The property in your name when you die becomes your estate. The assets that you own could be vulnerable to claims made by creditors against your estate or could result in expensive estate taxes. A testator thinking about their final mark on the world may start making annual gifts to others to diminish the property in their name at the time of their death and give their loved ones early access to what would otherwise be their inheritance.
Those hoping to minimize creditor action against their estate and those worried about estate taxes may use strategic gifts as part of their estate plan. By making frequent gifts to loved ones and family members, testators can diminish how much property they have in their own names. They can keep their estate out of probate or at least help streamline proceedings by limiting what the courts must oversee.
However, the federal gift tax will limit how much you can give individuals each year without triggering taxes for you or possibly for them.
What is the current limit for exempt gifts?
You can gift thousands of dollars worth of property or money to those that you love each year without any tax obligations. It is only when the total value of the property transferred exceeds the threshold for exemption that you have to worry about gift taxes, which will range from 18% to 40%.
Currently, the Internal Revenue Service (IRS) has rules allowing you to gift each individual recipient up to $16,000 worth of money or property each year without worrying about gift taxes. The IRS adjusts that amount frequently. It is up from just $11,000 in 2005. If you give one individual more than that, you will have to pay taxes as the person making the gift.
Trusts are a good solution when gifts won’t suffice
If a review of your estate makes it clear that annual gifts will not sufficiently diminish your property or protect your legacy, then a trust might be a necessary tool for your estate plan. Your trust can help reduce your estate tax risks and can protect property from creditors both while you are alive and after you die.
Learning more about strategic gifts and gift taxes will help you implement the right tools for your personal legacy goals.