When most people think of estate planning, they immediately think of creating a Last Will and Testament and deciding what asset to leave to whom in the Will. While your Last Will and Testament certainly is the foundation of your estate plan, leaving all of your assets to be passed down after your death may not be the best way to plan your estate.
Whether you have a large estate or a small estate, there are often reasons to start passing down your assets through gifts long before you actually die. When you give away an asset while you are still alive you get the pleasure of seeing your beneficiary enjoy the use of the asset. On the other hand, if your intended beneficiary is still relatively young, or not prepared to handle the asset, then waiting until a later time or until you die may be a better choice.
As with all estate planning decisions, the tax implications of the available options is also important. For an asset that has appreciated significantly since you purchased it, such as a home, you may not want to gift the asset now. If you gift the asset now, and the beneficiary later sells the asset, they will incur capital gains based on your cost on initial purchase. An asset given at death receives a new cost basis — the fair market value at death. You may, however, want to take advantage of the yearly gift tax exclusion to gift up to $13,000 per beneficiary gift tax-free as a way to gift assets that have not appreciated in value.