom you want to make a gift; (vi) your remaining estate tax exemption; (vii) the size of your estate; and (viii) the structure of your estate plan, among other factors.

If you have additional questions, please contact Robin L. Miskell in the Phoenix, Arizona office at (602) 889-5329, or one of Dickinson Wright’s trust and estate attorneys.