You have the desire – and the surplus financial capacity – to make substantial gifts to family members, and would like to do so in the not-too-distant future.

You know what you’d like your gifting to accomplish, and you sense that maximizing benefits for both the recipients and yourself can be hard. What’s the right thing to do? There are numerous factors to consider.

The most effective wealth transfer strategies are those that are tailored to each family’s unique dynamics and circumstances. This is why we believe benefactors should, before any gift occurs, think through several important factors that are part of any transfer plan. Since everyone's situation is different, you should speak to a tax and/or legal professional before making any decisions.

Among those are:

• Who would current and future recipients be?
• When should gifts be made?
• What is the structure of any gift (whether outright or in trust, and if in trust, what are the terms of any trusts)?
• Who is going to be responsible for investing and distributing the assets?

Having the answers to these four questions can help you move forward confidently with your own plans.

To whom will you gift?

Deciding who should benefit from your largesse is, of course, usually the hardest question to answer.

Should a sizeable gift go to your children? What about any of their spouses? How should any existing matrimonial planning be layered in? Should you also gift to younger generations – and if so, should any gift be held in trust for them? Do you want to benefit family members who haven’t even been born? For example, setting up a well-designed trust would allow you to set funds aside for your children today and have that trust’s assets available for future descendants to come, thereby allowing those assets to avoid estate taxes for generations.

Immediate and longer-term considerations likely will factor into your decision making. For example, do one or more of your heirs have an immediate need for funds, such as to make a down payment on a house? Or is your wealth intended for a much longer duration, such as ensuring that future generations are never burdened with student debt?

Many families achieve their aims by taking a multifaceted approach, such as funding a legacy trust (sometimes called a family bank), and also allowing certain life events, such as a child’s marriage or grandchild’s reaching college age, to trigger trust distributions.

To be effective, a multipronged strategy encompasses:

• Periodic reevaluations, as family needs and/or dynamics change
• Clear and specific communications regarding what you intend your gift(s) to achieve
• Stated guidelines, aligned with your expectations, for ongoing stewardship of the funds

What will you gift?

There are many ways to consider sharing your wealth, including:

Assets likely to appreciate: These holdings often make ideal gifts, but note that when an asset is gifted during the benefactor’s lifetime, its cost basis transfers with it. For that reason, ideally any gift would be of high-basis assets.

Caveat: If you plan to gift securities from your portfolio, review the holdings on a lot-by-lot basis to optimize the tax benefits of gifting.

Cash: With cash gifts, recipients can purchase assets at their full basis, with the anticipation that these holdings will appreciate over time.

Caveat: If you do not have sufficient cash available to gift, you may decide to sell assets, triggering capital gains upon sale. One way to mitigate the tax impact of any sales would be to look strategically across both sides of your balance sheet and perhaps draw on a portfolio line of credit to solve for a liquidity shortfall. In short, closely review your portfolio if you are thinking of gifting cash raised from a sale.

Shares in a privately held business: Partial ownership in a family business can be an ideal asset to gift, as illiquidity or minority discounts may drive down the apparent value of the shares gifted. Further, gifting privately held shares can be especially effective if, upon a future liquidity event, those shares were to be sold at a much higher value than could be realized today.

Caveat: Alternatively, you might consider using a Grantor Retained Annuity Trust (GRAT) or intra-family loan to transfer just some of the appreciation on the shares.

Real or tangible property: Clients often ask about gifting real property – especially vacation homes – or tangible assets, such as art. If those assets are expected to appreciate significantly in value, they may be good assets to transfer.

A benefactor should always bear in mind both the economics associated with any such transfer and non-economic factors. For instance, taxes, among other expenses, reduce the total return on real property, and a new owner may not have the cash available to pay those expenses. In addition, real and tangible property often hold sentimental value for other family members, and those emotional relationships should be factored in as well.

We recommend looking through each account, asset and structure on your balance sheet, with an eye toward maximizing its value, when determining what asset(s) to gift.

Lastly, keep in mind that whatever type of property you gift, how it’s invested can be changed over time to best align with the evolving goals, time horizons, cashflow needs and risk tolerances of the beneficiaries.

When will you make your gift?

Some benefactors take joy in seeing how family members use their gifts, so they share their wealth during their lifetimes. Those transfers might take the form either of an outright gift to a beneficiary, or a gift to a trust that is distributed to one or more beneficiaries over time, as circumstances dictate.

Benefactors thinking of making sizeable gifts should remember that the lifetime gift tax exclusion amount (i.e., the maximum that can be transferred free of gift taxes) in 2024 is $13.61 million per person ($27.22 million for married couples). This amount will be slightly higher next year when it is adjusted for inflation. However, these exclusion amounts are scheduled to be cut roughly in half on January 1, 2026.

Making a gift now allows you to immediately remove an asset along with all the future appreciation – and potential estate tax obligations tied to it – from your balance sheet.

And if gifted to a trust, you have the ability to delay the enjoyment of the assets by the beneficiaries if you so choose. There’s another benefit of gifting while you’re alive – you’re able to see how the beneficiaries respond to the gift, and you can adjust if things aren’t playing out as you envisioned.

How will you make your gift?

Will you gift outright to family members for their immediate use/enjoyment? Or make a gift, but delay access to the full amount?

A key issue to consider is whether or not a recipient is ready (i.e., responsible enough) to manage a large sum of money.

If they’re not, it may be advisable to gift to a trust. There are several benefits of having a trust being the receiving vehicle. Principal among these are potential income and estate tax benefits, as well as protecting the assets from potential future creditors (including a divorcing spouse) of the beneficiary. Another benefit is the ability of the benefactor to establish criteria that inform a trustee’s decision making when it comes time to determine whether, when and how distributions should be made to the beneficiary.

How you structure a trust can add further value for your heirs. For example, with an irrevocable grantor trust, the gift-giver pays the ongoing income taxes on behalf of the trust, essentially giving the trust tax-free growth and further benefiting the beneficiary.

Benefactors who structure their trusts this way should monitor the projected tax burden they are bearing. If it becomes too large, the trustee can reimburse them for taxes they pay that are attributable to trust income – or the benefactor can simply renounce the powers that make him or her the owner of the trust assets for tax purposes. At that point, the trust would start paying its own taxes.

We strongly recommend that you get expert trust and estate advice before making a large gift.

We can help

Aligning your intentions with your wealth strategies and long-term goals is an evolving process. A J.P. Morgan advisor can work with your tax and legal professionals to help you explore your options, determine your gifting capacity and make the most of your wealth transfer plans.

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