When Congress tinkered with the tax law back in 2017, one of the things it changed was the amount of money an individual can pass on at their death without being taxed on it. The basic exemption was increased and indexed to inflation. In 2019, an individual may pass $11.4 million tax-free.
This has many of our clients asking us if it is still important to take advantage of the annual gift tax exclusion, which allows an individual to pass up to $15,000 per person, to as many individuals as one would like each year, tax-free. If your estate is worth less than $11.4 million, or $22.8 million if you are married, why bother gifting as part of your estate plan?
The answer is, it’s your money. You can do whatever you like, or whatever your financial advisor thinks is best. However, as estate planning attorneys, we still like gifting.
How Does the IRS Feel About Gifting?
Last year, the IRS clarified that individuals taking advantage of the increased gift tax exclusion amount in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. This provides some tax certainty about the gift tax exclusion that we don’t have about the lifetime exemption.
Who knows what is going to happen after 2025, or even before then if Congress decides to change up the tax laws again? If it is possible that you will live past 2025 — Which isn’t that far away! — you should consider doing what you can now to reduce your taxes in case the law becomes less favorable later.
The other thing to consider is less about the law and more about warm fuzzies. In our years working as estate planning attorneys, we have rarely had clients regret passing on their wealth sooner rather than later. You can’t take it with you, so you might as well get to see the joy your family and friends experience when they put your gift to use. Hopefully, you will also experience their gratitude.
If you are worried about what might happen if you give certain family members $15,000 every year for the next few years, or you would like to gift to a minor, we can help you set up a trust to hold your gifts. The money will no longer be yours, so you won’t be taxed on it, but we can craft a trust that limits your loved one’s access to the trust corpus. We can set it up so funds can only be distributed for specific purposes, or if certain conditions are met.
Let Palmer & Slay Help You
At Palmer & Slay we take great pride in the work we do to help our clients preserve their legacies and pass on the assets they have worked so hard to accumulate. If you have questions about end of the year gifting, charitable donations, or minimizing your estate taxes, we are here to help.