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The Season of Gifting: 3 Ways to Lifetime Gift within Your Estate Plan

Gifting assets to your heirs throughout your lifetime can be a powerful way to reduce the amount of taxes ultimately paid by your estate upon your passing. Even if taxes are not a primary concern, making gifts during your lifetime allows your loved ones to benefit immediately, and affords you the enjoyment of seeing your gifts improve their lives. A well thought out estate plan can help you develop a gifting strategy that balances potential estate tax savings with your own income needs and living expenses.

It’s important to note that giving away your assets willy-nilly is not recommended, as there is an estate tax exemption amount…not to mention rules that need to be closely followed. Current tax law, however, allows you to make certain gifts that do not count against your gift and estate tax exemption amount. In fact, a large portion of your assets can be excluded from taxation, and there are numerous ways to give assets away, tax-free:

• Using the annual gift tax exclusion

• Using the lifetime gift and estate tax exemption

• Making payment to medical and educational providers on behalf of a loved one

Using the Annual Gift Tax Exclusion

With the annual gift tax exclusion, you can give away up to $15,000 in cash or property value to an unlimited number of recipients, without incurring a tax. Married couples can choose to double the amount of cash or property to $30,000 per recipient. It is important to note that the annual exclusion is per individual recipient, not the sum total of your gifts. 

This gifting strategy can also be repeated every year, and keeps 100% of the value of those gifts within your family for immediate use and investment. If this strategy works for your family, after several years, this could result in the transfer of significant value to your family members… without any gift taxes ever being paid. 

Using the Lifetime Gift & Estate Tax Exemption

As of 2021, each individual can transfer a total of $11.7 million at death or during his or her lifetime without any Federal estate, gift, or generation skipping transfer (“GST”) taxes. If the assets and/or transfers exceed that amount, a 40% tax applies on the excess. It is important to keep in mind that today’s tax-free transfer amount is set to expire after 2024. This means it is possible that the amount you can transfer free of estate tax may be lower in the future.

Making Payments to Medical Provider or Educational Institutions on Behalf of a Loved One

Another way to give tax-free is by making payments directly to medical providers or educational institutions on behalf of others, for certain qualified expenses. This does not affect your $15,000 gift exclusion, and it is a great way to help out a loved one struggling with large medical bills, or to help pay for a family member’s education. 

It is always best to take the time to meet with an estate planning attorney to ensure your gift and estate plans are well-thought-out and properly implemented. Tax laws change regularly, which can impact your estate planning strategy. It is prudent to not only start planning with the guidance of a qualified estate planning lawyer, but to regularly review your plan to make sure it is still relevant.

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