large cash gift to adult children
My husband & I are retired. Our income consists of SS, minimal rental income, and stock dividends. We have 2 adult children. Our daughter and son-in-law are the proprietors of a small successful 25 year business that caters to the entertainment industry. Recently, with the decrease in tourism their business has suffered a set-back and they have had to use their personal savings to keep their business afloat.
We would like to help them out this year by giving them the annual gift exclusion allowed by the IRS. (we are familiar with the amount limitations) We would give our son the same amount. Neither of our kids has asked for help, but we know our daughter’s business is struggling right now.
To generate the cash needed for these 2 gifts, would it be best to sell some of our stock holdings and give the kids the cash, or should we transfer the stock to each of the kids, and they could each decide to liquidate the stock as needed or keep it until they feel they must sell. Are there any advantages/drawbacks to either course of action?
Terry Says
Your motives are admirable — but perhaps not financially preferable. You do realize that if you sell stocks held long-term (more than one year) you must pay capital gains taxes. BUT if you hold those stocks at death and gift them to your children, they will get a “step-up” in cost basis to the value on the date of death. That means they will pay NO capital gains taxes. When and if they do sell the shares in the future, their “cost basis” will be the value at the date of your death.
So it’s usually unwise to generate those long-term capital gains by selling shares — unless you have an important reason for doing so. And the only practical way to do this is to sell shares, pay the taxes, and gift them the cash.
Now, let’s get to that “important reason.” Only you can decide. But ask yourselves a question: Who gave YOU a lifeline when times were tough?? Maybe it’s better for them to work things out on their own. And that way, you’ll have the money if you need it in your own old age.
