PVH Insights: Smart Strategies for Minimizing Capital Gains Tax with Asset Transfers to Parents

Healthcare Provider Update: Healthcare Provider for PVH PVH Corp., known for its popular brands such as Calvin Klein and Tommy Hilfiger, typically utilizes a range of healthcare providers for its employees. These may include major health insurance carriers like UnitedHealthcare, Aetna, and Cigna, depending on the specific needs and regional availability of services. The exact provider can vary based on employee location and plan options. Potential Healthcare Cost Increases in 2026 for PVH As healthcare premiums are anticipated to rise sharply in 2026, PVH could face significant cost increases for its employee health insurance. This surge is driven largely by rising medical costs and the potential expiration of enhanced federal premium tax credits, which could collectively increase out-of-pocket expenses by over 75% for many enrollees. In particular, some states are expecting premium hikes surpassing 60%, placing additional financial pressure on companies like PVH, which will need to strategically assess their healthcare options to manage these impending costs effectively. Click here to learn more

When PVH employees sell appreciated assets such as stocks or real estate, they might face significant capital gains taxes. However, an effective tax reduction strategy known as an upstream transfer can be used. This involves transferring these assets to one's parents and later reclaiming them, potentially lowering the taxable amount. This method proves especially beneficial for those with substantial wealth, as it can reduce capital gains and potentially double the amount that their children inherit without triggering estate taxes. Here's a detailed analysis of how upstream transfers work, their benefits, and the associated risks.

Understanding Upstream Transfers

For PVH employees who have seen a significant increase in the value of their assets over time, transferring these assets can result in hefty capital gains taxes. In the United States, capital gains tax is calculated based on the difference between the sale price of an asset and its original purchase price (known as the cost basis). Long-term capital gains tax can be as high as 23.8%, including the net investment income tax.  (Source: IRS - Capital Gains Tax Rates)

Upstream transfers benefit from a tax exemption that allows for a step-up in basis upon inheritance. This means that when an individual inherits an asset, its cost basis is adjusted to its market value at the time of the decedent’s death. This adjustment can significantly reduce the taxable amount on any capital gains when the asset is sold.  (Source: IRS - Inherited Property Basis)

For instance, consider a PVH employee who holds stock that has appreciated by $1 million since purchase. If sold, they would face about $238,000 in taxes at a 23.8% rate. However, by transferring the stock to their parents and reclaiming it after their demise, the employee would only be taxed on any appreciation that occurs after their parents' death, potentially minimizing capital gains tax liabilities.

Tax Concerns and Estate Planning Advantages

One major advantage of upstream planning for PVH employees is its ability to reduce or eliminate capital gains taxes. However, this strategy also offers significant estate planning benefits. The current estate tax exemption is set at $13.61 million per individual (or $27.22 million for married couples), allowing individuals to transfer or acquire assets up to this threshold without incurring estate taxes.  (Source: IRS - Estate Tax Exemption Limits)

Wealthy families can use additional transfers to reduce estate tax deductions. By transferring their assets to parents who have not yet used their tax exemption, families can preserve more wealth from estate taxes. The popularity of asset transfers has increased since the federal estate tax exemption status was introduced by the Tax Cuts and Jobs Act of 2017. However, this increased exemption is scheduled to expire at the end of 2025 unless extended by Congress, prompting many to consider this strategy before the exemption amount decreases.  (Source: Tax Cuts and Jobs Act - IRS Summary)

Essential Details and Risks

While upstream transfers are helpful for tax reduction, they also involve risks. A primary concern is the potential loss of control over the assets when transferred to parents. In most cases, parents have the decision-making power regarding their assets, including their transfer or sale during their lifetime. This setup allows parents to decide to share the estate with other successors, such as a future spouse or other children. Moreover, parents’ creditors could claim the assets, complicating the situation further.

Additionally, family dynamics play a crucial role in the success of upstream planning. The involvement of multiple family members, including siblings and spouses, can lead to conflicts and disagreements. For example, parents might alter their estate plan to favor one child, even if it was another who originally provided the assets. Open and transparent communication among all parties is essential to minimize the potential for family conflict.

Timing and Legal Considerations

Timing is another critical factor in upstream transfers. Typically, these transfers are most effective when parents are older or have limited longevity. The strategy is usually recommended when parents are within their last seven years of life and are not expected to live beyond five years. However, if parents pass away within a year after the asset transfer, the basis step-up is disallowed, undermining one of the strategy’s main benefits.  (Source: IRS - Step-Up in Basis Rules)

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Furthermore, the value of transferred assets can fluctuate over time, as can the estate tax exemption. If assets significantly appreciate after the transfer or if the estate tax deduction is reduced, an unexpected tax liability could occur for the family. This underscores the importance of a rigorous plan and ongoing monitoring of the situation to keep the transfer tax-efficient.

In Conclusion

Future transfers offer an effective strategy for reducing tax liabilities on capital gains and enhancing wealth transmission to future generations. However, this method requires careful consideration of the legal, financial, and family dynamics involved. Wealthy individuals, including those at PVH considering an upstream plan, should consult with experienced estate planning professionals to determine if this strategy aligns with their overall financial goals and family circumstances. Proper planning and implementation can make upstream transfers a valuable tool in a comprehensive tax and estate planning strategy.