Questions My Clients Asked Me This Month

Written By: Michael H. Fogarty, CFP®

President, Senior Wealth Management Advisor

Q: “We feel our portfolio has grown sufficiently for our own needs. What is the best way to begin making gifts to our children?”

A: This answer should start with the goals and values of the client.  Do they want to support a large, one-time purchase, or is this gift meant to be made annually?  Are they concerned about their children’s decision-making ability or potential mis-steps (e.g. divorce, bankruptcy).

We must also consider the client’s capacity to gift.  How will a large gift impact the financial security of the parent. As their financial planner, we may want to create a scenario plan that models their new gifting strategies.

A third important consideration is the decision about which assets to gift. The tax basis of a gift of stock or real estate, for example, usually becomes the tax basis of the gift recipient. This creates some important considerations related to tax planning and estate planning.  Integrating this gifting decision into the larger financial plan is very important.  Coordinating with the clients tax advisor is also very important.

For this client, we developed a plan for making gifts of high tax basis assets (likely cash) to preserve the potential long-term benefits of the “step-up” in basis at death.  Their capacity to gift is significantly higher than their modest gifting intentions. Therefore, they will have the ability to watch their children enjoy some of the hard-earned wealth that they have built.