It is important to understand the tax laws regarding gifts. Under the unlimited marital deduction, you can give any amount of your estate to your spouse without paying gift taxes. However, when making gifts to other people, including your children, two limits are set on nontaxable gifts:
1. You cannot give more than $11,000 per
year ($22,000 for married couples) to each of an
unlimited number of individuals tax-free. An important
exception to this rule is that you can make unlimited
payments for medical and educational expenses for
other individuals, as long as the payments are made
directly to a health care provider or educational
Some tips to remember when considering lifetime gifts include:
* Over a number of years, an annual gift giving program can remove a substantial amount of assets from your estate. You can make gifts to any number of individuals, even those who are not related to you.
* You do not need to wait until your death to use your lifetime estate and gift tax exclusion. The major advantage of using your exclusion to make gifts during your lifetime is that any income, increase in value or capital gains that would accrue on the assets after the transfer are also removed from your taxable estate.
* If you have a choice, gift property that has the potential to appreciate in value, but has not already done so. When your heirs receive an asset after your death, the tax basis of the property is stepped up to the market value at the date of your death. The tax basis for a lifetime gift, however, remains your original cost basis, triggering capital gains on the eventual sale of the asset.
* You may also want to consider making taxable gifts in excess of your applicable exclusion amount during your lifetime. If you live at least three years after making the gift, any gift tax paid is also removed from your estate, generally meaning that your heirs will receive more assets. When a gift is made during your lifetime, the gift tax is only paid on the value of the gift. In contrast, after your death, estate taxes are paid on the total value of your estate, including the part of the estate that will be used to pay the estate tax. The cost of making lifetime gifts, therefore, can be substantially lower than the cost of leaving an asset on your death.
* Business owners should consider lifetime gifts to transfer business interests. Transfers of non-controlling interests during your life may allow you to assign minority interest and lack of marketability discounts to the value, resulting in lower gift taxes.
Lifetime gifts can be an effective estate
planning strategy. Please contact us if you would like
to discuss this with us in more detail.
& Farrington, PLLC - Attorneys and Counselors at