In a very real sense, when you give someone a gift, you may actually enjoy the occasion more than the recipient. There is no better feeling than watching someone react to a gift that you know they will really appreciate from the bottom of their heart. This is something that is very useful to take into consideration when you are planning your estate. Depending on your means, opportunities are often missed when people devote all of their preparations to the distribution of their assets after they pass away.
To veer away from the human element for a moment, it is important to recognize the tax advantages inherent to gift giving. In a broad sense, if you give gifts while you are still alive those assets won’t be a part of your estate when you pass away. This will reduce its value and provide estate tax efficiency. The IRS is well aware of this, however, so there is a gift tax in place that comes in at the same rate as the estate tax. But there are gift tax exemptions that can make gift giving a very useful strategic tool.
There is a $1 million lifetime gift tax exclusion, so you can give a combination of gifts or a single gift of up to $1 million free of the gift tax. However, you are also entitled to an annual gift tax exemption of up to $13,000 per person, and this does not count against your $1 million lifetime exclusion amount. In addition, there is a gift tax exemption for educational and medical gifts. You can pay the tuition of as many people as you want to free of gift tax exposure, and you can also pick up health care expenses totaling any amount without being subject to the gift tax.
The tax benefits that go along with gift giving are clearly evident, but there is another element at play. If the total transferal or your assets to your loved ones takes place after your death, these “gifts” will be given during a time of mourning. If you begin to distribute your assets before your death, you can enjoy the experience and you will be giving your loved ones the opportunity to look you in the eyes and thank you in person.
- 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
