Gifts are on everyone’s minds these days because of the holidays. But you should also be thinking about gifts in relation to the end of the tax year.
The rule on gifts and the annual gift tax exclusion amount is, in summary:
Each person can give gifts
to as many people as they wish,
each year,
so long as each gift is not more than $12,000
GIFT TAX FREE.
But you only have until December 31 to use up this year’s exclusion. If you were going to make a larger gift soon, anyway, why not give $12,000 now and $12,000 in January?
You can use these gift tax exclusion amounts to fund 529 plans for children or grandchildren.Married couples get to double dip—remember the rule is each person has an annual exclusion amount.
But what does this have to do with estate planning?
For those of you who need to worry about estate taxes, gifting is a great way to reduce the size of your taxable estate and still benefit those you love. If a married couple has two children, each married with two children, that’s eight people who can each receive gifts of $24,000, for a total of $192,000 per year. The added benefit is you get to experience the joy of giving the gift while you are still here.
Planned gifting can be an important estate planning tool. Gifting can be done through the use of irrevocable trusts so that you have some control over when and how your gifts are used.
Let’s not forget about charitable giving, which can not only reduce the size of your taxable estate, but can also reduce your current year income tax. If you can arrange to give to charity an asset that has increased in value since you acquired it you can also avoid paying capital gains tax on that increase. Another charitable giving option is to give to charity some or all of your required minimum distribution from your retirement assets. Once you reach the age of 70 ½ you are required to start taking distributions from your retirement assets whether you need to or not. Up to $100,000 can be donated from your retirement assets to charity this year free of income tax. Please note that this tax benefit is set to expire at the end of this year. Also, it is very important to note that in order to take advantage of this the contribution to the charity must go directly from the IRA or other retirement asset to the charity, not to you.
