By John P. Napolitano CFP®, CPA, PFS, MST | Founder & Chairman
If you’re gifting because you’re trying to mitigate the size of your estate and save on taxes, the worst asset you can gift is cash. The ideal gift is an asset that’s more likely to significantly appreciate, growing quicker than cash. What’s your cash going to grow at today? Three and a half, maybe four percent if you’re a good money market hunter.
But if you own a stock, a piece of real estate, or a business where your expectations for long-term returns exceed today’s safe fixed rate, that’s a way better asset to gift for reducing your estate. These appreciating assets effectively remove not just their current value from your estate, but all their future growth as well.
This strategic approach to gifting allows you to maximize the impact of your estate planning while ensuring your beneficiaries receive assets with the greatest potential for future value.
One other note worth making is gifting of illiquid assets, such as businesses or properties. You might not consider transfer of these assets if you’re operating from an all-or-nothing assumption. You don’t have to gift 100% of an asset at a time, especially where tax planning is involved.
Over the years, we’ve implemented more than a few partial interest transfers on assets like these. You can give away small percentages over periods of time with proper valuations and appropriate discounts. This approach can be beneficial for you because you’re paying less taxes, and good for your beneficiaries because eventually they’ll get the benefit from that asset, whether through cash flow or an ultimate sale.
