Estate Planning and Gifting

Gifting As Part of a Healthy Estate Plan

Estate Planning and Gifting can get a bit complex, this article is meant to give you a short, but understandable introduction.

Estate Planning Attorney Kelly Barse

If you are starting to look into planning your estate, the concept of gifting may have come up. You may have heard that it is an excellent way to avoid paying the federal estate tax, or that it is an alternative to creating a will. This simple guide will go over the basics of what gifting is, as well as what you need to know about how it works. Remember, this information is not a good substitution for speaking with an estate planning lawyer who will be able to give you information suited for your situation precisely. Estate Planning and Gifting, Let’s Talk!

What Is Gifting?

Gifting is as it sounds. You transfer an asset to someone else during your life. Rather than leaving a possession to a loved one in your will or a trust. Importantly, gifting is done before death. You cannot continue to use or profit off an item, business, or piece of property and then claim to have gifted it to someone else in your will. Gifting, legally, removes ownership from you and transfers it to someone else. The main benefit of gifting is that it is fast and straightforward. For the most part, you do not have to do anything special to gift an item to someone. There are a few exceptions to this rule:

• The item has an unusually high monetary value
• The item has a title or deed
• You only want to transfer partial ownership

Federal Estate Tax

There is something called the federal estate tax, which taxes a portion of an estate when it is passed on. Most people never have to worry about the estate taxes on their property because it only applies to estates that exceed a certain amount. This set amount for the federal estate tax is very high. The value has changed a great deal over time, but currently, the value exceeds $11,000,000.00. The limit of the federal estate tax rises with inflation, and individual states may implement a different threshold, so you should research what the law is for your location. Gifts are usually exempt from all income taxation. Careful, though, as each state can have its taxes relating to gifts. 

Annual Tax Exemption Rule

Your estate plan, including gifting, should consider the Federal Gift Tax. If you plan to gift a part of your estate, you need to know about the annual tax exemption. The exemption is how much you can gift in any year before gift taxes start applying. For 2019, this amount is $15,000, but it also varies from state to state and rises with inflation. Further, the gift has to be to the person, not into a trust.  There are notable exceptions, such as UTMA accounts and 529 plans.

If you give a gift of $20,000, and the annual tax exemption is $15,000, the remaining $5,000 is subject to the gift tax. An estate attorney in O’Fallon, Missouri, can tell you more.

Estate Planning and Gifting can get complicated, so let’s talk.

Thanks to the Legacy Law Center for their insight into estate planning and gifting.