Key Takeaways
- A Money Matters caller’s father, in his late 70s, plans to invest $700,000 of a settlement of about $800,000 and pass it on to his three grandchildren.
- If the investments grow to $1 million and he still owns them when he dies, his heirs’ cost basis is $1 million, so the $300,000 gain is never taxed.
- If he gives the shares to the grandchildren now, they keep his $700,000 basis, so selling at $1 million brings a $300,000 taxable gain, or $45,000 at the 15% rate.
- For a man his age with a 10- to 20-year plan, keeping the shares in his name is the better tax path, unless they end up worth less than $700,000.
If you plan to leave investments to your kids or grandkids, when you hand them over can matter as much as what you hand over. Give shares away while you’re alive, and the people who get them also take on the tax on every dollar they’ve grown. Hold the shares until you die, and your heirs never owe tax on the growth from your lifetime.
A $700,000 plan for three grandkids
A man called the Nov. 7 episode of Allworth Financial’s Money Matters for help with his father’s money. His father is in his late 70s, and as the caller put it, “He came into a lump sum of money from a settlement of about $800,000. His plan for this money is to use some of it to supplement his lifestyle, probably about $20,000 a year.” The rest is for his three grandchildren, ages 8 to 16, over the next 10 to 20 years. Pat McClain went over the plan on the call: $100,000 in money markets to cover five years of that $20,000, and the other $700,000 in a total stock market fund.
McClain later suggested another route: an immediate annuity to pay the $20,000 or $25,000 a year, with the rest going to the grandkids today, “so it’s not in his estate.” Before the father gives anything away, though, it’s worth working out what that does to the grandkids’ tax bill.
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Heirs start from the value on the day he dies
An heir’s cost basis is generally the property’s fair market value on the day the owner died. So any gain from before that day is never taxed, and the heir owes tax only on growth after it. Shares given away during the owner’s life don’t get that reset. The person who receives them generally keeps the giver’s adjusted basis, so the giver’s untaxed gain stays with the shares until they’re sold. And since the grandkids would also count the time he held the shares, a sale years from now would be a long-term gain.
Same $1 million, two different tax bills
Let’s say his $700,000 grows to $1 million by the time he dies. If he still owns the shares that day, his heirs’ basis is $1 million. If they sell for $1 million, the taxable gain is zero, and the $300,000 of growth from his lifetime is never taxed.
Now say he gives the shares to the grandkids today, and they sell once the shares reach $1 million. Their basis is his $700,000, so the sale brings a $300,000 taxable gain, or $100,000 for each of the three grandkids.
| Path | Basis | Sale price | Taxable gain |
|---|---|---|---|
| Left to heirs at his death | $1,000,000 | $1,000,000 | $0 |
| Given to the grandkids now | $700,000 | $1,000,000 | $300,000 |
In 2026, a long-term gain is taxed at 0%, 15% or 20%, depending on where it lands in taxable income, with the gain counted in. For a single filer, the 15% rate covers taxable income above $49,450 and up to $545,500. If the whole $300,000 is taxed at 15%, the grandkids are out $45,000 among the three of them, all on growth that would never have been taxed if they’d inherited the shares.
An adult grandchild with little other income in the year of the sale could have part of their $100,000 taxed at 0%, since 2026’s 0% rate runs up to $49,450 of taxable income for a single filer. That would shrink the bill. Inheriting the shares would leave no bill at all on that $300,000.
I’d keep the shares in his name
Giving now does have some appeal. McClain’s point stands: the growth from here would be out of his estate. And a grandkid who sells in a low-income year could pay little on part of the gain. But this is a man in his late 70s whose plan already runs 10 to 20 years, and $45,000 is a lot to give up for a gift that can wait.
At the end of the day, I’d keep the shares in his name and let the grandkids inherit them, with the $300,000 never taxed. Keeping them also means the money is still there for him if his own costs rise as he gets older.
Of course, the $1 million is my own guess at the growth, and markets don’t go up in a straight line. McClain asked the caller how his father would take a drop: “What happens if that $700,000 is worth $550,000 one year later?” If the shares are still worth $550,000 when he dies, his heirs’ basis falls to $550,000, and nobody ever deducts the $150,000 loss. So leaving the shares to heirs helps only if they’re worth more than $700,000 that day.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
