A client recently came to my office, proud that he had “gifted” his Brooklyn brownstone to his son. He had signed a deed, handed over the keys, and believed the matter was settled. The problem? He was still collecting rent from the garden apartment to supplement his retirement income. In the eyes of the law—and the IRS—he hadn’t truly relinquished control. He hadn’t made a complete gift, and in his effort to be generous, he had created a significant future problem for his estate.
In my practice, I see this scenario play out frequently. A gift is an act of generosity, but in the context of estate planning, it is also a legal and financial event with serious consequences. The stewardship of a family’s legacy requires us to look beyond the gift itself—to the timing, the documentation, and the unintended consequences.
What Makes a Gift Legally Real?
For a gift to be legally effective, two fundamental conditions must be met: donative intent and delivery. It sounds simple, but this is where many well-meaning plans fall apart. “Delivery” means giving up dominion and control. If you give away an asset but continue to benefit from it or control its use, you have not truly made a gift.
This is more than a legal technicality. A gift that is not properly completed can be pulled back into your taxable estate upon your death. It can also create confusion and conflict among your heirs. Was the transfer a true gift, or was it an informal loan? Was it meant to be an advance on one child’s inheritance? Without clear, contemporaneous documentation, these questions are left for your family and the Surrogate’s Court to resolve.
Under New York EPTL § 2-1.5, a lifetime gift is not considered an advancement on an inheritance unless the donor declares it to be one in a signed writing. While this protects a recipient from having a gift counted against their share of an estate, it doesn’t stop the perception of favoritism or the family disputes that can arise when one child receives a substantial gift and others do not.
The Tax Implications of Giving
Prudent gifting is one of the most effective ways to manage the value of a taxable estate. The federal government allows every individual to give a certain amount to any other individual each year without incurring a gift tax or filing a gift tax return. For 2024, that annual exclusion is $18,000.
A married couple can combine their exclusions to give $36,000 to each child, grandchild, or any other person per year. Over a decade, a couple with three children could transfer over a million dollars out of their estate completely tax-free. This is a powerful tool for transferring generational wealth intentionally and efficiently.
New York has its own estate tax but no separate gift tax. However, a critical rule applies: certain taxable gifts made within three years of death can be “clawed back” and included in the calculation of your New York taxable estate. This prevents individuals from simply giving away all their assets on their deathbed to avoid state estate tax. This three-year look-back period makes deliberate, long-term planning essential.
Gifting Assets vs. Gifting Cash
Gifting cash is straightforward. Gifting an appreciated asset—like real estate, stocks, or a stake in a family business—is far more complex. The primary issue I counsel my clients on is “cost basis.”
When you gift an appreciated asset, the recipient also inherits your original cost basis. Imagine you gift your daughter stock you bought for $50,000 that is now worth $500,000. If she sells it, she will owe capital gains tax on the $450,000 gain. You’ve given her a wonderful gift, but also a significant tax liability.
Contrast this with what happens if she inherits that same stock. Upon your death, the asset receives a “step-up” in basis to its fair market value at that time. If she inherits the stock when it’s worth $500,000 and sells it immediately, her cost basis is $500,000. Her taxable gain is zero. Deciding whether to gift an asset now or bequeath it later is a critical strategic decision that weighs tax consequences against your present desire to provide for your family.
Generosity is a core part of building a family legacy. But that generosity must be guided by prudence and an understanding of the law. If you are considering making a significant gift of property, securities, or business interests, we can schedule a Gifting Strategy Review. This session is designed to examine the specific asset, model the tax outcomes, and ensure your gift accomplishes exactly what you intend it to, without creating unintended burdens for the people you want to help.
