Gifts During Life as an Estate Planning Tool

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While there are many tools you can use to protect your assets and ensure your loved ones receive as much of your legacy as possible, gifts inter vivos — during life — are one of the simplest and most useful. Incorporating a schedule of gift giving into your estate plan can shield your assets from long term care expenses and other creditors and decrease your estate tax liability as well. However, like many aspects of estate planning, inter vivos gift giving is not an eleventh hour solution to an asset protection problem. It must be undertaken far in advance in order to be effective.

Under IRS rules, the gift tax and estate tax are linked in that they provide a unified exclusion that is nontaxable. The combined gift and estate exemption is currently $5,250,000 per individual. Because this exclusion is unified, however, inter vivos gifts would not be a particularly helpful estate planning measure if it were not for one thing: you can give gifts of up to $14,000 per donee per year without invading your unified exclusion. This means that if you have three children, you can give each child $14,000 each year — outright or in trust — without reducing your estate tax exclusion and without incurring gift tax liability. For married couples gifting joint property, the amount is $28,000 per year per donee. In addition, generally, several other types of gifts are completely tax free and do not count toward your exclusion regardless of size:

  • Gifts to your spouse
  • Payment of school tuition for a loved one
  • Payment of medical expenses for a loved one
  • Donations to political organizations
  • Donations to charities

While it is important to plan your gifting so that you keep enough of your own assets to provide for your needs and maintain your desired standard of living, inter vivos gifting in conjunction with other estate planning mechanisms can help you accomplish your donative and charitable goals, protect your property from creditors and avoid or minimize estate tax.