How Financial Gifts Can Protect Your Estate
By: Barry E. Haimo, Esq.
December 30, 2021
Many people like to give gifts. Well, what if you could gift money to friends and family and reduce the amount you have to pay in estate taxes at the same time?
Typically, the federal gift tax is applied to financial gifts. However, you can give the people in your life as much as $15,000 each year without being subject to the federal gift tax – and you have a lifetime cap of $11.7 million!
This is definitely something you want to take advantage of. Why? Giving financial gifts may be the key to reducing or even eliminating the tax your estate may be subject to when you die.
Here are the ins and outs of using financial gifts to protect your estate.
How Annual Financial Gifts Work
When you give a friend or family member $15,000 in a calendar year, this is what is referred to as an annual tax exemption. The annual tax exemption rule allows you to give that amount to someone completely free from taxes.
For couples, annual exclusions can be doubled. In other words, a couple can collectively give away $30,000 per year without it being subject to gift taxes. The way the law is written, one spouse can actually make a gift and it’s considered to have been given by both spouses.
You can also make unlimited tax-free gifts to your spouse as long as they are a citizen of the United States. (If they are not a citizen, the ceiling on tax-free financial gifts is $159,000.)
However, this may not be the best option if you both own around the same amount of property or everything is titled jointly as husband and wife. This is because the tax situation for your spouse could be made worse since a gift would increase the value of their estate and possibly their future estate tax.
When Should You Make a Financial Gift?
As with most things, timing is everything when it comes to financial gifts. If you want to make the most of your annual tax exemption for financial gifts, then you must pay attention to the calendar year. Spreading a large gift over a couple of years can help you to avoid gift taxes.
Haimo Law can help guide you in utilizing the best strategy to give large gifts that can simultaneously help reduce or eliminate your gift tax burden and, ultimately, your estate tax.
Before You Give
While finding a way to reduce the taxes you may have to pay now and once you pass away is a good idea for your estate, it’s important that you really think about your financial situation before taking that next step. For some people, parting with assets may make them feel afraid that they will run out of money or be vulnerable if something goes wrong in the future.
However, many people make planned gift-giving a part of their estate plan because they are simply living longer lives. Seeing those around you appreciate and use those financial gifts can bring great joy, and knowing that you’re not burdening them with massive estate tax bills after you pass away is also a relief.
In the end, only you know what the best course of action is when it comes to financial gift-giving. If you have questions about including gifting in your estate plan, then let the attorneys at Haimo Law help you create the best solution.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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