There are gifts you find under the tree, gifts you exchange at White Elephant parties, and then there are gifts that are part of your estate plan.
In 2016, the federal tax exemption is $5.45 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 plan strategy: in life or death, married couples have an unlimited gifting privilege.
The annual gifting exclusion a person can give away is $14,000 year to as many recipients as we want—provided that you have the money. Married couples can gift $28,000, or $14,000 each.
If you give away your money, your estate won’t be reduced by an estate tax on it when you die. Therefore, you can whittle down your estate by maximizing your gift exclusion giving to reduce the estate that is potentially subject to estate taxes.
Not only can gifting be an estate planning tool for you to save on future estate taxes, but you can enjoy watching your dollars work for your children or grandchildren while you’re still alive.
However, you shouldn’t give away assets that you might need in the future.
You are allowed to pay for tuition and medical insurance for your grandchildren if they are in college or grad school, but remember that you have to make the payments directly to the college or university. Speak with an estate planning attorney and the school’s financial office to ensure that these payments are made properly. Even if you cover these costs, you can still gift them $14,000 for the year, or double that amount if your spouse joins in.
Reference: CBS Boston (November 24, 2016) “Our Families: Giving It Away”