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As this subject has come up on the Berkshire Board, I thought I'd
share my strategy here.

I have neices and nephews, but no children of my own. Some years
ago, I gifted them shares of Berkshire Hathaway, and, more recently,
matched contributions to encourage them to set up Roth IRA accounts
while they had low incomes.

My eventual bequest will be split 50/50 between my siblings and
their children.

As many are aware, there is some value to providing financial
assets sooner rather than later (hence the shares of BRK), so
it's been on my mind for a while. Perhaps the main factor in
getting me to act now has been my retirement move to Portugal.
I'm under a residency regimen that basically allows me to avoid
most taxes on income, but has a flat 28% tax on capital gains. The
distributions from my IRA's are considered income, but my taxable
US accounts are subject to the 28% capital gains tax.

Inheritance distributions within the US will not be taxable, so
there's no tax-related reasons I should start transferring assets
now, but there are other reasons to consider doing so sooner
than later.

Starting this year, my plan is to transfer a fixed number of
QQQE shares to everyone on a yearly basis for the next 10 years.
Each distribution will fall below the IRS reporting threshold
of $19000 (2025). If the value of the scheduled distributions
rises above this amount, I'll simply lower the number of shares
and extend the number of years of distributions. At the end of
approximately 10 years everyone ends up with the original planned
distribution total.

I first broached this subject last year with my parents. Afterwards,
I had separate conversations with each of my siblings to outline my
plans and give them an opportunity to ask questions. Everyone was
on board before I contacted my neices and nephews.

Each recipient already had (or recently opened) an investment
account with Charles Schwab. This wasn't strictly necessary,
but it simplies the annual transfer process.

The first tranche was distributed earlier this year. It went
out with a letter to everyone, along with the documentation
showing my cost basis (which they will assume). They will
eventually pay capital gains taxes when they sell their shares,
but a) at lower US tax rates; b) they have control over the
timing can schedule the sales of shares at their discretion.

Each subsequent tranche will be transferred annually on my
birthday, over the next nine years. In addition to the tax
benefit, I think there is some psychological value in spreading
out the distributions over a longer period of time. They
might be less likely to do something stupid with annual
installments than a single sudden windfall.

What do I hope for their future?

In his novel Anna Karenina, Leo Tolstoy wrote:

"Happy families are all alike; every unhappy family is unhappy in its own way."

I am blessed with a happy extended family. No addictions, no gambling,
no abusive relationships.

The distributions are sent with no strings attached. I want
each of my family members to make their own decisions.

As I explained to their parents, my hope is to provide them
with an understanding of what it means to have investments
grow over time -- hopefully decades. And to give them a sense
of security -- as they'll gradually have funds they can access
when necessary, without waiting for their future inheritance.

-Rubic

The distributions are sent with no strings attached. I want
each of my family members to make their own decisions.

As I explained to their parents, my hope is to provide them
with an understanding of what it means to have investments
grow over time -- hopefully decades. And to give them a sense
of security -- as they'll gradually have funds they can access
when necessary, without waiting for their future inheritance.

I like the gradual nature of your gifting, particularly with the younger set who may not yet fully appreciate asset management. Because our kids are still on the young side to be inheriting large sums of money, and while healthy DH and I are at greater risk of being taken out by a semi tractor trailer as we travel together in retirement, we worried about developing their asset management skills should a sudden joint demise occur. Thus the gifting discussed in the other thread. We did set up a trust years ago with our will, to get them to the age of 35 when they could then decide to dissolve the trust or keep it as financial protection, but 35 is now not all that far off and since we won't be here to guide them after our demise, we want to start the training of financial assets now.

Our upbringing was not one of affluence, and in fact I experienced some very hard times as a young adult. I am constantly astonished to find myself in the position of giving money away.

FWIW,
IP

Rubic, very helpful. similar situation here.
for successful uni entry I gifted, for successful graduation, I giftedd in cash, f or graduation I gifted max cash under US law. Only "suggestion was to "invest in yourself, in any way you like. 3 did a masters, 2 travelled for extended periods, 1 still has the cash...

now they are at the 'getting married stages or probably will in the next few years, thats why gifting is again on my mind, to help get a step on the housing ladder. I was hoping to wait until I had french residence to think about this, but although my downtown condo is under offer, the rest is proving more difficult .

