Lifetime giving and tax considerations

On Behalf of | Apr 4, 2023 | Estate Planning |

One of the key financial goals of the estate planning strategy is to reduce the dilution of assets. This dilution could come from taxes, fees and even conflicts after a person’s death.

There is also usually a goal of supporting one’s family. Through lifetime giving strategies, people might be able to meet both of these goals.

Gift taxes and exemptions

While there is no hard limit on giving gifts, there are taxes that people might incur after they reach a certain threshold. This gift tax exclusion is relatively high in the context of most estate plans:

  • Well over $10,000 per recipient per year
  • Over $12 million lifetime limit per donor
  • Each individual in a marriage gets their own full lifetime limit

These exclusions are currently changing on a prescribed schedule due to federal law. Even so, only those with multi-million dollar estates would probably have to worry about paying the tax. Many givers might, however, still have to file paperwork and keep records.

Capital gains and lifetime gifts

Capital gains tax often comes into the equation during a lifetime gifting and estate planning strategy. There are potential interrelated factors, making this a complex issue. However, the basics are relatively simple.

Sales of capital that people inherit typically have low capital gains tax — or none at all. This is because the adjusted cost basis, a key figure in calculating the profitability of a sale, typically updates during estate distribution.

Sales of gifts often incur capital gains tax obligation for the recipient. However, depending on the tax brackets of the giver and the recipient, it might be more advantageous for the recipient to assume the tax burden.

Simply giving gifts is one option. More complex estates might also consider other alternatives, such as trusts.

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