What value placed on transfer of stock

Your statement is a little unclear. Is the stock being put into your revocable trust for the benefit of your daughter and her husband? Or are you giving it to them outright and adding it to their trust?

If it goes into your trust, the stock was always your for gift tax purposes, and would remain so. For income tax purposes others here will know better than I do - my guess is that you recognize income in the same way you have been recognizing dividends.

If you are putting it into your daughter's trust, you will be making a completed gift. In that case she will recognize taxable income on the sale, using your tax basis to determine income.

It is generally not considered to be a good idea to transfer anything that has substantially appreciate in value during your lifetime if you can leave it when you pass away. This is because if the stock is inherited, your daughter will get a stepped-up basis, so her taxable capital gain would be higher if she receives it as a gift.

But your precise situation would have to be analyzed to determine the best thing for you to do.

___ Stu

Stuart - I do not have any indication of death being near, but at 76 I have to think about it. I was trying to simplify things for my wife, who will have to deal with such matters if I pass on first, by settling some things. Your comment about my daughter getting the stock on a stepped-up basis is one aspect I had not considered, and that could be a controlling factor. But, since the stock is jointly owned and she would get it all when I die, I don't think she would get it on a stepped-up basis when I die since she was already a co- owner. Am I right?

Let's assume I/we go ahead and sell the stock right now. How do I allocate the capital gains between my daughter and myself on our separate income taxes? I am joint with my wife and she is joint with her husband.

The current registration for the stock is joint with my daughter. I want it to go into "the joint declaration of trust" of my daughter and her husband. I/we could actually sell the stock and then she and her husband could buy the stock and put it into their trust. Either way, who shows the capital gain on their income tax, or can we split it so that I pay tax on 1/2 the gains and my daughter pays 1/2 the gain on her and her husband's income tax?

I don't think so. If the stock is owned jointly (joint tenants with rights of survivorship), and you paid for all the stock and just added her name, then for estate tax purposes the stock is yours. It all is to be included in your estate for estate tax purposes, and she gets a stepped up basis.

If she paid for part of the stock, then the part she paid for does not get a stepped up basis, and it's not included in your taxable estate.

I know the estate tax effect of this situation, but not the income tax effect. Someone else who knows more about it should come along shortly to talk about that.

For estate planning purposes you might want to sell the stock to them on an installment basis. That way they receive the stock now at current market basis, and you can forgive $52,000 of the debt each year with no gift or estate tax consequences. You would be required to charge interest on the outstanding balance, but that will be a lot less than payment in full.

You should talk with an estate planning/tax attorney about the best way to plan your estate so that both your wife and daughter are properly taken care of.

___ Stu

text -

Where does the $52,000 come from. I know about being able to gift $13,000 per year, are saying that my wife and I could each gift 13K to our dautghter and another 13K each to our son-in-law?

Yes, that's exactly what I am saying. The $13,000 exemption is per year, per donor, per donee. So each person can give as many tax- exempt $13,000 gifts as he wants, as long as they are to different people.

___ Stu

The $13K rises to $14K in 2013 for what that's worth. $52K couple-to-couple jumping to $56K.

If your daughter has children, you (and your wife) have the ability to gift $26K/yr to each of them as well, perhaps to a 529 College savings account.

Or just give them $52,000 worth of stock each year and not worry about interest.

Seth

of course, if the kids have money, they might be placed at a disadvantage with respect to tuition assistance plans. I'm no expert here, but perhaps others can comment.

The problem with that, as I mentioned. is that if the gift is of the stock the kids will take the parents' basis, and likely pay higher income taxes when they sell. If they buy the stock at market value and the payments are foregiven, they will have a higher basis and pay less tax when they sell.

___ Stu

We've already well-financed a 529 plan to cover at least 4 years. Of course, if we ever need money, we can withdraw up to the dollar amount we put in and just leave the increased value for our granddaughter to use for educational purposes.

I'll have to do some figuring on the cost basis for the stock. I have all the numbers, just haven't added up all the money put into the stock plan and the amount of the reinvested dividends, which I did pay taxes on, so they are added to the actual cash invested to get the cost basis for the stock. Thank God for calculators, when I started keeping records in the very early 1960's everything was paper and pencil unless you owned one of those mechanical monster adding machines. I got in the habit of writing everything down, but never totalled up since I didn't have any reason to. Now I have to do it. Since I (and my wife since we file jointly) put in all the original $$, I will have to see if we can gift it to them without exceeding the $13K (26K) or $14K (28K) after Jan 1. Otherwise I'll spread it over a couple of years. like Dec 30 and Jan 2.

Stu, Joe, Pico, Seth - Thanks for the advice

But the parents will have to pay Capital Gains tax now. (In which case, the sale should definitely happen this year.)

Seth

Well, income tax is generally less than gift/estate tax when it has to be paid.

Additionally, a sale on the installment basis can still bump up the basis the capital gain can be spread out over a number of years, and perhaps forgiven as payments come due, which should also eliminate the taxable income, as far as I'm aware.

The one thing that can't be forgiven is imputed interest - one of the parties has to pay tax on that. But in the scheme of things that should be relatively small.

___ Stu