No Good Deed

Many people want to leave cash or assets from their estate to one or more of their employees. Some want to provide them with a gift above and beyond their compensation. These employees may have become more than just workers. They are more akin to family members. And while this level of relationship tends to develop more frequently in the case of household employees, it can also occur between employees and business owners. In any case, determining the tax treatment of these gifts and bequests is, well, complicated. When contemplating a current or testamentary transfer to an employee, the adviser should raise the issue, understand the motivation for the transfer and plan with these rules in mind. It's not obvious which treatment would be most beneficial to a given estate and beneficiary and there is no rule of thumb for this issue. Consideration and a thorough analysis must be done because it's complicated.