Monthly Update for Administration of Trusts and Asset Management.

Kelli Bass |

It is our hope that our Monthly Update on various trust and financial issues will be helpful to you and your clients.


Last month’s newsletter explained how well-intentioned gifting can cause very bad results.  

This newsletter is to briefly mention a couple of other examples of how wholesale gifting is rarely the best choice someone can make in implementing their “estate plan”.


You would be stunned to know how many times people will gift all of their cash and investments to an adult child, (resulting in the adult child being the sole owner of all of the money and investments), with the “understanding” that the adult child will use the money to pay all of the parent’s living expenses.  

Because the income earned on the cash and investments would be taxed under the adult child’s social security number, along with the adult child’s own income from his or her employment, it could result in pushing the adult child into a higher tax bracket.  That means the parent’s “former” cash and investments might be taxed at a higher rate than it would have been taxed to the parent if the parent still owned the cash and investments.  This can result in a decrease in net annual income.


The above example contemplates the parent gifting an adult child all of the parent’s cash and investments with the understanding that the adult child will pay all of the parent’s living expenses.  What about the “unmentionable”?  We all know what that is.  “What if” after the parent makes the gift, the adult child has a change of heart and is not willing to use that money for the parent’s living expenses?  While you may not believe that ever happens, trust me, it does.  Having been in the trust administration business for over 30 years, I have seen everything more than once.  


Here is another reason why wholesale gifting of assets can have an adverse tax consequence.  

When a parent changes ownership of an investment from the parent to the child, (child is the sole owner and not named as a co-owner in JTWROS), and that investment appreciates or increases in value, then for capital gains tax purposes, the adult child will lose the benefit of using a “stepped-up” basis, if and when, the adult child later sells that asset.  

What is a “stepped up” cost basis?  When an individual passes away, the cost basis or tax cost of the asset changes from what was originally paid for the asset to the value of the asset as of the date of death.  

If ownership of the investment changes to the adult child as a result of the parent’s death, and not by way of an outright gift during the parent’s lifetime, then when the adult child sells the asset, the tax cost basis the adult child will use would be the value of the asset at the time of the parent’s death.  This can be extremely beneficial as it relates to capital gains tax that would be owed upon the sale because  instead of using the parent’s tax cost basis, which could be (and most likely is) dramatically less than the value at the time of the death.  


What if the parent gifts the adult child cash, investments, etc., and that adult child has, or develops, creditor problems?  Keep in mind that if the adult child is an owner of the asset, it will most likely make that asset subject to the adult child’s creditor attempts to garnish funds, investments, etc., to pay the amount owing the creditor.   So you have to ask yourself, “did you really intend to put the assets at risk of loss”?


These are just some more of the unintended results that can happen by a parent making wholesale gifts to adult children without first considering the potential or possible negative repercussions.  

WealthTrust Oklahoma is the Oklahoma Trust representative office of National Advisors Trust Company. We are independent and hold a federal charter.  In addition to trust administration services, we offer investment management services through our firm, WTO Advisors.

Alyssa Kaiser, CTFA, has over 30 years of experience in the trust, investment, and banking industries and is President of WealthTrust Oklahoma and WTO Advisors.  Alyssa may be contacted at: (405) 241-1600, or by email at