Many people consider gifting in their estate plan. However, that gifting doesn’t have to wait until your have passed, according to the Tri-County Times in “Giving while living.” There can be real advantages to gifting now, rather than through your will.
Among the reasons is the possibility of using annual gift-giving to reduce estate taxes. Today’s annual tax break for gifts to individuals is $15,000, which is separate from the lifetime exclusion of $11.4 million per person. Marrieds can shield $22.8 million.
Remember that you can give more than $15,000 as a gift, but you have to know the limits. It’s easy to go over this without needing to pay taxes on the gift, but you may need to file a gift tax return. Speak with your estate planning attorney about the limits and when a gift tax return needs to be filed.
You can also make gifts to reduce the size of your estate, without using your lifetime gift and estate tax exclusion, if you want to make certain gifts. Be certain to follow the rules and to pay the institutions directly, and not to the person.
- Pay medical bills for another individual—pay the health care facility directly;
- Pay tuition bills for a student—pay the educational institution directly; and
- Make a charitable contribution to an exempt organization.
Funding 529 accounts is a wonderful way to help the next generation achieve higher education, although those funds can now be used for other qualified educational expenses. There is a $15,000 annual gift limit, but you can bundle five year’s worth of $15,000 gift tax exemptions into an initial $75,000 contribution to one student’s 529 account.
Note that if you die in the five years after making the gift, a prorated amount of your gift will be put back into your estate, but only for tax purposes. The money remains in the 529 account.
Not all gifting is about taxes or inheritances. Special trips with the family make memories across generations and create strong family bonds. Create a vacation with more meaning than a theme park. If the family loves the outdoors, consider a long week in a nature preserve or spend a week volunteering with a reputable charitable group.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and can include gifting now, as well as in your will.
Reference: Tri-County Times (April 25, 2019) “Giving while living”