Kiddie Tax & Other Pitfalls When You Gift Assets To Your Kids

There are 3 main reasons why we see parents gift assets to their kids. They include:

• Reduce the tax liability on capital gains and investment income
• Protecting assets from the nursing home
• Avoiding probate

Before you gift assets to your kids, make sure you fully understand the Kiddie Tax rules. On the surface it can seem like a clever strategy to shift assets and income from a parent that is in a higher tax bracket to their child that is in a lower tax bracket, but there are a number of pitfalls that you should be aware of including:

• Kiddie tax rules
• Gifting cost basis rules
• College financial aid impact
• Treatment of long-term capital gains
• Children with self-directed brokerage accounts
• Control of the assets
• 5 Year look-back rule
• Divorce
• Lawsuits
• Distributions from Inherited IRA’s

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