If you’re concerned about a future estate tax obligation, you can make tax-free gifts each year. In 2005, you can give up to $11,000 worth of assets to any number of recipients. Such gifts are “use it or lose it,” meaning that if you skip gifts in 2005 you can’t make it up with a larger gift in the future.
- Estate-reducing gifts to younger family members should be made with cash while appreciated securities go to charity. If you have paper losses on securities, sell those stocks or funds to get the capital loss and then give away cash to your children.
- This strategy should be reversed if you have children heading for college and you intend to sell appreciated stocks or funds to pay for their education. If so, give away those securities to your kids, using the $11,000 annual gift tax exclusion described above. (Married couples have a $22,000 annual exclusion.)
As long as your children are 14 or older, they can sell the shares and pay tax on any gains at a 5 percent rate. You would owe a 15 percent tax on capital gains, if you sold the shares yourself.