Consider gifting while you are alive
Federal tax law allows every person to give up to $12,000 each year to as many individuals as they wish without having to pay gift tax. This allows couples to give up to $24,000 per year to any person or persons they choose. Used over time, gifting can be a very powerful tool for helping others while also reducing your taxable estate. Below are some tips related to gifting.
- You can give away cash or other assets, such as stock, heirlooms or even a partial interest, such as $12,000 worth of real estate or a business asset. If you have a choice, you are usually better off giving cash and leaving appreciated assets in your estate.
- You can make a gift to a trust, but it must be done carefully or the IRS can disallow it. This can be done with a Crummey Trust which allows the recipient to withdraw the gift during a certain window of time, usually 30 days a year.
- You can't tie any strings to a gift, such as telling them how they have to use it, or the IRS can disallow it.
- Your gift must be completed. If you are giving property, make sure they get it before you die. The same goes for cash. If you are making a deathbed gift of cash, use a certified check because it will not qualify as a gift if you die before a normal check is cashed.
- You can delegate to someone else your power to make gifts, if you are careful. The power of attorney must specifically state that they can make gifts on your behalf.
- You can combine the gift technique with other estate-planning items, such as using a trust to hold a life insurance policy that will benefit the children
- Don't use the gifts to forgive loan repayments unless you have documented evidence that the transaction truly was a loan with a payment schedule and real interest charged