A wealthy client wants to reduce their taxable estate by gifting assets to their children. They have two assets of equal value ($100,000): Asset A has a basis of $10,000 (highly appreciated). Asset B has a basis of $110,000 (depreciated). Which asset is generally more tax-efficient to gift during the donor's lifetime, and why?

Gifting appreciated property (Asset A) removes future appreciation from the gross estate. While the donee takes a carryover basis (IRC §1015), avoiding 40% estate tax is often better than paying 20% capital gains tax. Gifting loss property (Asset B) is poor planning because the donee's basis for loss purposes is stepped down to FMV, meaning the built-in loss is never deductible by anyone.