Gifting Highly Appreciated Assets: A Tax-Smart Strategy for Wealth

Book An Initial Call Now
POSTED ON: March 25, 2025

Gifting Highly Appreciated Assets: A Tax-Smart Strategy for Wealth Transfer- High-net-worth individuals and families often hold stocks, real estate, or other assets that have significantly increased in value over time. Selling these assets outright can trigger capital gains taxes, reducing the asset's net value. However, strategic gifting—whether to family members or charities—can minimize tax liabilities, while ensuring that wealth is transferred efficiently.

By understanding gift tax rules, charitable giving strategies and estate planning considerations, individuals can preserve more of their wealth while benefiting loved ones and the causes they care about.

Why Gifting Appreciated Assets Makes Sense

Gifting highly appreciated assets offers several financial advantages:

  • Reduces estate size – Helps minimize estate taxes by transferring wealth while living.
  • Avoids or reduces capital gains taxes – Capital gains taxes may be eliminated or deferred if an asset is gifted instead of sold.
  • Supports charitable causes – Donating appreciated assets directly to charities maximizes deductions, while providing financial support to nonprofits.
  • Leverages lower tax brackets – Gifting to beneficiaries in lower income tax brackets allows them to sell the asset with reduced capital gains exposure.

Careful planning ensures that these benefits are fully realized while complying with tax laws and avoiding unintended financial consequences.

Understanding Gift Tax Rules and Exemptions

The IRS imposes gift tax rules on high-value asset transfers. However, several exemptions allow for tax-free gifting.

Annual Gift Tax Exclusion

In 2025, individuals can gift up to $19,000 per recipient per year without triggering gift tax reporting. Married couples can combine their exclusions, allowing up to $38,000 per couple annually.

Gifting within these limits enables gradual wealth transfer without reducing the federal lifetime estate and gift tax exemption, which currently stands at $13.61 million per individual (subject to legislative changes).

Lifetime Gift and Estate Tax Exemption

Gifts exceeding the annual limit count toward an individual’s lifetime exemption, reducing the amount that can be passed estate-tax-free upon death. However, gifting assets while living can significantly reduce estate tax liabilities for individuals with estates exceeding the exemption amount.

Step-Up in Basis Consideration

Gifting appreciated assets can result in capital gains tax consequences for the recipient. Unlike assets inherited at death, which receive a step-up based on fair market value, gifted assets retain the donor’s original purchase price (basis).

For example:

  • If a parent purchased stock at $50,000 and it is now worth $250,000, gifting it to an heir would pass on the original cost basis of $50,000.
  • If the recipient sells the stock, they will owe capital gains tax on the $200,000 gain.

For individuals concerned about minimizing tax burdens for heirs, gifting certain assets while retaining others for inheritance may be the most tax-efficient strategy.

Charitable Giving Strategies for Appreciated Assets

Donating Stock Instead of Cash

One of the most tax-efficient ways to support a nonprofit is by donating appreciated securities directly. Doing so:

  • Avoids capital gains taxes that would apply if the stock were sold before donating.
  • Provides a full charitable deduction for the fair market value of the asset.
  • Maximizes the impact of donations, as the charity receives the full value without tax deductions.

For example, donating $100,000 in appreciated stock instead of selling it and donating cash could save $20,000 or more in capital gains taxes.

Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust (CRT) allows individuals to donate highly appreciated assets, while retaining an income stream during their lifetime. This strategy:

  • Defers capital gains taxes, allowing the trust to reinvest the entire asset value.
  • Provides a charitable tax deduction based on the present value of the donation.
  • Supports charities, while ensuring a lifetime income stream for the donor or beneficiaries.

CRTs are ideal for those who wish to benefit from their assets while making a long-term charitable impact.

Donor-Advised Funds (DAFs)

A Donor-Advised Fund (DAF) allows individuals to contribute appreciated assets, receive an immediate tax deduction and distribute funds to charities over time. DAFs provide:

  • Flexibility in choosing which charities to support over multiple years.
  • Tax-efficient giving by allowing donations to grow tax-free before distribution.
  • Simplified record-keeping for those making multiple charitable contributions.

DAFs are effective for individuals who want to maximize tax savings, while maintaining control over charitable donations.

Estate Planning Considerations When Gifting Assets

Gifting appreciated assets plays a key role in estate planning, reducing taxable estate size and ensuring smooth wealth transfer. An estate planning attorney can help:

  • Structure gifts to minimize tax burdens for both the donor and recipient.
  • Determine whether assets should be gifted outright or placed in a trust for greater protection.
  • Balance lifetime gifting with posthumous wealth transfer strategies.

For individuals with high-value estates, integrating gifting into a broader estate plan ensures optimal tax efficiency and legacy preservation.

Optimize Your Gifting Strategy with Estate Planning

Gifting highly appreciated assets requires careful planning to balance tax efficiency, wealth preservation and charitable giving. Whether you are donating assets, transferring wealth to family, or incorporating gifting into your estate plan, our law firm provides skilled guidance to ensure maximum benefits with minimal tax consequences. Schedule a consultation today to explore the best strategies for your financial legacy.

Key Takeaways

  • Gifting appreciated assets reduces tax liability: Strategically transferring assets minimizes capital gains and estate taxes.
  • Annual and lifetime gift tax exclusions provide planning flexibility: Gifting within IRS limits avoids unnecessary taxation, while transferring wealth efficiently.
  • Charitable donations of appreciated assets maximize tax savings: Direct stock or real estate donations reduce taxable income and increase giving power.
  • Trusts and donor-advised funds enhance charitable planning: Using CRTs or DAFs allows donors to support causes while benefiting from tax advantages.
  • Proper estate planning ensures tax-efficient wealth transfer: Coordinating gifts with trusts and inheritance strategies preserves generational wealth.

Schedule your phone consultation: THE LAW OFFICES OF CLAUDE S. SMITH, III

Gifting Highly Appreciated Assets: A Tax-Smart Strategy for Wealth Transfer

Reference: Charles Schwab (December 13, 2024) Tax-Smart Ways to Gift Highly Appreciated Assets

Let Us Help You Through This

Reach Out Now

What Sets Us Apart
We understand this process can be difficult. We ease you through it with your best interest in mind.

Legal problems are extremely stressful, especially when your family, your health, or your freedom are at stake. At this point in time, you may not even be sure what kinds of questions you need to ask a lawyer, but that’s entirely normal. Whether your situation involves family law, estate planning, elder law, a criminal charge, or a personal injury, we will start by giving you all the information you need.

The way we see it, you deserve to get this information directly from an expert. That’s why we make it easy for you to get in touch with your lawyer, and we never ask you to sit down with a paralegal or assistant instead.

As our relationship continues, we will keep you updated about the status of your case every step of the way. Your lawyer will reach out regularly to tell you about any new developments, and he will also be happy to answer any questions you have throughout the process.

Join Our eNewsletter

Stay informed and updated by subscribing to our eNewsletter!
Subscribe Now!
Law Offices of Claude S. Smith, III

805 Bigley Avenue
Charleston, WV 25302

Get Directions
Integrity Marketing Solutions - Estate Planning Marketing
Powered by