ACCT 614 Week 2 Discussion Board Forum 1 Example

Discussion Board Forum 1: Lifetime Gift or Bequest of Appreciated Property

ACCT 614 Estate, Trust, and Gift Taxation, Discussion Board Forum 1

Thread by [Student Name]

The family facts and classmates are composites; the Code sections, studies and Bible passages cited are real.

Margaret, a widow of 74, owns shares she bought for $80,000 that are now worth $900,000, and her total estate is about $4 million, well below the $15,000,000 basic exclusion for 2026. Her son has asked whether she should give him the shares now. From a tax view, the answer turns on basis rather than on the gift tax. If she gives the shares this year, her son takes her $80,000 basis under Section 1015, and a later sale produces $820,000 of gain (I.R.C. § 1015, 2025). If she holds them until death, his basis becomes their value on that date under Section 1014, and the built-in gain disappears (I.R.C. § 1014, 2025). At a 20 percent capital gains rate, that difference is about $164,000 before the net investment income tax.

A lifetime gift still makes sense in some families, especially for assets expected to grow sharply or for estates above the exemption. Research shows that families do respond to estate taxes, yet many wealthy households pass up tax-free lifetime giving, and those holding large unrealized gains are among the least likely to make big gifts (Poterba, 2001). That pattern fits Margaret's case. With gains this large and no estate tax at stake, waiting is worth more than giving.

The biblical perspective adds a question the Code does not ask. Proverbs observes that wealth handed over in haste early on does not end in blessing (English Standard Version Bible, 2001/2016, Proverbs 20:21). Before giving anything early, Margaret should ask whether her son is ready to manage it and whether she still needs the income. Generosity and prudence can point to the same answer, which here is to wait while helping in smaller ways.

Reply to Jasmine

Jasmine, you made a strong case that the step-up in basis is the most valuable feature of holding assets until death, and the evidence from 2010 supports you. That year the estate tax lapsed and executors could choose carryover basis instead, which gave researchers a rare look at the gains involved. Unrealized gains made up 44 percent of the value of non-cash assets in estates that chose carryover, with many of the largest gains on assets held for 20 years or more (Gordon et al., 2016). In other words, nearly half of what heirs receive can be untaxed appreciation. I would add that the choice is not always one-sided. McGarry (2000) found that parents whose estates are likely to owe tax give more during life, and that eliminating the estate tax would cut such transfers by nearly 30 percent. For estates above $15 million, lifetime gifts of high-growth assets can still win.

Reply to Andre

Andre, you recommended that Margaret give the shares now so her son can use them while she is alive. I understand the appeal, but your thread did not consider whether she can afford to give away nearly a quarter of her estate at 74. Long-term care can cost several hundred thousand dollars, and once the shares are gone she cannot call them back. Poterba (2001) found that households with wealth tied up in illiquid assets or with large unrealized gains tend to give less, which suggests many donors weigh their own security before tax savings. The data from 2010 also showed that executors weighed the estate tax against the later capital gains tax and chose whichever cost the family less (Gordon et al., 2016). Margaret's situation calls for the same weighing. Would a smaller annual gift of cash, within the $19,000 exclusion, give her son help now while keeping the shares for a stepped-up basis later?

References

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Gordon, R., Joulfaian, D., & Poterba, J. (2016). Revenue and incentive effects of basis step-up at death: Lessons from the 2010 "voluntary" estate tax regime. American Economic Review, 106(5), 662-667. https://doi.org/10.1257/aer.p20161037

I.R.C. § 1014 (2025).

I.R.C. § 1015 (2025).

McGarry, K. (2000). Inter vivos transfers or bequests? Estate taxes and the timing of parental giving. Tax Policy and the Economy, 14, 93-121. https://doi.org/10.1086/654704

Poterba, J. (2001). Estate and gift taxes and incentives for inter vivos giving in the US. Journal of Public Economics, 79(1), 237-264. https://doi.org/10.1016/S0047-2727(00)00102-X