Gifting As An Estate Planning Tool
Timothy J. Bupp
It is well recognized that there is no substitute for good estate planning. Preparing a will, a durable power of attorney, and a living will are among the most important things that a person can do to protect their families and safeguard the value of their estates.Less talked about, but equally advisable for many people, is the use of gifts during one's lifetime as a method for estate planning. Apart from the intangible benefits that flow from the fact that, as the saying goes, it is more blessed to give than to receive, gifting can have very beneficial tax, estate planning, and elder law planning effects.
Gifts reduce the size of the donor's estate that will be subject to court administration, thereby cutting probate costs and potential estate tax liability. Gifting also can provide savings on income taxes where income-producing property is given by an individual in a high income tax bracket to someone in a lower tax bracket.
Gifts do not trigger income tax liability for the recipient. However, the original cost, or basis, of the gift remains for the recipient what it was for the donor. As a result, if the recipient later sells the property, he generally will owe capital gains tax on the difference between the donor's basis and the sales price.
As for the gift tax, the starting point to consider is that the federal Government levies the tax on transfers of real or personal property made during the giver's lifetime where something of similar value is not received in return. For tax purposes, the dollar value of a gift is the fair market value of the property when it is given, less the fair market value of anything received in return. The donor is liable for any gift tax that is due, but if the donor does not pay the tax the donee becomes personally liable.
An annual exclusion of up to $11,000 is available for transfers to other persons without payment of the federal gift tax. Rather than pay the gift tax on gifts over $11,000, the donor can choose to exempt as much as $1 million in gifts above this exclusion over his lifetime. The donor does not need to file a federal gift tax return for gift amounts less than $11,000. Because the exclusion amount is per donee, any one donor actually can make gifts in a large total amount, without incurring a gift tax, by giving to many different recipients. For a married couple, the annual exclusion is $22,000 per donee.
There is also an unlimited marital deduction provision in the federal gift tax law, such that no gift tax is due, and no return need be filed, for gifts between spouses in any amount. Also excluded from the gift tax are amounts paid by a donor to a qualified educational institution for another's tuition, or to a health-care provider for someone's medical services. Gifts to qualified charitable, religious, and educational entities, government agencies, and many organizations with tax-free status are not subject to the gift tax.
This article merely introduces some of the benefits of incorporating a gifting program into one's estate planning. Estate planning techniques and tax laws are complex. For more information on the advantages of gifting and for all of your estate planning needs, contact the attorneys of CGA Law Firm.
