In the context of Estate Planning, “gifting” refers to giving your estate assets away, while still alive. There are a few reasons why someone may want to do this, though the primary purpose is to avoid or reduce any potential estate tax upon death.
Annual Exclusion
In 2019, you can make an unlimited amount of $15,000 gifts of cash or property, tax-free. Just remember that no one individual may receive more than $15,000 in one year. Anything over the annual exclusion of $15,000 is taxable and you must file a gift tax return for that extra amount.
The annual exclusion goes up by about $1,000 every year, to account for inflation and the rising cost of living.
Married Couples Gifts to Others
The exclusion doubles to $30,000 for married couples. Many spouses take advantage of this in providing for their children. For example, if mom and dad want to help their son with the down payment on his first house, they can give him a total of $30,000, tax-free. After one calendar year has passed, they can give him another $30,000.
Married Couples Gifts to Each Other
All gifts made to a spouse are tax-free, as long as the receiving spouse is a U.S. Citizen.
Making Large Gifts
The annual exclusion is not based on the date of gifting, but rather on the calendar year. Therefore, if you wish to give a gift larger than the $15,000 limit, you can avoid gift taxes by spreading out the gift over a couple of weeks, months, or years.
Cash Example: Grandma wishes to give her granddaughter a gift of $20,000 for Christmas. Grandma can give her $10,000 in December, then wait until January to give the other $10,000. Both gifts will be tax-free. Remember though, that Grandma could only give her granddaughter another $5,000 in the new year before she would have to start paying gift taxes.
Breaking up a gift of non-cash property, like stocks or even real property, is also possible.
Gifts to Children
If you intend to gift to children under the age of 18, an adult must be responsible for managing that property. This is usually accomplished in one of two ways:
- Set up an irrevocable trust for the benefit of the child
- Petition the state court to appoint a custodian for the child’s property
Either way, the child must receive the property by the age of 21. Therefore, the trust or custodianship must end when the child turns 21.
Hire an Attorney
Gifting can be confusing, as there are a lot of dos and don’ts. To learn whether gifting is something you should consider implementing with your estate plan, consult with an Estate Planning attorney. At Kamper & Estrada, PLLC, our attorney has the estate planning, probate, and tax knowledge and experience to help you make the best decision for you and your family.
