What is the Law on Gifts and Estate Planning?
You may have wondered about estate planning gifting strategies that can not only allow you to give a gift that ensures the security and well-being of a loved one but also helps your estate planning efforts as well. It’s nice to be able to give someone you love a gift, but like virtually everything in life, the government has rules and regulations. For 2022, the annual gift tax exclusion is $16,000 per recipient or $32,000 per recipient if you and your spouse are making the gift jointly.
The lifetime gift tax exemption for 2023 will increase to $12.92 million per individual, or $25.84 million for a couple. These are the amounts you can gift without paying federal estate or gift tax. If you want to give gifts in excess of those amounts, you must be strategic in your approach, which will allow you to minimize the tax liability while maximizing the gift. It can be extremely helpful to speak to an estate planning lawyer from the Gullotta Law Group when you are considering estate planning gifting strategies for the coming year.
What Are Considered Gifts?
According to the IRS, a gift is “any transfer to an individual, either directly or indirectly where full consideration (measured in money or money’s worth) is not received in return.” Determining the worth of a gift involves Fair Market Value, which is the price at which the property would change hands between a willing buyer and a willing seller. In other words, if your beach house has been appraised at $350,000, you cannot give it to your niece, claiming the gift is worth only $15,000. While it may be worth little to you, for whatever reason if the house would bring at least $350,000 if sold, you cannot claim the worth as being significantly less. Fair market value is not what a forced sale would bring. Gifts may include vehicles, no-interest or extremely low-interest loans, expensive jewelry, stocks and bonds, any type of real property, or financial accounts including bank accounts, retirement accounts, or brokerage funds.
What Are Possible Estate Planning Gifting Strategies?
There are many estate planning gifting strategies that can help you as well as the person you are giving the gift to, including:
- You can make unlimited gifts of direct payments for college tuition, books and fees, or medical expenses. Paying room and board, however, is not allowed under the estate planning gifting rules.
- For those saving for college, you are allowed to contribute to that individual’s 529 plan. Contributions to a 529 plan can allow you to combine up to five years’ worth of exclusions in one lump sum, retrieve assets from the account at any time (and for any reason), and change the beneficiary if you choose.
- You can make direct payments for such things as vehicles, vacations, summer camps, and other items, rather than giving cash to an individual to pay for those same things.
- Discuss when to give your gifts with your estate planning attorney. The “when” can be just as important as the “what.” Many people wait until the end of the year to give gifts, however, there can be benefits to gifting earlier in the year.
- Consider gifting assets that are expected to appreciate in value, rather than cash. When you gift assets, future appreciation is removed from your estate, tax-free. Properties that have already appreciated significantly should be held onto, since the recipient would be subject to the same tax basis you have regarding appreciated property—i.e., if the already-appreciated property is sold, the person receiving the gift will owe capital gains tax on the overall appreciation rather than only the appreciation that occurred after the property was gifted.
- Donations to a registered, non-profit organization are not treated as taxable gifts by the IRS.
What is the Difference Between an Annual and Lifetime Gifting Exclusion?
The IRS allows you to gift a certain amount over the course of your lifetime, without having to pay the federal gift tax on those gifts. As noted above, the lifetime gifting amount as of 2023 is $12.92 million per individual or $25.84 million for a couple. This amount is adjusted each year, however, changes to federal law mean that the lifetime gift tax exemption is scheduled to decrease, dropping to about $6 million per individual by 2026. The 2022 annual gift tax exemption of $16,000, also changes each year. If you were to give your son a gift of $30,000 in 2022, the first $16,000 would not be taxable, because of your annual exclusion. The remaining $14,000 would count against your lifetime gift tax exemption and the federal estate tax exemption.
What Are the Drawbacks to Using Estate Planning Gifting Strategies?
There can be some drawbacks associated with gifting to loved ones. The biggest downside to making a lifetime gift is the loss of the step-up in basis at death, assuming the gifted assets will increase in value. Assets included in your estate receive what is known as a “step-up” in basis on the fair market value of the asset at the time of your death. When those assets are gifted, you lose the benefit of the step-up in basis.
Assets with a built-in loss could trigger a step-down in basis, which would be seen as a positive rather than a negative. Another drawback is much more obvious. When you gift an asset, you lose access to and use of the asset as well as control of the asset. This loss of use and control of a gifted asset could be mitigated by transferring the asset to a trust rather than to an individual.
How Can an Estate Planning Attorney Help?
An estate planning attorney from the Gullotta Law Group can assist you with your estate planning gifting strategies so they benefit you as well as the recipients of the gifts. An experienced estate planning attorney will recommend the strategies that are most beneficial to you by taking a comprehensive view of your estate and your needs.
Getting the Help You Need with Estate Planning Gifting Strategies from the Gullotta Law Group
Estate planning gifting strategies can really benefit when you speak to estate planning attorney Eric Gullotta. Eric can help you determine whether lifetime gifting makes sense for you, or whether you should wait to give assets to your loved ones until after your death. Making gifts during your lifetime not only gives you estate planning benefits, but it also allows your loved ones to enjoy gifts earlier—and gives you the benefit of witnessing that enjoyment. At Gullotta Law Group, we will help you develop gifting strategies that balance estate tax savings achieved by gifting with your own income needs and living expenses while you are alive. Contact Gullotta Law Group today for trustworthy, experienced assistance with your gifting strategies.