BUSI 354 Week 4 Discussion Board Forum 4 Example

Discussion Board Forum 4: Gifting and the Gift Tax

BUSI 354 Estate Planning, Discussion Board Forum 4 Thread and Reply

Thread by [Student Name]

The forum prompt and the classmate's thread are composites; the textbook, research and Scripture cited are real, and the exclusion amounts are the federal figures in effect for 2026.

For most families today, the decision to give during life rather than at death should rest on non-tax reasons and on the income tax basis rules, not on transfer tax savings.

Dalton and Langdon (2017) explain that a gift can affect three taxes. The gift tax applies to transfers during life, but the annual exclusion, $19,000 per recipient for 2026, removes most family gifts from it entirely, and larger gifts simply use part of the unified lifetime exemption. The estate tax applies at death against the same exemption, which federal law set at $15 million per person for 2026. And the income tax determines what heirs owe when they sell: property received as a gift keeps the giver's basis, while property inherited at death generally receives a basis stepped up to its value at that time.

Transfer taxes once shaped wealthy families' choices strongly. Joulfaian (2005) found that the timing of transfers between gifts and bequests responded to their relative tax costs, with gifts rising when they were tax-favored. Poterba (2001), however, found that many households wealthy enough to benefit did not make full use of the annual exclusion, leaving tax savings unclaimed. If even the wealthy underuse a simple tax break, emotion and control clearly matter as much as tax rates in decisions about giving.

With today's exemption, few clients face estate tax at all. That shifts the analysis to basis: gifting a highly appreciated asset can cost an heir far more in capital gains tax than any transfer tax saved, while gifting cash or high-basis assets avoids that problem. The exceptions are families whose estates may exceed the exemption, for whom removing future growth still matters, and clients who expect to need long-term care, where gifts may affect Medicaid eligibility under the look-back rules and need careful timing.

There are good non-tax reasons to give while living. Paul reminded the Ephesian elders of the Lord's words that it is more blessed to give than to receive (English Standard Version Bible, 2001/2016, Acts 20:35). A parent who helps a child with a first home sees the gift used and can guide it, and the child receives help when it matters most rather than in late middle age, which is when many inheritances now arrive. The best plan gives cash and high-basis assets during life, within the giver's own security, and holds appreciated property until death.

Reply to Jasmine

Jasmine, your thread suggested that clients give appreciated stock to their children now, so the future growth escapes estate tax. That logic made sense when exemptions were low, and Dalton and Langdon (2017) present removing appreciation from the estate as a classic gifting goal.

For most clients today, though, the basis rules point the other way. Stock bought for $20,000 and now worth $200,000 carries the $20,000 basis to a child who receives it as a gift, so a sale would trigger tax on $180,000 of gain. If the child inherits it instead, the basis generally steps up to $200,000 and the gain largely disappears. Unless the client's estate exceeds the exemption, holding the stock and giving cash may be better. If the client wants to reduce a concentrated position, giving some shares to a charity instead avoids the gain entirely.

Proverbs urges us to do good to those who are owed it whenever doing so lies within our power (English Standard Version Bible, 2001/2016, Proverbs 3:27). Could the client give cash now and keep the stock for the step-up?

References

Dalton, M. A., & Langdon, T. P. (2017). Estate planning (8th ed.). Money Education.

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

Joulfaian, D. (2005). Choosing between gifts and bequests: How taxes affect the timing of wealth transfers. Journal of Public Economics, 89(11-12), 2069-2091. https://doi.org/10.1016/j.jpubeco.2004.11.005

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