Compliments of Our Law Firm,
Written By: The American Academy of Estate Planning Attorneys
For some of us, one reason we earn money is to provide the extras, the “non necessities” to our loved ones. Few things are more exciting than seeing a child or grandchild unwrap an eagerly anticipated gift. The expressions on their faces, the delight in their voices: it’s priceless. But did you know that gift giving also one of the time-tested strategies in estate planning? “Gifting” is a great way to reduce the overall size of your estate in order to avoid a potential future estate tax problem. The key is to properly plan for it.
Each year, anyone can gift up to $14,000 to as many people as they want. No particular reason or purpose is needed.. It’s part of the “annual exclusion.” There are a few important tips to keep in mind. First, your efforts won’t serve the purpose of reducing your estate (and tax bill) until it’s actually out of your possession. If you write a check and it’s not cashed for months, it’s still yours until it’s endorsed and cashed. You can eliminate this concern with either a wire transfer or a cashier’s check since the funds are moved immediately in the process.
You also have the option of giving an unlimited amount of money for certain expenses. These funds are treated in the same way: they reduce your tax burden while benefiting the recipient. Those expenses include tuition for school (including college) and medical expenses. The key is to ensure the check is written to the hospital, physician or school in order to be able to take advantage of the tax benefits. By writing a check to a grandchild or his parents, it’s considered a gift and the $14,000 benefit maximum applies. You must ensure the payment is made directly to the provider. Medical expenses and tuition are two expensive bills for most families and gifting is an ideal way to meet their needs without worrying about gift or estate taxes.
Many clients are unaware they can also gift a percentage of certain property at a discount. This means you can give even more than the $14,000 annual amount.
Keep in mind, there are some restrictions that often come into play. By consulting with a qualified estate planning attorney, you can really make the most of those assets by gifting them to your loved ones through the proper financial vehicle. But, the best part? You get to witness the excitement and happiness your gift brings. Be sure the legalities are covered so it doesn’t come back to bite you during tax season.
The excitement of gifting brings great pleasure, but don’t underestimate the tax and legal considerations. Your estate planning attorney can work with you to design a strong gifting strategy to meet your estate planning and financial goals.
