You may have a very valuable estate, and that’s great for you and your beneficiaries in the future. The bigger problem occurs when you have such a large estate that it’s able to be taxed.
Taxes can take a large chunk of the value of your estate, so part of your estate plan should address how to eliminate taxes to the best of your ability. One option is to use a gifting schedule.
Did you know that there are ways to give gifts tax-free?
You can give assets without having to pay taxes on them if you use:
- The lifetime gift and estate tax exemption
- Make payments directly for medical care or the educational needs of a loved one
- An annual gift-tax exclusion
While you may have always had the idea that it’s best to wait to pass on an inheritance after your death, the reality is that it is actually, in most cases, better to give assets to your loved ones while you’re alive.
When you give gifts now, you’re giving people a chance to use them right away. It also gives you the opportunity to see how those gifts are used. Some gifts will grow in value, but it’s better for a beneficiary to have those assets grow in value in their estate than to have them grow in value in your estate and take you over the estate tax threshold.
As of 2019, you can give any number of people up to $15,000 each annually without having to pay a gift tax. If you and your spouse intend to give a gift to a person, you can give up to $30,000. If your gift is more than $15,000, you need to report it on IRS Form 709, the gift tax return.
How high is the estate tax exemption?
Presently, the estate tax exemption is set at $11.18 million. This applies to gift and estate taxes combined. What that means is that any exemption you use for gifting will be used against the estate tax. The new estate tax threshold will be in place from 2018 to 2025 based on the passage of the Tax Cuts and Jobs Act.
Gifting and estate taxes can be complex, so if you have questions about them, it’s smart to discuss them with your attorney as you build up your estate plan. A good estate plan does take into consideration taxes and takes steps to reduce or eliminate taxation.