Estate Planning Techniques for Gifting the Wealthy Way

When it comes to estate planning, there are a wealth of techniques available to families looking to minimize estate tax. While some techniques are more complex and require a bit of extra planning, there are a few simple ways to reduce your estate with ease. The following gifting options are very popular but do have a couple of pitfalls to be avoided if you want to plan right.

Making Annual Exclusion GiftsEstate Planning Gifting Techniques

Recently, the IRS decided that tracking “small” gifts was too much of a hassle, so they elected to create annual exclusion gifts. This exclusion allows $15,000 per person per year to be precluded from federal gift taxes and instead be given away in cash or property value. This is an incredibly effective tool for families to slowly transfer wealth to their loved ones without being penalized with a gift or estate tax on their tax returns. In addition, your loved ones don’t have to recognize the gift as income on their own returns, a common misconception.

To provide a real-life example, suppose a couple with four children and six grandchildren have $300,000 a year that they would like to transfer to members of their family. The couple can give each family member a check or securities or a gift to a new or existing 529 college savings plan; they can even help in forgiving a loved one’s debt. Each is an option as an “exclusion gift.” Keep in mind, while this is an example of a family member bestowing gifts to their children and grandchildren, a gift can be made to any individual and still fall under the exclusion gift category. Over the years, this systematic gift giving can drastically reduce an estate and maximize the tax-free transfer of wealth to loved ones.

Caution Don’t wait until the last month of the year to make a gift to your loved ones. They should cash their checks, receive their stock, confirm debt forgiveness or certify that a 529 plan provider has deposited the funds you gave before year end or it will not count for that tax year. You should also be mindful that the annual exclusion is cumulative, so you need to consider the value of all transfers you make during the year to your loved ones when looking at your ability to give $15,000.

Paying Education and Medical Expenses for the Benefit of Loved Ones

Annual exclusion gifts aren’t the only option when it comes to strategic estate tax techniques.  You can also chip away at your estate by covering family members’ qualified expenses. These include anything from qualified education expenses such as tuition, books and fees to medical expenses such as doctor or hospital visits or even insurance premiums. There is no limit to the amount of qualified education or medical expenses you can pay since they do not count against the $15,000 annual exclusion gift.

Let’s go back to the couple who are utilizing annual exclusion gifts in the example above. They are planning to gift $300,000 in annual exclusion gifts to their children and grandchildren. On top of the planned $300,000 in gifts, they can also easily pay $100,000 in tuition costs for their grandchildren in addition to perhaps another $100,000 in medical expenses within the family, making their annual wealth transfer over $500,000 a year tax-free! Similar to the annual exclusion gift, while payments are typically made for the benefit of family members, you are not restricted in who you give to. Anyone can be on the receiving end of your gift, no relation required.

Caution – If you are going to pay for education or medical expenses, be sure to make your check payable directly to the health care provider or institution. You should also confirm with your tax advisor that the payments you intend to make are in fact qualified educational or medical expenses.

If you are looking for new alternatives when it comes to minimizing your estate tax, these are viable options that can benefit you and your loved ones. Whether you cover qualified expenses or make annual exclusion gifts, take advantage of some of the top techniques for cutting down your estate tax.

Disclaimer: This has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. Beacon Pointe does not endorse and is not responsible for the content, product, or services of other third party sites or references. Beacon Pointe does not offer legal or tax advice.  Private legal counsel alone may be responsible and relied upon for these purposes. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. CIRCULAR 230 NOTICE:  To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any tax advice included in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any federal tax penalty or promoting, marketing, or recommending to another party any transaction or matter.