But there is a strategy in wealth transfer where the focus is on the ‘prior’ generation. That wealth transfer strategy is known as ‘upstreaming’ – passing appreciated assets to the older generation (a parent or grandparent.)
With the more common ‘downstream’ - gifting and wealth transfer is centered on making gift funds available to the younger generation for their needs.
But, in the situation where an adult child has appreciated assets and sees the need to support a parent (or grandparent) with gifting funds, then ‘upstreaming’ may be an alternative.
Why ‘upstreaming’? The appreciated assets could receive a step up in income basis upon the death of the older recipient. (Note: The current proviso is that the step-up will occur as long at the older recipient lives past one year after the asset was gifted.)
Beware! Although this strategy in some situations appears beneficial now – there is always a risk that tax laws could change.
There are other pitfalls to consider e.g. if the appreciated asset is real estate and ownership is transferred to a parent (or grandparent) (upstreaming) then the parent would have the legal right to sell the property; to give the property away or to pass it on to someone else.
It is beyond the scope of this article to cover individual situations whereby ‘upstreaming’ might be and advantageous wealth transfer strategy and to discuss the various issues that might occur.
Consult a financial and tax adviser who is familiar with ‘upstreaming’ of appreciated assets (or low basis assets) for wealth transfer.
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