Many people don’t recognize that there’s a huge difference between inherited and gifted assets, and that this could cost your beneficiaries significantly in the form of taxes. If your parents are nearing retirement age and looking into proper estate and financial planning, they may be interested in transferring assets to your name to ensure that this material is not taxed after they pass away. These kinds of transfers, however, can have significant tax consequences.
Some of the most common reasons that parents even contemplate this are to achieve avoidance of probate, avoidance of estate or inheritance taxes, and Medicaid qualifications. One of the biggest concerns associated with transferring assets like this is known as the step-up basis. The tax basis of any asset that is held until the point of time at which the person passes away is stepped up to fair market value.
This means that if your family members sold these assets today, there would be a big capital gains tax to be paid by them. If they gift the property to you during their lifetime, however, you will be able to take that property with the carryover basis, and will have the same capital gains tax due when you opt to sell it.
However, if they hold on to it until they pass away, the person who inherits the property then must pay the taxes on a stepped-up basis. This could have significant tax consequences and financial challenges that many loved ones still consider.
Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship. For legal advice specific to your situation, please consult with a qualified attorney.
Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship. For legal advice specific to your situation, please consult with a qualified attorney.