If you’re like most Americans, you like to give gifts nearly as much as you like to receive them. Luckily, if you’re serious about estate planning, there’s a handy technique called gifting that can potentially save your family, friends and heirs a lot of money on estate taxes in the future.
With gifting, you not only benefit yourself, you potentially save future generations from a heavy tax burden. In addition to a reduction in taxes, by reducing the size of your estate, you generally reduce the amount of probate costs and legal fees, which can often eat away much of your estate. So what exactly is gifting?
Gifting is exactly what it sounds like: a gift. It’s a gift that can be given to a spouse, a family member or a friend. It’s a technique that has been used frequently by people to reduce the value of their estate and can be done several ways.
For 2020, each person in the U.S. can give assets or property of up to $15,000 a year per recipient. That amount applies to each individual they gift to. This gift can be given to basically anyone without paying any gift taxes, as long as the amount gifted stays under the limit. You can give gifts, tax-free, to as many people as you wish. You can also gift an unlimited amount of property to charity and your spouse.
By law, you can gift a spouse unlimited amounts of property each year without paying any taxes. This isn’t always suggested however, since it just shifts the larger estate burden onto your spouse. One helpful technique is to team up with your spouse and gift to specific individuals, such as children and grandchildren. When you and a spouse get together and gift, which the IRS has termed “gift splitting,” you can give up to $30,000 to each individual without paying any gift tax. This allows you to quickly reduce your estate by a large amount.
Gifting is also a great way to give assets to your family that will end up appreciating in value. You not only reduce the amount that may be taxed in your estate, but you reduce the amount that your asset would have grown to by the time you passed away.
There are a great many details involving taxes and gifting that remain to be seen. The tax laws and regulations can get extremely complicated, which is why estate planning is best left up to professionals. But the main idea remains, gifting can probably save your estate and your heirs’ money in the long run.
While estate planning is often put off because of the uncomfortable topic of death, it may be one of the most important financial planning tools available. It may also be one of the most important ways to save your family from heartache. One mention of Terri Schiavo is all it takes to conjure up memories of legal battles, congressional intervention, and a media circus that most certainly missed the most important aspect of the struggle: Terri.
Gifting is simply one of the many convenient ways to leave a legacy that remembers your life for its accomplishments instead of courtroom battles. Whenever contemplating gifting, or establishing an estate plan, it’s best to meet with a financial professional and a qualified estate planning attorney. A little bit of careful planning can go a long way. In the end, gifting allows you to take advantage of tax savings and choose the way you want to be remembered, which is truly a gift that will keep on giving.
Pursuant to IRS Circular 230, Securities America Inc. is providing you with the following notification: The information contained in this article is not intended to (and cannot) be used by anyone to avoid IRS penalties. Neither Securities America nor its representatives are permitted to give tax advice. Discussion of tax rules is for general informational purposes only and merely a summary of our understanding and interpretation of some of the current income tax regulations and is not exhaustive; nor does it cover every situation.