The Art of Gifting in Your Estate Plan 

When you think of your estate planning options, your mind turns to creating a will, living trust, powers of attorney, and advance directives. You probably do not consider how gifting to others would offer benefits, but it may be a useful strategy in appropriate situations. The underlying reason is estate tax rules established by the IRS. These could impose a tax on the transfer of assets to your beneficiaries at your death, but only for estates with a value exceeding an amount set by the IRS. 

In sum, gift planning involves giving away some of your assets according to an organized structure that aims to reduce your estate. You are essentially passing the asset or other item of value to a recipient during your lifetime instead of at death when it would otherwise incur estate tax. This type of planning can be so intricate and detailed that it truly is an art, and an estate planning attorney will guide you in developing a strategy. Some background is also helpful. 

Understanding Gift and Estate Taxes 

Some basic points about gift tax, estate tax, and their interconnected relationship are useful for realizing opportunities for planning. 

  • For individuals who die in 2023, estate tax kicks in at $12.92 million. This amount is $25.84 million for married couples. 
  • When your estate exceeds these values, there is a progressive tax rate of 18% to 40%. 
  • There is a limit on what you can gift on a yearly basis because the IRS has also imposed a gift tax. The annual exclusion amount for 2023 is $17,000 and $34,000 for individuals and married couples, respectively. 
  • If you gift amounts in excess of the federal gift tax exclusion amount, you will incur gift taxes. The tax rate is also 18% to 40%. 

How Gifting Supports Estate Planning 

The most effective strategy will be to leverage gift tax rules to gain beneficial estate tax treatment, so gifting should be a part of your estate plan. To reduce the value of your estate and get it below $12.92/$25.84 million, you give it away according to your wishes. 

You can gift to people, charities, endowments, and non-profits. It is not necessary that they be family members, but charities must meet criteria set by the IRS. Plus, the annual exclusion amount is not a total, but is assessed per recipient. You can give multiple gifts of less than $17,000/$34,000 and not trigger the gift tax. 

Therefore, in most cases, it makes sense to identify individuals and entities you want to give gifts to over a period of years to reduce your estate. Your plan will involve strict organization and record keeping to ensure you get the desired outcome.  

Discuss the Art of Gifting with an Estate Planning Lawyer 

If the value of your estate has you concerned that some of it will go to the government, please contact Francois Williams Legal LLC. We can schedule a consultation to review your circumstances and understand your goals. Then, we will explain how gifting will benefit your situation for avoiding estate tax. 

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