How Lifetime Giving Can Help You Achieve Your Goals
When you have a substantial estate, one of your concerns will be passing as much of that wealth on to your loved ones, with a minimal loss of value because of taxes. Fortunately, under the American tax laws, you can exclude significant portions of your estate from taxation through lifetime gifting. If you have the resources, you can provide a tax-free benefit to your family right now. Furthermore, by gifting that money, it will grow outside of your estate, reducing the potential tax consequences when you die.
How Does the Gift Tax Exclusion Work?
As a general rule, all gifts of money or property are potentially taxable exchanges under the Internal Revenue Code. However, all taxpayers are allowed an annual gift tax exclusion, which allows them to transfer assets without incurring a gift tax (the gift tax is typically paid by the person making the gift). If the total amount of your annual gifts is less than the annual gift tax limit, you do not need to file any type of gift tax return. In 2023, the annual gift tax exclusion is $17,000 per year per taxpayer per recipient. Married couples can give up to $34,000 without incurring any gift tax. There is no limit on the number of individuals to whom you can make such a gift.
Furthermore, even if you exceed the annual gift tax exclusion, you’ll likely still not owe any annual gift tax, though you’ll need to file a gift tax return. That’s because there’s also a lifetime gift tax exclusion of $12.92 million. If you exceed the annual gift tax exclusion amount, any excess will simply be deducted from your lifetime exclusion.
So why should you make gifts during your lifetime?
- If your estate is substantial, you’ll be able to dramatically reduce potential tax liability. As long as you give less than $17,000 ($34,000 for married couples), it will all pass tax-free and it won’t affect your lifetime exclusion. Over the course of 10 years, you could give away nearly $350,000 tax-free and still have your full lifetime exemption. When you consider that gift tax rates are anywhere from 18% to 40%, that’s a significant amount that can go to your loved ones, rather than to the taxman.
- You can make a difference in your loved ones’ lives now—Imagine the difference it would have made in your life to receive an annual gift when you had a young and growing family. The annual gift tax exclusion lets you determine right now where some of your estate will go, and allows you to do so without tax implications.
- Annual gifting is not part of the public record, whereas probate proceedings are. If you want to protect your privacy, use lifetime gifts.
- You’ll make things much easier on your heirs—When you make lifetime gifts, there’s less risk of estate controversies after your death
For any lifetime gift to qualify for the gift tax exclusion, the transfer must be complete and irrevocable. You cannot retain any interest in the property, and it cannot revert back to you under any circumstances.
Contact the Experienced Estate Planning Attorneys at Bailey & Galyen
At the law office of Bailey & Galyen, we have decades of experience helping people across Texas formulate and implement effective estate planning to protect their assets. We offer a free initial consultation to every client. To speak with proven estate and gift planning lawyers, contact us by e-mail or 844-402-2992 call our offices at one of the convenient locations listed below. We will take your call 24 hours a day, seven days a week.
