February is the month of love. With Valentine’s just passing, it is important to show your loved ones that you love and care for them. Estate planning is a creative way to show your love. Here are a few ways you can express your love for others in your estate plan.
How Do Lifetime Gifting Strategies Work?
Gifting strategies are used to minimize the tax burden on estates and preserve assets, since they promote the transfer of wealth across generations. There are five frequently used lifetime gifting strategies outlined in a recent article from Forbes, “5 Lifetime Gift Strategies For You And Your Family To Consider.” For families with significant assets, these need to be discussed with their estate planning attorney to see how they will fit with the family’s overall estate plan.
A grantor retained annuity trust (GRAT) is an irrevocable trust that can be a good choice, if you want to transfer hard-to-value assets. A GRAT also lets you keep your income stream, divide property interests and make discounted gifts to future generations. With a GRAT, the grantor transfers assets to a trust but maintains a right to an annual income stream, or annuity payment, for a specific period of time. The income stream’s value is deducted from the value of the transferred assets when determining the gift’s full taxable value. Anything left in the GRAT after the annuity period expires, is given to the trust’s beneficiaries without any more gift or estate taxes. However, if the grantor dies before the end of the trust term, the whole value of the trust will be included in the taxable estate (like the trust had never been created). Therefore, you can see how important it can be to carefully choose the term of the trust, so the grantor is likely to live beyond its termination.
Should You Make Lifetime Gifts While Living?
Not everyone gives because they are looking to minimize their taxes. If you’ve reached the age and stage where you have accumulated more than enough wealth to retire on, you may enjoy being generous and seeing the impact your gifts can have on the lives of those you love, or those who are less fortunate.
WMUR’s recent article, “Money Matters: Lifetime non-charitable giving,” explains that lifetime giving means you dictate who gets your property. Remember, if you die without a will, the intestacy laws of the state will dictate who gets what. With a will, you can decide how you want your property distributed after your death. However, it’s true that even with a will, you won’t really know how the property is distributed, because a beneficiary could disclaim an inheritance. With lifetime giving, you have more control over how your assets are distributed.
Who Pays Taxes When Mom and Dad Make a Generous Gift?
Couples whose families are generous enough to give them help towards buying their first home are often concerned with what, if any, tax liability may be created. Do they have to pay taxes on the gift? Do their parents or in-laws pay taxes?
The tax laws on gifts can be pretty confusing, says nj.com in an article, “Are taxes owed on gift from in-laws?”
Good news: a gift isn’t income. Consequently, there’s no taxable income to the recipient.
Likewise, some donors ask if gifts to the children, grandchildren, or others are deductible. Same answer: no. Gifts to other people are never deductible. The question probably stems from the fact that a charitable donation (a gift) is often deductible. Nonetheless, donations are only deductible, if you itemize your deductions.
How to Give to Family With Warm Hands and No Taxes
Giving your children, or other heirs, gifts while you are still alive can be a very fulfilling experience: you get to see what they do with their early inheritance. However, many people aren’t sure about the tax implications of gifting. A recent article posted on nj.com, “Gift tax consequences for you and your heirs,” gives readers a general look at gifting and taxes. It should be noted that large estates often incorporate gifting as part of an overall estate plan and should have the guidance of an experienced estate planning attorney. [Read more…]
How to Make Gifting a Part of Your Holiday Tradition
In 2017, the federal estate tax exemption is $5.49 million. A recent article from CBS Boston, “Our Families: Giving It Away,” explains that if your estate is worth more than that, gifting is a straightforward way to lower your tax exposure while allowing you to enjoy watching your heirs or favorite charities benefit from your generosity. Don’t forget another part of this estate planning strategy: in life or death, married couples have an unlimited gifting privilege called the “annual gift tax exclusion”. [Read more…]