Sharing your wealth with loved ones and family members can be a joyous activity, helping you to care for those you truly care about. While proper estate planning is the best way to create long-term stability and security for your assets once you pass on, it’s important to remember that most people are better off giving assets to loved ones while they are still alive. Individuals who do have considerable wealth may be better off gifting portions of their assets to beneficiaries to proactively reduce their estate and subsequent tax liabilities. If you are dealing with the complexities of estate law, our estate planning attorneys in Bethesda can help. JDKatz is here to provide comprehensive support and personalized solutions to help meet your unique needs. Our legal team is comprised of numerous experts, delivering a wide range of support services to optimize your outcome.

Our estate lawyers help Maryland and D.C. clients to plan for their futures, creating a comprehensive approach that provides the most peace of mind for you and your loved ones. If you plan on giving gifts to your beneficiaries this year, be sure to catch up on our post explaining the benefits and complexities of gift giving. As always, be sure to contact us if you need assistance!

Combined Lifetime Exclusions

This amount is set for individuals that totals the tax on gifts and estates up to $5.6 million. Your lifetime exclusion amount will change to keep up with inflation, and can be used in a number of ways. If you only utilize a portion of your exclusion, your children may be able to utilize it to reduce their estate taxes. Remember that this amount is finite, and those that use their exclusions throughout their lifetime may be left with a serious tax liability on an estate once the trustor has passed away. Beneficiaries who receive a large portion of your estate may end up losing up to half of it to taxes!

While you may be worried your lifetime exclusion limit, it’s helpful to remember that there are exceptions to this equation. An annual gift exclusion, for example, is a set limit that you can give to beneficiaries tax-free and off the record.

Annual Gift Exemptions

In 2018, the amount you can give to an individual in a calendar year has increased to $15,000 to account for inflation. Essentially, this number is used for each individual. If you have three children and five grandchildren, for example, you can gift them a total of $120,000 without facing any tax amounts. As long as each person does not exceed the new limit, all should be well. It’s also important to remember that this gift procedure can be used for as many people as you like.

The Benefits for Spouses

Your tax limits essentially double when your spouse is included in the process. Whether the other $15,000 comes from her personal account or you wrote the check from a shared account, this “gift splitting” is useful for reducing shared estates. Remember that gift splitting will require you to file a gift tax return, but otherwise, no other special actions are normally needed.

The Consequences of Exceeding Your Annual Limit

While going over the $15,000 limit is not necessarily a bad thing, it does come with some drawbacks. If you gave 10 family members $20,000 a piece this year, a total of $50,000 would be left unaccounted for. This amount will likely not affect you now, as it is deducted from your lifetime exclusion. A gift tax return is required, though, to inform the IRS that you exceeded the limits and will be relying on your exclusion limit to avoid taxes today.

Exceptions to the Annual Limit Rule

In some cases, you can give gifts to reduce your estate without meeting or exceeding either the annual or lifetime limits. A few of the most common exemptions include:

  • Charitable donations. Giving money to a tax-exempt organization is a generous way to reduce your estate while helping others.
  • Payments for student tuition. If you make payments directly to a student’s institution for their college, your gift will automatically be exempt.
  • Payments for medical bills. The same approach applies for hospital costs as well. If you make your donation directly to the medical bills, your estate can be reduced tax-free.

Qualified Tuitions Plan

Also known as a 529 plan, this strategy allows you to gift money for a student’s college savings. Your $15,000 limit from annual gifts comes into place, except you can bundle the five years up front to cover education expenses. Remember that this does play into the gift exemption amount, so any gift you give to this student over the next five years will be taxable.

When you’re trying to optimize your estate plan to provide the most possible for loved ones, it’s important to consider gift giving while you are alive as opposed to deceased to assist in reducing your estate and tax concerns. Otherwise, your loved ones may be left with little or no estate after your passing. JDKatz is proud to be your trusted team of estate planning attorneys in Bethesda and DC to deliver comprehensive assistance for every individual with estate law. For years, we’ve worked hard to create personalized solutions that are cost-effective and airtight, helping people to find the best outcome for their unique cases. If you’re in need of guidance from experienced estate lawyers in Maryland, be sure to contact us to learn more today!