Transcript:
Katie Nealis:
I have another great question in asking, I am getting older. And I don’t foresee me using up all of my assets. Should I start slowly gifting over some of my low cost basis stock, basic stuff, stocks and brokerage accounts to my children or grandchildren? If not, what should I gift?
Tom Vaughan:
Last part is good. All right, let me recap that. So somebody has more money than they need, at least they feel that way, you got to make sure. Because you don’t want to give away your money and then end up having to ask for it back, basically. So that’s where the financial planning process comes into place. We can test things we can say, hey, what if we give away $30,000 a year for the next 10 years? What happens? You know, does it work that we still have a 99% probability of success, or at least an 85%, probability success, etc. So that’d be my first thought there, it’s just making sure that you actually do have the money to give away now I have a lot of clients that do. We’ve had, you know, just phenomenal success after this low that we had back in March, and a lot of people have a lot more money than they thought they would at this point in time. So I’ve got a lot of clients that are looking at gifting. So let’s talk about what you should gift from. So the one disadvantage to what you mentioned, at least upfront there was if you gift, let’s say you spent, you know, $10, and the stock is now worth 100, you’ve had it for a long time. And when you gift that stock tears to your children or your grandchildren, you’re also gifting them that cost basis. So what that means is that when they go to sell it, they’re going to end up with a $90 gain, they get your $10 cost basis, and it’s worth 100, if they were to sell it, they would end up with the gain. If they inherited that stock, when you die, the cost basis gets stepped up to current value.
So just for example, if it was still worth $100, when you passed away, then they inherit that with a cost basis of $100, which means then if they sell it, there’s no tax, that’s a pretty big difference. And so gifting appreciated, stock isn’t the ideal thing to gift. As far as that goes, there’s a whole bunch of other places that you might look, if you have, if you don’t appreciate the stock is the only option, then it is the best chance as far as that goes. But if you want to, you know, if you’re over 72, and you have to take money out of your IRA, that is cash, essentially, that you could give. So let’s say you had a $30,000 distribution from your IRA, after tax, you could give that away to your kids and grandkids. And you know, they get the cash, there is no cost basis issue or any of those types of things. And so that, that, you know, you gifting cash, if you have enough money, you know, hey, I have X amount for my emergency accounts, and I have a lot extra, you could give some of that cash away as far as that goes. So there’s a bunch of things that are probably better to gift than the appreciated stock. It’s great to give appreciated stock to charities if you do charitable contributions, because they do not pay taxes on that $90 gain I just mentioned. So that’s really good. It’s even better to give charities money out of your Required Minimum Distributions, because then that tax is gone completely. And that’s the best way to give to charities. Again, if you’re over 72 and you have an IRA for distribution. So there are you know, a whole lineage of places where you would want to look at for gifting, make sure you can give first and then figure out the best place to do it.