A client recently sat in my Manhattan office with a question many parents face. Her daughter, a young doctor, was ready to buy her first home, but the down payment was a major hurdle. My client wanted to help with a significant sum of money. The question was not if she should give it, but how. Should she write the check now—a lifetime gift—or designate the funds in her will as a bequest? The answer hinged on her broader goals for her family and her legacy.
This decision between a gift and a bequest is not merely about timing. It is a fundamental choice that affects control, taxes, and the ultimate stewardship of your assets. The two paths are governed by different rules and lead to vastly different outcomes for both the giver and the recipient.
The Core Difference: When You Relinquish Control
The most immediate distinction between a gift and a bequest is control. A gift made during your lifetime—what attorneys call an inter vivos transfer—is irrevocable. Once you hand over the asset, whether cash, stock, or a deed to property, you have relinquished all ownership and control over it. The benefit is immediate. You get to see your daughter move into her new home or watch your grandchild’s college tuition get paid. The act of giving is a tangible, present event.
A bequest, by contrast, is a testamentary transfer made through your will or trust that only takes effect after your death. Until that moment, the asset remains yours. You can manage it, sell it, or even decide to leave it to someone else by updating your will. This approach offers maximum flexibility. If your own financial circumstances change and you need those funds for medical care, they are still available. The transfer is a contingency, not a completed action, preserving your own financial security first.
Stewardship means making a deliberate choice. For some, the joy of seeing their wealth benefit their family during their lifetime is paramount. For others, maintaining control of their assets to protect against life’s uncertainties is the more prudent path. There is no single right answer—only the one that aligns with your specific intentions.
Tax Consequences: The Federal vs. New York Reality
The tax treatment of gifts and bequests is where careful planning becomes critical, especially for New York residents. Federal and state governments have different frameworks, and understanding both is essential.
For lifetime gifts, the IRS allows you to give a certain amount to any individual each year without tax consequences. In 2024, this annual gift tax exclusion is $18,000. You can give this amount to as many people as you like, year after year. A married couple can combine their exclusions to give $36,000. If you give more than the annual exclusion amount to one person, you must file a gift tax return. While you likely will not pay taxes immediately, the excess amount is counted against your lifetime federal gift and estate tax exemption—a very high number that protects most estates from federal tax.
Bequests are valued as part of your estate upon your death. While the federal estate tax exemption is historically high, New York has its own, much lower, estate tax exemption. This is a critical planning point. For a New York domiciliary, an estate valued over the state exemption threshold is subject to a “cliff.” If your estate’s value exceeds 105% of the exemption amount, the tax is calculated on the entire estate, not just the portion above the threshold. As defined in New York Tax Law § 952, your gross estate includes all property you own at death.
This creates a scenario where a strategic lifetime gifting plan can be an effective way to reduce the value of a taxable estate below the New York threshold, thereby avoiding state estate tax entirely. It is a calculated decision, trading lifetime control for a potentially significant tax advantage for your heirs.
Strategic Considerations for Your Assets
Beyond taxes and control, the nature of the asset itself often dictates the better strategy. Consider an asset that has significantly appreciated in value, like a stock portfolio or a piece of real estate.
If you give this appreciated asset during your lifetime, the recipient also receives your original cost basis. When they eventually sell it, they will owe capital gains tax on the entire difference between the sale price and your original purchase price.
However, if you pass that same asset as a bequest through your will, the asset receives a “step-up in basis.” The cost basis for the heir is reset to the fair market value of the asset on the date of your death. This means your beneficiary could sell it the next day and owe little to no capital gains tax. For families with highly appreciated assets, this is one of the most powerful tax benefits in the estate planning code, and it is only available for bequests.
The decision is a balancing act. Is the goal to help a loved one now and potentially reduce a taxable estate? A gift might be the answer. Is the goal to transfer a highly appreciated asset in the most tax-efficient way possible while retaining control? A bequest is likely the superior choice.
At our firm, we guide families through these exact scenarios. The legal mechanics are straightforward, but the decision is deeply personal. It hinges on your financial picture, your family dynamics, and your vision for the legacy you intend to leave.
A prudent first step is to clarify your own intentions. I invite you to schedule a confidential consultation to review your current estate plan and discuss how the strategic use of gifts and bequests can align your assets with your family’s future.
