Personal Finance Q&A
BOSTON — Inheritance May Beat Gifting Of Property
One mutual fund aims straight for children - and achieves winning returns.
Q We want to deed a piece of property to our son, gifting it to him at $10,000 per year. What will we need for our tax records?
- D.B., Wenatchee, Wash.
AAccording to the Internal Revenue Service, a husband and wife can contribute up to $20,000 a year in joint gift-giving, or $10,000 a year from just one spouse. So there would be a split ownership. Year 1, for example, the son would have a $20,000 ownership; Year 2 $40,000, and so on, until the property was fully gifted.
It may be far more advantageous to leave the property to your son by inheritance, the IRS spokesman says. The son would receive the stepped-up value of the property - at the date the benefactor dies - as his cost basis for capital gains.
Under the method you describe, the cost-basis might well be the original cost of the home, which could result in a high capital-gains tax.
Another option: Leave it to your son through a trust agreement, which could bypass probate. For that, consult an attorney specializing in estate planning.
Q Can you suggest a mutual fund appropriate for children to invest in?
- C.J., Mason, Mich.
ALots of funds could do the trick, but most financial advisers would probably recommend a diversified stock fund with a solid track record - possibly an index fund that tracks the Standard & Poor's 500. John Tompkins of "Money Talks," an online financial magazine (www.talks.com), notes that one successful stock fund, Stein Roe Young Investors Fund (800-338-2550), is marketed directly at children.
The fund is up 18.2 percent through Oct. 29. Children cannot have legal ownership until they reach maturity, depending on the age designated by the state in which they live. Until then, shares must be under the control of a custodian.
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