The Reference Section

A collection of wealth improvement articles


Cut Taxes with Lifetime Giving
Lifetime Giving

If you want certain individuals to receive property from your estate, there may be advantages to making those gifts while you are still alive.

Consider these facts about making lifetime gifts:

Gifts to spouses. The tax law permits a married individual to make gifts of any amount to a spouse without incurring any gift tax. The value of these gifts is not includable in the estate of the donor.

Annual gift exclusion. To individuals other than your spouse, beginning in 2018 you can transfer $15,000 per year ($14,000 in 2017), per recipient, without incurring gift tax.

If you're married and your spouse joins in the giving, you can transfer double that amount annually to each recipient (even if the gifted property is owned by only one spouse).

A consistent program of gifts under the annual exclusion rules can create substantial estate tax savings.

Example: You have two married children and four grandchildren. Each year, you make eight gifts equal to the annual exclusion amount. You will pay no gift tax and use none of your unified estate and gift tax credit.

No tax deduction for gifts. Note that gifts to individuals do not entitle you to an income tax deduction. A gift to an individual isn't a charitable contribution. Conversely, a gift doesn't constitute taxable income to the recipient. Gifts of income-producing property may, however, reduce your taxable income. Once you've given the property away, the recipient, not you, receives the income it produces and pays any income tax due on it.

Flexibility in giving. One advantage to annual gift giving is that it is relatively simple to do, especially if you're giving away cash. Another advantage is flexibility; you can see how much you can afford to give away each year. You can give away anything – cash, stock, art, real estate. Valuation is the fair market value on the date of the gift. Subsequent appreciation, if any, belongs to the donee, not you.

Don't be hasty. Before you give away assets, be sure you will not need them yourself to provide income in later years. Consider the impact inflation will have on your resources.

All gifts count. All gifts during the year, including birthday and holiday presents, count toward the annual gift tax exclusion. If the total exceeds the exclusion, a gift tax return is required.

Year-end gifts. A gift made by check isn't complete until the recipient actually deposits or cashes the check. Plan accordingly when making year-end gifts, especially if you want such gifts to be counted toward the current year's gift tax exclusion.

Ownership requirements. For a gift to be valid, you must part with ownership. Pay special attention to this rule if you make gifts of stock in the family business or gifts of your personal residence.

Choose the right gift

Making gifts of the wrong type of property can defeat your tax planning. The best property to give will depend on your tax goals. Are you trying to reduce current income taxes, future estate taxes, or both?

Here are some items which may not be suitable gifts when trying to accomplish certain objectives.

Assets with potential tax losses. The tax loss from selling certain assets may be more beneficial to the donor than to any intended recipient.

Property you intend to use. If you continue to use property, such as a residence, after you have given it to another, you may not get the tax benefits you sought.

Contracts. If you are currently receiving contract payments on which you are reporting gain, a gift of this contract will generally accelerate all the tax on the contract.

Making lifetime gifts can substantially reduce your income tax and estate tax if done properly. If you would like details or assistance, please contact us. We're here to help.