Imagine a grandparent who, instead of writing a standard check as a holiday present, decides to gift their grandchildren shares of a major technology company stock.
Suddenly, a simple transaction becomes a real-world classroom. Every time those kids use a phone, they aren’t just consumers. They are owners. It can also create an opportunity for parents and grandparents to teach the kids about compound growth, the stock market, and the power of long-term investing.
That is one potential benefit of using appreciating assets in a gifting strategy.
While gifting public stock can be a helpful way to build financial literacy, families planning for larger estates may also consider whether alternative investments such as private real estate, private equity, or venture capital have a place in their broader gifting strategy, depending on the asset, structure, and transfer goals.
Estate Planning Considerations
Here is how integrating alternative assets may help shape a multi-generational gifting strategy:
- Potentially reducing future taxable growth: In some cases, transferring an asset before additional appreciation occurs may shift future growth outside the transferor’s estate, depending on the structure of the transfer and the specific facts.
- Getting more out of your lifetime exemption: Because private assets are illiquid and don’t trade on public markets, they are valued differently. This may potentially allow you to transfer a larger share of an investment to your family while using up less of your lifetime gifting exemption.
- Delaying the tax bill: Transferring these assets may defer significant capital gains taxes. Instead of selling an asset, paying the tax bill, and gifting the remaining cash, you transfer the asset itself, compounding for the next generation.
Weighing the Key Trade-Offs
While the tax advantages are compelling, alternative assets are highly complex. To determine if this strategy is right for your family, it is essential to weigh the potential disadvantages:
- Less liquidity: Unlike cash or public stocks, alternative investments can be difficult to sell, and gifted interests may not provide immediate access to cash.
- Cost basis matters: Gifted assets generally carry over the donor’s basis, which may result in capital gains tax if the recipient later sells. Assets held until death may receive a step-up in basis, subject to applicable law.
Higher costs and complexity: Transferring private assets often requires independent valuation, legal documentation, and ongoing administration.
Important Note on Trust Planning - Higher-net-worth families often consider placing alternative assets in trusts rather than gifting them outright to children. That structure can provide more control over distributions and long-term planning, while also requiring careful attention to income tax treatment, basis, and overall estate objectives.
What You Do Now Determines What’s Possible Later
Gifting complex, private assets requires a carefully coordinated plan among your wealth, tax, and legal teams so the structure, valuation, and transfer mechanics are handled appropriately.
If you would like to explore whether gifts of alternative investments may fit within your family’s broader planning goals, contact us to start the conversation.
Disclaimer:
Any gifting, estate, or alternative investment strategy should be evaluated with your tax, legal, and financial advisors based on your specific circumstances.