Probate & Trust Law Section Conference Manual ... - Minnesota CLE

Note: in several of the examples above, by completing lifetime gifts the family
was able to effectively save Minnesota estate taxes. But, if the gifted asset (i.e.,
the lake cabin) has a very low cost basis and if the donee (child) sells the gifted
asset during their lifetime, the donee will be taxed on the full gain with no step-up
in basis at the donor’s death.
Sample Calculation:
Sale price (by children) 400,000
Carried-over cost basis
Gain 380,000
Estimated income tax due at 15% + 7.05% $80,000
Estimated income tax due at 35% + 7.85% $152,000
If gifts will be made, it is frequently better for income tax purposes to gift assets
that are not highly-appreciated capital assets.
Practice Tip: If capital assets are gifted, warn clients in writing about the
potential loss of the stepped-up cost basis and the future income taxes that will be
due upon sale.
4) The financial stability of the potential recipients can have a big impact on your
client’s willingness to do these lifetime gifts. If the donee (child) has a financial
crisis, the asset could be lost to the child’s creditors.
5) When making lifetime gifts, don’t overlook assets that might increase the
estate above the $1,000,000 filing requirement including:
•personal property (art, jewelry, vehicles, etc.);
•post-gift appreciation of retained assets (stock market surges can
suddenly increase values);
•hard to value items (i.e., some real estate, business ownership interests,
etc.)
6) Other emotional issues relating to gifting that should be considered include:
• donor’s (parent) reluctance to release control;
• sibling rivalries or other issues that might cause problems in a coownership
status;
• issues regarding equalization of inheritance if the gift is given other than
proportionately.
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