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Asset transfers and gifts

On Behalf of | Oct 18, 2021 | Estate Planning |

One of the most simple ways to transfer assets is with gifts. This can play a big role in estate planning and other wealth preservation strategies. However, people often do not realize that gifts in Connecticut can have complex tax implications. Minimizing that tax burden is important because the tax rates can be high depending on the size, source, and frequency of the gifting.

Varied treatment of gifts

It is complex to establish the best timing for an asset gift. For example, an asset that has increased in value since it was bought is better if it can be held as long as possible and rolled into an inheritance, because this can allow the recipient to reset the cost basis. Gifting it to someone with a younger marginal tax rate can save them on taxes if it is sold, but the flip side is that they will be stuck with the current, high cost basis.

This changes depending on whether the asset is held in a standard brokerage account, an IRA, a 401(k), whether the account is traditional or Roth, and so on. Each of these has its own tax treatment and its own withdrawal and transfer rules. Working out how to handle the estate planning and reduce the tax burden can take time, but the savings could be in the many thousands of dollars.

It’s important to understand the tax treatment of any potential gift you want to give, because you don’t want a gift to be burdensome or costly. The rules occasionally change, as well, so the tax implications of a gift ten or fifteen years ago are not necessarily what they are now.