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“Upstream gifting” can be a solid estate planning tool

On Behalf of | Jan 8, 2016 | Estate Planning

Most Ohio residents who have achieved high levels of success are aware that current estate tax rules allow an individual to amass an estate worth $5.43 million before assets are subject to federal estate tax. Anything above that amount will be hit with estate tax, which is an outcome that many people go to great lengths to avoid. There are a number of creative estate planning approaches that can minimize estate tax, one of which is known as “upstream gifting.”

Upstream gifting involves giving an older relative a piece of property while the original owner is still living. This approach moves the property out of the owner’s taxable estate. That means a lower tax burden for one’s heirs.

On the receiving end, the older relative will also inherit a higher cost basis for the property in question. A property’s cost basis is the amount that was originally paid, plus any improvements made since acquisition. When the property is sold, capital gains taxes only apply to the difference between the property’s cost basis and the final sales price. This increase in basis is known referred to as a “stepped up” basis.

Now, when the older relative passes on, he or she will leave the property to a younger relative, often the child or children of the original owner. The recipient will inherit a cost basis that is once again “stepped up” to the current market value. If the property is eventually sold, that move will save a great deal on capital gains tax.

Upstream gifting is a good fit for many Ohio families. It provides a means of reducing an individual’s taxable estate, while also bringing capital gains savings to the eventual owner. In the meanwhile, the property remains in the family, which is a goal that many Ohio residents share. In order to learn more about upstream gifting and the various pros and cons associated with this option, a consultation can be scheduled with an attorney who focuses on estate planning.

Source:, “5 ways to protect your estate from capital gains taxes“, John O. McManus, Dec. 25, 2015