Why Gifting Stock Can Cost Your Heirs More in Taxes

It seems like a generous move: giving appreciated investments to your children or grandchildren while you are still alive. But from a tax perspective, it may actually cost your heirs more than leaving those same investments as part of your estate.

In this Meridian Market Minute, Nathan Gilbert explains the difference between inherited and gifted assets, and why it comes down to something called the step-up in cost basis. When an asset is inherited, the cost basis resets to its value on the date of death. When the same asset is gifted during your lifetime, your original cost basis travels with it.

The result: heirs who inherit may owe little to no capital gains tax on decades of growth. Heirs who receive the same asset as a gift during your lifetime may owe tax on all of it.