How Gifts Might Fit into Your Estate Planning Efforts
It's easy when thinking about estate planning to think about events that won't happen until after you have passed. One of the more interesting things you can do while you're alive, though, is to give gifts. The American legal system has carved out a fair amount of room for gift-giving, and an estate planning attorney will oftentimes encourage their clients to consider this approach.
What Is Considered a Gift?
Two main things are treated as gifts: cash and property. Notably, the donor's basis cost determines the value of the gift. For example, someone who gifts a house that cost them $50,000 can assign that value even if the house's market value is now $250,000.
How Much of a Gift Can You Give?
Current limits on gifts are $15,000 per recipient per year. A couple has the right to combine their totals for $30,000 in all. These transfers will be handled without any taxes being assessed.
You can make gifts to as many different recipients as you'd like in a year, too. For example, someone who has three children could gift $15,000 to each of their children for a total of $45,000 in gifting. Note that amounts of more than $15,000 are taxable. If you gifted someone $25,000 in cash, for example, the difference of $10,000 would be taxed.
How Is the Year Counted?
For estate planning purposes involving gifts, the "year" in question is simply the normal calendar year. For example, you could provide a gift of $15,000 on December 31 and come back with another gift of the same amount on January 1. Each gift is booked in a different year, even though they were just one day apart.
Should You Give to Your Spouse?
It's hard to come up with a good reason to gift something to your spouse. From an estate planning perspective, the concern is that you could leave your partner with a gigantic estate that exceeds the $11.58 million limit the U.S. considers tax-exempt in estates and gifts. This amount is indexed, and you should always check what it has become each tax year.
What about Gifts to Charity?
Charities are allowed to take all the gains from gifts they receive tax-free. Likewise, donors can then take an itemized tax deduction. It's always wise, however, to discuss such donations with an estate planning attorney to make sure the gift conforms to what can be acceptably given.
