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Incorporating gift-giving into your estate planning

On Behalf of | Mar 31, 2019 | Estate Planning And Probate |

As part of their estate planning, people often decide that they would prefer to give away some of their assets while they’re still alive. This way, the recipient can enjoy the gift — whether it’s money or property — right away, and the donor can see their gift is appreciated. If you’re considering giving a gift of considerable value to a loved one or other recipient, it’s important to understand the potential tax implications.

First, it’s essential to know what the Internal Revenue Service (IRS) considers a gift. It’s not just money or property, but even the use of property. For example, if you let your grandchild live in your beach house on the Upper Peninsula for the summer rent-free, that could be considered a gift. Lending them $50,000 interest-free to buy a new car could too. As long as you don’t expect something of equal value in return, that’s considered a gift.

So how much can you give before Uncle Sam starts taking an interest? For the current tax year, the IRS’s annual exclusion amount is $15,000 per recipient. That limit is for what are called “present interest” gifts only. These are gifts that a person has full access to immediately (as opposed to “future interest” gifts that the recipient doesn’t have immediate access to). If the value of your gifts to one person over the course of a year total more than $15,000, you need to complete IRS Form 709.

There are exceptions for gifts to pay for someone’s educational or medical expenses and for gifts to qualified charities. Gifts from one spouse to another don’t count either.

Just because you have to file Form 709, that doesn’t mean you have to pay taxes on the money or property you gave. There’s a lifetime exclusion amount of $11.4 million. Unless you’re giving considerably more than $15,000 to the same person each year, it’s unlikely that you’ll reach that amount.

If you decide to give away assets that you previously included in your will or trust to go to a loved one or other beneficiary, it’s important to update the necessary documents to avoid conflict and confusion among family members later. Your estate planning attorney can help you do that. They can also provide valuable guidance as you pass along your assets while you’re still around.


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