With less than two months left in the year, time is running out to take actions that will apply to the 2017 tax year. By ‘actions’ we mean things like charitable giving, tax loss harvesting, and in the case of this post, gifting.
Gifting and estate planning can be complex undertakings, due to the myriad of rules, strategies, and even loopholes involved. But the concept of gifting by itself can be rather simple: in 2017, you can give any number of people (it doesn’t matter how many) up to $14,000 in cash or other property without triggering any gift tax. If you include your spouse in the gift, that number jumps to $28,000.
An example with actual numbers should underscore just how impactful gifting can be. Say for example that you and your spouse make annual gifts of $28,000 to each of your three children and seven grandchildren. Over a period of 5 years, you will have gifted $1,400,000 – which also reduces the value of your estate for tax planning purposes by $1,400,000. Assuming the federal estate tax rate of 40%, that could mean saving $560,000 in estate taxes (40% x $1,400,000).
Making gifts removes the value of gifted property from your estate, along with any post-gift appreciation that may occur. The easiest gift-giving approach is to give simply give cash or property directly to the individuals you want to benefit, but for those who want to be a bit more innovative, there are some other ideas for gift-giving that can have a big impact on your family and/or loved ones.
Give the Gift of Education or Help with Medical Expenses
Did you know that the current tax law allows you an unlimited exclusion from gift tax for tuition and medical payments made directly to the medical institution or medical provider? On the health care front, you can even use your exclusion for medical insurance payments, meaning you could pay premiums for your children or grandchildren or friends even who may not be able to afford the cost of insurance. In this sense, gifting becomes less a tax strategy and more a compassionate and meaningful gesture.
In terms of higher education, gifting counts when you make tuition payments, but not for expenses related to dormitory fees, books, supplies, and similar school expenses. If you have grandchildren that are not yet in school, an alternative would be to contribute to a 529 plan, which provide a tax-advantaged way to save and invest for higher education expenses of family members. WrapManager has written extensively about 529 plans, but for some quick easy info take a look at this post:
Talk to a Wealth Manager about Gifting
Are you starting to consider giving a gift this year? There are even more ways to gift that exist outside of the “just give cash” box – you could open a Roth IRA for a family member, donate to a charity on behalf of a family member, fund a trust for a family member, and more. As we stated in the beginning of this post, however, gifting and estate planning can be complex undertakings, particularly if you have a large estate. If you are considering gifting this year but still have questions, please reach out to a WealthManager and use us as a sounding board to talk through your financial situation and your goals. Though we are not tax advisors, we can talk you through some ideas and help you take the next steps. Call us today at 1-800-541-7774 or send an email to wealth@wrapmanager.com.
Source: Merrill Lynch Gifting Strategies
