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Caring For Generations

“Giving money to friends and family can involve gifts or loans that can carry emotional baggage and ignite tax concerns,” Jeff Simpson points out in Financial Advisor Magazine. Emotion aside, he points out, it’s important to decide up-front if the money is intended to be a gift or a loan, because the IRS is going to be paying attention:

In order to qualify as a loan (to avoid gift tax consequences), a transaction:

  1. must be documented, with the terms in writing (when repayment is due, purpose for the loan)
  2. must charge interest at the minimum rate published by the IRS

On the other hand, if the money is truly intended to be a gift, Simpson cautions, you need to “be emotionally prepared for whatever way the recipient plans to use the gift, because, if there are strings attached, that’s not a gift.

The other thing to remember about gifts is the annual exclusion, which in 2022 is $16,000 per recipient. You can give this amount to an unlimited number of people (family members and non-family members alike) during the year, with no gift tax consequences at all. The only rule to remember is that gifts must be “of a present interest”, meaning unconditionally usable now by the recipients.

For gifts of non-cash assets, there’s always a concern about cost basis and capital gains liability for the recipient. According to current tax law, if you give an asset such as real property or stock, the recipient is going to get your cost basis (leading to capital gains tax when he or she ultimately sells that asset). At least under current tax law, if you pass on the asset at the time of your death, the cost basis will “step up” to date-of-death value.

On the other hand, in discussing gifting strategy with our Geyer Law clients, we find that many have family members in need of help now, or clients simply want the satisfaction of seeing their gifts being enjoyed.

– by Ronnie of the Rebecca W. Geyer & Associates blog team