Lifetime gifts in contemplation of death, or so-called “deathbed gifts” are usually made by a surviving parent to a child. The parent and/or the child think the gift is a good idea, probably to facilitate a transfer of legal title and/or to avoid probate. Sometimes a deathbed transfer might be made because the parent does not have a will, and thinks the lifetime gift is a good way to take the place of a will.
First, probate is not that much trouble, at least in Georgia. Also, a deathbed will is just as easy to prepare as a deed, for example. But the real problem for the beneficiary relates to the tax basis of the property.
For lifetime gifts, the grantor’s tax basis (generally the original cost of the property) becomes the tax basis of the grantee/beneficiary. For property received by a beneficiary thru the probate process (a so-called “testamentary gift”), the beneficiary’s tax basis is the fair market value of the property at the time of the decedent’s death.
For example: Assume a parent purchased a lake home years ago for $25,000. Now the lake property is worth $175,000. The parent makes a lifetime gift of the lake home to a child. The child’s tax basis is $25,000 (the original cost of the property). Upon a sale of the property for $175,000, the child’s tax gain is $150,000.
Instead assume the child received the lake home after the parent’s death thru the deceased parent’s will. The child then sells the property for $175,000. The child’s tax gain is zero, because the child’s tax basis is $175,000 (the fair market value at the time of the parent’s death). Assuming the above example, the difference between a lifetime gift and a testamentary gift could be a tax difference of as much as $60,000! So beware. A lifetime gift can result in a lot of needless tax.
Oftentimes, there are many factors involved making the best decisions about making lifetime gifts or setting up an estate plan which minimizes or diminishes any unwanted or unforeseen tax consequences. Needless to say, it is well worth the savings and peace of mind to find out before it’s too late.
One of our Atlanta estate planning attorneys would be glad to assist you with making the decision which is best for you and the ones you love. You reach us by calling 404-467-8611 send us a message through our confidential online contact form.