When the value of your legacy is clearly going to exceed the estate tax exclusion amount, you need to consider creative strategies that enable asset repositioning to keep your estate out of harm’s way. Gift giving is one way to do this, and there is a $1 million lifetime gift tax exemption, so this is something that you can use to transfer some assets free of taxation.
However, there are annual gift tax exemptions as well that do not count against the lifetime exclusion. Each person can give as much as $13,000 to as many recipients as they would like to each year free of the gift tax. You can also pay the tuition of an unlimited number of students equaling any sum of money tax-free. Remember, this $13,000 exemption is allotted to each taxpayer so a couple could give a total of $26,000 to the same person.
There is also an unlimited exemption for educational gifts. They do have to be paid directly to the institution rather than the student, and can only be for the amount of tuition, not inclusive of books, fees, and living expenses. But when you combine the $13,000 per person annual gift tax exemption with the educational gift of tuition, you can provide student-heirs with a very comfortable pathway toward their own future financial independence. Indeed, it is hard to imagine anything you could give your loved ones that would be more valuable than a good education.
As you gain the peace of mind that comes with knowing that your grandchildren or great-grandchildren will have the education that they need to become successful, you are also increasing the tax efficiency of your estate as its overall value is reduced. Educational gifts are a win-win proposition and they are something to be considered if any of your prospective heirs are of school-age.
- How Tax and Non-Tax Considerations Impact Estate Planning – Part II - May 25, 2023
- How Tax and Non-Tax Considerations Impact Estate Planning – Part I - May 18, 2023
- The Joy in Joint Trusts - May 11, 2023
