Depending on one’s family situation, making lifetime gifts may be an excellent strategy to minimize overall estate taxes, and to ensure that more of your hard-earned property goes to your family and not the government.
- Current exclusion amount. Beginning in January 2022, the gift tax annual exclusion will allow each individual to give $16,000 per year to an unlimited number of donees entirely free of tax. This exclusion is available for outright gifts of property, cash, and other assets, and for gifts made to certain types of trusts.
- Double the annual exclusion amount. This annual exclusion may be doubled for a husband and wife who file a married filing joint tax return. This means that Grandma and Grandpa will be able to make combined annual gifts of up to $32,000 to each child, grandchild, church, charity, etc.
- Significant tax savings. The federal estate tax rate is 40 percent, and starting in January, will apply to taxable estates that exceed $12 million. Therefore, depending on your individual family situation, each lifetime gift could save your family $6,400 in taxes. Although the federal estate tax exemption is not relevant for most families, the state exemptions are significantly less; therefore, a gifting program may yield significant savings at the state level also.
- Some “gifts” are not taxable. If structured properly, paying the medical expenses, health insurance premiums, or the school tuition of another person may not be a taxable gift. Any such payments must be made directly to the healthcare provider or school. These gifts may significantly increase the amount that a donor can transfer free of gift or estate tax because Grandma and Grandpa could, for example, pay a grandchild’s full school tuition and health-insurance costs, and give another $32,000, without incurring any gift tax liability.
For assistance with any legal matters related to your business or estate planning, contact Fournier Legal Services at firstname.lastname@example.org or 860.670.3535 now for a consultation and planning session.
Joseph E. Fournier is an Attorney and a CPA who has more than twenty years of experience in a variety of business legal matters, including start-ups and company formations, drafting shareholder and operating agreements, contracts, employment law, commercial litigation, tax planning and audit defense, and mergers and acquisitions (M&A). He also handles estate planning matters, such as business succession planning, wills, trusts, and probate.