One of the primary purposes of estate planning is to appoint someone to handle your estate after you pass away as well as describe how you would like your remaining assets distributed. Many people decide that the best way to pass on assets is to family members, which often include children and/or grandchildren. While there are many estate planning strategies, you should likely at some point consider whether passing on a lifetime gift makes sense.
The Current Exemption Amounts for Lifetime Gifts
In 2021, each person in the United States can transfer up to $11.7 million either during that person’s life or time of death without being subject to any federal estate or gift taxes. If your transfers exceed this amount, only the excess amount is taxed at 40%. New York currently does not have a gift tax. While this provides an even greater reason to utilize lifetime gift taxes, it’s worth remembering that several of the states surrounding New York have gift taxes. Due to these currently advantageous taxes, many individuals utilize this opportunity to keep wealth within their families. Making gifts to your family while you are still alive offers the advantage of seeing your loved ones enjoy these assets.
Taxes and Lifetime Gifts
Currently, a person can gift up to $15,000 to one recipient within one year without facing taxes. This amount increases if you’re married. A person can also make gifts to an unlimited number of individuals provided no one transfer goes over $!5,000 without facing taxes. Even if a gift is subject to taxation, there are other advantages regarding lifetime gifts and taxes. One, by making a gift now, a person could pass on an asset before it appreciates.
Medical Expense Issues
Expenses for medical care and medical or dental premiums paid directly to the provider are not part of taxable gifts. This exemption, however, does not include any amount paid for care that is later reimbursed by insurance carriers. Do not let hesitations about qualifying medical care prevent you from making gifts.
On a slightly related note, if you are considering passing on assets to a loved one who receives ongoing significant medical care, a lifetime gift might not be the best option because this disqualifies your loved one from receiving government assistance. Instead, in these situations, it’s often a better idea to pass assets into a trust established for your loved one.
Exclusions for Qualified Educational Costs
Much like medical expenses, the gift tax also excludes any payments made to a qualifying educational organization. This exclusion is limited and does not apply to material or living costs associated with education.
If you’re interested in passing on assets to a child or grandchildren that would be used for things other than tuition, there are various estate planning structures you should consider including trusts in which the funds are placed.
Contact a Knowledgeable Estate Planning Attorney
Lifetime gifts are just one of many estate planning strategies that people consider utilizing. To achieve your estate planning goals, it can prove helpful to obtain the assistance of an experienced estate planning attorney. Contact Ettinger Law Firm today for assistance.