January 24, 2018

Teaching your grandchildren and children to invest is an investment in their own future. This means you are passing down your own individual legacy and the financial expertise you have built over the course of a life time. This is why many grandparents and parents set up brokerage accounts to give family members an early start on investment opportunities.

Recent changes in U.S. tax laws, however, have changed the dynamics associated with multi-generational investment planning. It is often more important now for older generations to keep their appreciating assets with the primary purpose of helping their family members and beneficiaries avoid paying taxes on any of the gains. 

In the past, estate planning typically emphasized maximizing the annual exemption gifts and finding ways to get discounted values for gifts tax purposes on any assets that were transferred. However, in light of the new tax laws, currently on the books, investing for heirs now makes more sense. The ability to get a stepped-up basis at death has survived numerous versions of tax reforms.

This gives every member of the current oldest generation in the United States the opportunity to pass down assets to their beneficiaries that could avoid up to $11.2 million in potential capital gains. The best way to implement this strategy is to schedule a consultation with an experienced estate planning attorney and to hold the assets in your own name. You would then invest these as though you are holding on to them on behalf of your heirs. This may seem a more aggressive investment strategy than what you are used to, but younger investors will gain advantages because they do not have to worry about the same amount of market volatility that could impact an older generation.