I like your idea of gifting shares from taxable account direct to them. My estate will all go to my siblings as I know they will do right by their children, I have zero doubt on that score.Happily.

gifting actual shares in the manner you suggest seems to work on all sides.. all nieces and nephews are subject to UK taxes, and the cap gains there , should they sell are only 15% at the moment.but may rise... I need to look in to gifting shares administration. One nephew ( who I mentor, he's ther only 1 interetsted)) has a Vanguard account and is buying BRKB when he has money (and some tech stocks). The others are learning from him a bit.

any other wise thoughts ?

Rubic,
PS I know on my death they would all get the stepped up basis. do you know if that is also true from gifting ? Logically they should as the day value is the gift value...?

I believe that stepup in basis is only for inherited assets, and that for gifts the original basis goes along with the assets.
The IRS wants their cut of the gains. It's as if you sold the asset, transferred the cash to them, and them bought the same asset in their account. The only difference is whether the gain is taxed on you or on them.

The stepup in basis has implications for your inheritance planning.The stepup in basis has implications for your inheritance planning.

Assume you have taxable IRA, Roth IRA, and taxable non-IRA.
For the lowest overall tax,
You heirs should get non-IRA and Roth IRA, and charities should get T-IRA.

Another thing you can do is have several of each type of account and apportion each account solely to one heir, taking each ones tax situation into account.


When my Mom died hers was mostly in T-IRA with the 3 of us children equal share beneficiaries.
We three sat down to figure which of us was in the lowest tax bracket, or could arrance his affairs so as to be in a low bracket that year. The other two disclaimed so he got it all. Then he figured the equal share of what remained after tax and cut checks to us.

Rayt, Thanks thus far, food for thought.......and further investigation.. have also considered cash gifts for down payment on first house. could make a difference to the 'when" and they could get a {slightly) lower mortgage rate, and get "first time buyer " breaks in the UK... any thoughts on this ? when I am gone, the house will be fully theirs anyway...

<< I know on my death they would all get the stepped up basis. do you know if that is also true from gifting ? Logically they should as the day value is the gift value...?

My nieces and nephews assume my original cost basis upon the gift transfer and
will pay capital gains taxes upon the eventual sale of their shares -- which is
why I provided them each of them with documentation for my original purchases.

By transferring directly between Schwab accounts, my cost basis will be
logged in their accounts, which is perhaps a minor convenience for them.

The assets they will eventually receive through inheritance (in the US)
won't be taxed.

-Rubic

have also considered cash gifts for down payment on first house. could make a difference to the 'when" and they could get a {slightly) lower mortgage rate, and get "first time buyer " breaks in the UK... any thoughts on this ? when I am gone, the house will be fully theirs anyway...

There have been many discussions & debates about this & similarly about cash gifts in general.

It very much depends on the person -- them, not you.
For example: We once had both our cars break down at the same time, needed $1000 to fix, and we had three toddlers and NO, ZERO, NADA money. We had to call my Mom and ask for a loan. We paid her back a few months later.
Years later she said to me, "You were the only one of you kids that ever paid back a loan. All your siblings just kept the money and never paid me back."

A person who gets as a gift the down payment for a house has no skin in the game. There's a saying "No one washes a rented car." There are sadly many stories of people who were gifted a down payment on house or a car and didn't take care of it.

It also robs them of the dignity of ownership, as they didn't contribute any of their own hard-won effort.

What I did in a similar situation (with nieces & nephews) was offering to match their down payment. If they came up with $10,000 I would put up $10,000 so they'd have a $20,000 down payment.
Once, had the title company officer call me to verify the deal, and I wired the money directly to the title company. Don't give it to them, it goes directly to the closing agent, same way as the mortgage lender wires the money to the closer and not to the borrower.

I like the idea of "matching" and skin in the game. They are mostly fairly good and sensible, but .....

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