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Should I gift my loved ones assets instead of estate planning?

On Behalf of | Jan 13, 2022 | Estate Planning |

There’s a lot that goes into estate planning. While you’ll certainly want to address asset distribution in a way that is beneficial for both your estate and your loved ones, you’ll also want to ensure that you’ve got the proper documentation in place to protect your decision-making in the event that you become incapacitated. But if you have a significant amount of wealth, then you might be concerned about the estate tax and how to pass your assets down in a responsible fashion. One option that may benefit you here is lifetime gifting. However, while lifetime gifting may be beneficial, it should work in conjunction with your estate plan if you want to provide your estate and your loved ones with as much protection as possible.

Understanding estate taxes

Estate taxes may only kick in if you have a significant amount of assets, nearly $12 million dollars is the current trigger point for estate taxes, but that wealth can quickly accumulate. Real estate, investment accounts, and heirloom personal property can all be quite valuable. So, if your estate exceeds the amount of property that is exempt from estate taxes, then anything of value in excess of that nearly $12 million point will be heavily taxed at about 40%. If that has you worried about the viability of your estate, then lifetime gifting may be a strong option for you as it can be a great way to pass down wealth while avoiding taxation and exempting that property from counting towards your estate tax exemption.

What does lifetime gifting look like?

Gifting assets to your loved ones during your lifetime can be a great way to pass down wealth in a tax-free fashion while also giving yourself the opportunity to see your loved ones enjoy those assets. These lifetime gifts can take many forms, too. For example, the government recognizes the annual exclusion gift, which allows you, as an individual, to gift up to $15,000 in assets to as many individuals as you wish. If you’re married, then that gift increases up to $30,000 per individual. Given that the estate tax rate is approximately 40%, that can lead to significant savings.

But lump sum transfers aren’t the only way that you can gift assets. Another tax-free option is to directly pay for your child or grandchild’s educational or medical expenses. This can provide your loved one with immediate support, and the funds that are used to pay for these expenses are exempt from estate taxes and do not count toward the estate tax exemption.

Although larger gifts may result in taxation and count towards your estate tax exemption, there may be situations where making those larger gifts are still your best option. One example is when you have an asset that is expected to appreciate significantly in the coming years. By gifting it now, you may be subject to taxation, but that taxation may be much smaller than it will be once the asset fully appreciates. So, you’ll want to be careful with larger gifts and ensure that you understand the law and how it’ll apply to your set of circumstances before moving forward with it.

Develop the wealth transfer plan that is right for you

Passing your assets down to your loved ones may seem easy enough, but it can be a complicated process that takes a lot of foresight if you hope to protect your loved one’s financial interests as fully as possible. That’s why many Florida residents turn to experienced estate planning legal professionals like those at our firm. By discussing your set of circumstances with a proven attorney, you may be able to develop the plan that puts your mind at ease and leaves your estate and your loved ones well positioned for the future.




Photo of Jennifer D. Sharpe