> One of the best estate planning vehicles I know of is to have a large portion of your portfolio in a stock(s) with extremely low cost basis. At any time prior to death, you can deplete the estate without any tax consequences at all simply by gifting stock to relatives. Example: in 1970 you bought 1000 shares of WalMart at $20. Today you have 1 million shares after splits at $35. You give 500,000 shares each to two relatives today to deplete the estate. Since each transaction is at cost (500*$20), they pay no gift tax. If they sell s, they would pay capital gains on nearly the full amount of the sale, but federal capital gains is only 28%, soon to become 20%, much better than the dreaded death tax on estates above nominal minimums.
Alan:
I certainly hope you aren't using this planning strategy, as it is flat out wrong. A gift is measured by the fair market value on the date of gift, and the tax is imposed on the donor, not the recipient. You are correct that the donee's basis is the same as the basis of the donor (assuming that the stock is sold at a gain; if sold at a loss, it is FMV on the date of gift). In your example, if the gift had been made just before death, it would have been a disaster, as there would have been a gift tax on the transfer, but there would be no step up from being included in the estate, so income (capital gain) taxes would also be due when the stock was sold.
John |
