24 Jun What’s the best way to split my estate for my kids?

Q. I have a house and $300,000 in an IRA. My youngest son is taking care of me and he will get my house, but he is disabled and will need money to live on. My other son is successful and has five children. I’d like to give them some of my stock. My youngest son has no pension plan or IRA. I wanted to give him my 300 shares of Microsoft worth about $72,000 to set up a retirement account. I know I can’t transfer the stock to an IRA and I would have to sell it. What’s the best way to proceed and should I gift it all?
— Planning ahead

A. There are a lot of issues to consider here.

Let’s take it one at a time.

First, before making a gift or bequest outright to your youngest son, consider whether now or in the future he will possibly be eligible for governmental assistance based on his disability and his own assets.

If this is a possibility, you should discuss placing any gifts or bequests to your son into a supplemental needs trust, also called a third party funded special needs trust, which will allow him to still qualify for needs based governmental aid while allowing the assets in the trust to supplement and provide additional assistance to him, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Otherwise, providing him with assets outright may disqualify him from some governmental assistance or programs, she said.

“In determining whether you provide your family members a gift or inheritance, you should consider that upon your death, most of your assets — but not your IRA or annuities — will obtain a step-up in basis,” Romania said. “This means, for example, that the gain on the stock between the time you purchased it and your death will not be taxed.”

But if you gift the stock to your grandchild, the grandchild will take your basis and generally upon sale, will pay the tax on the difference between the sales price and the price at which you purchased the stock, she said.

Also think about Medicaid. If you gift the funds, Medicaid will have a five-year lookback period and take note of the gifting, which could lead to a penalty period.

“You are correct that IRAs must initially be funded with cash, although once funded you can transfer stock from one IRA owned by you to another IRA owned by you, and upon death to an inherited IRA in the name of the beneficiary,” she said. But that won’t help you transfer the stock to an IRA for your son, who may not be eligible if he doesn’t have earned income.

“If you decide to make gifts, you can give up to $15,000 per year, per person without having to file a gift tax return with the IRS,” she said. “If you give greater than that amount you must file a gift tax return but until you use up your exemption — up to $11.7 million total over your lifetime — there is no tax.”

You can also pay the medical expenses and education expenses directly to the provider of such services for anyone and this is not considered a taxable gift, Romania said.

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This story was originally published on June 24, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.