Gifting or Disposing of Assets, Investments and Property prior to death
In life we make decisions that the benefit of hindsight may prevent us from making. Often when these decisions involve investing they leave us with a Capital Loss. The loss is able to be carried forward indefinitely to offset future gains. But, what happens to the loss when you die and haven't used it?
The answer to that question is - it is lost. The loss cannot be carried forward as you submit your tax return to your date of death as a final return. It cannot be transferred to anyone else nor can it be used in any tax returns prepared for your estate. It is just lost.
In the normal timeline of investment you would dispose of investments that have a capital gain and use your carried forward capital loss to at least partially offset that loss.
But what if you are aware that your time is limited and you have other investments and assets that will have a capital gain when they are disposed of or transferred out of your estate.
A strategy to consider is to gift an asset or investment to its intended beneficiary prior to your death. By gifting, the beneficiary still obtains the asset without having to pay for it. However, from a tax perspective this is a disposal by you and the market value of the asset or investment will be substituted as proceeds on sale.
The potential benefit of this strategy is that the capital loss can be offset against the gain calculated using the market value as a substitute. The tax is therefore substantially reduced. An additional benefit is that your beneficiary now owns an asset or investment with a cost base of the market value at the date of transfer, removing any embedded capital gains and associated tax.
If this is something that may have relevance to you book an appointment with our office to discuss.