End of Year Gifting

female tax specialist talking with couple

With the New Year approaching, people often start making plans for the future. No matter what age you are, you should consider having an estate plan. Unfortunately, we do not know what the future holds and losing your life can happen unexpectedly. In an estate plan you can include how you want your assets to be distributed, thus saving your family trouble during their time of mourning.

Other Tax-Smart Planning Moves

In 2020, you can transfer up to $15,000 to any number of individuals without paying gift taxes on the amount. During your lifetime you can gift up to $11,580,000 (known as the applicable exclusion amount), in addition to the $15,000 per person. You will need to make these gifts by December 31, 2020. Due to the uncertainty of the estate planning credit, it may make sense to gift more money in 2020 if you can.

For 2021, the unified federal estate and gift tax exemption is $11.7 million, or effectively $23.4 million for married couples. In 2026, the exemption is set to fall to about $6 million, or $12 million for married couples, after inflation adjustments. Congress can always change the law sooner.

Wealthy individuals with estates above the unified federal estate and gift tax exemption should consider other options to lower their exposure to federal estate and gift taxes, including:

  • Annual gifts. The current annual federal gift tax exclusion is $15,000. Annual gifts help reduce the taxable value of your estate without reducing your unified federal estate and gift tax exemption.
  • College tuition or medical expense payments. You can pay unlimited amounts of college tuition and medical expenses (but not room-and-board expenses) without reducing your unified federal estate and gift tax exemption. However, you must make the payments directly to the college or medical service provider.
  • Gifts of appreciating assets. In 2020, you can give away up to $11.58 million worth of appreciating assets, such as stocks and real estate, without triggering federal gift tax (assuming you have never tapped into your unified federal estate and gift tax exemption in prior years). If you are married, your spouse is entitled to a separate exemption. Cumulative gifts during your life up to the exemption amount are gift-tax free and can be on top of the annual gift tax exclusion, and cash gifts to directly pay college tuition or medical expenses. When it comes to gifts of appreciating assets, using up some of your exemption can be a tax-smart move, because the future appreciation is kept out of your taxable estate.  Whether it is a local nonprofit, church or alma mater, we like to give back to our community. Why not incorporate charitable giving into your estate plan?

The Tax Cut and Jobs Act of 2017 continues to prevent Americans from itemizing many deductions and, in turn, from receiving any tax benefits for their charitable contributions. Tax benefits are not the sole reason people give to charity, but they are a nice bonus.

As a solution, certain estate planning and gifting techniques, like donor-advised funds and charitable remainder trusts, allow charitable giving that maximizes the federal tax benefits.

Hire an Estate Planning Professional

Gifting is best done with a strategy and plan. Knowing the ins and outs of estate planning can be confusing, which is why you should consider hiring a professional estate planning attorney. Estate planning attorneys provide value in many ways, far beyond merely providing you with printed wills, trusts, or other estate planning documents. You can learn more about the benefits of hiring a Board Certified Attorney in our previous blog. If you have questions about the process and want to learn more, schedule your consultation with Kimberly Loveland.

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