Many families provide financial gifts to children and grandchildren when they die, but gifting earlier might make sense. Making financial gifts during your lifetime often significantly impacts their lives, It also provides you with the benefit of seeing your loved ones enjoy your gifts.
Perhaps your plan is more financially focused. If you believe your estate might owe estate tax, gifting assets to your heirs throughout your life, rather than waiting until death, can be a powerful way to reduce the amount of taxes ultimately paid by your estate.
In 2021, an individual can transfer a total of $11.7 million at death or during their lifetime free from federal gift and estate taxes. Together, a married couple can transfer twice that amount—$23.4 million—free of tax. The current tax law allows certain gifts that don’t count against your gift and estate tax exemption amount. They also don’t require a gift tax return. Therefore, maximizing these “free” gifts is typically the first place to start with lifetime gifting.
Annual Exclusion Gifts
The annual exclusion allows you to make tax-free gifts up to $15,000 per donor/recipient to an unlimited number of individuals each year.
Medical and Educational Gifts
Another way to make tax-free gifts is to make a direct payment for a child’s or grandchild’s medical or educational expenses. In other words, payments made directly to a medical services provider or educational institution for tuition aren’t taxable gifts.
529 College Savings Plans
A 529 College Savings Plan is like a retirement plan for education. The main advantage of a 529 plan is that money grows in your account free of federal income tax. When making withdrawals, federal tax rules direct the money be used for qualified higher-education expenses. This includes tuition, books, and room and board.
There is no restriction on the type of property held in a trust. And trusts offer a great deal of flexibility as to when a child or grandchild receives trust benefits. Assets held in trust can be shielded from creditors. Arguably, this provides the best way to ensure a family’s wealth remains with the family.
Creating a strategy that’s unique to your situation requires planning. Maestro Wealth is happy to work with your attorney, or to recommend an attorney, to help craft a strategy specific to your individual needs. Simply give us a call at 336-448-1086.