Maximizing Your Lifetime Wealth Transfers

Lifetime Gifting: Part of Your Multi-Generation Estate Planning

     Would you rather transfer your wealth to the IRS or to your loved ones? If you answered the IRS, then disregard this article. On the other hand, if you answered your loved ones, then read on. We will review some of the relevant tax rules for lifetime gifting, then examine two common transfer methods (along with a few of their potential pitfalls).

Gifting Fundamentals

     Every taxpayer may transfer up to $13,000 each year to an unlimited number of individuals. This is known as the Annual Gift Exclusion (AGE). Through gift splitting, spouses may give a total of $26,000 each year to an unlimited number of individuals (even if only one spouse is the sole source of the funds gifted). Such lifetime gifts made within these dollar limitations do not trigger gift taxes when made, nor do they reduce the combined Estate Tax Exemption Amount available to protect lifetime transfers of wealth exceeding AGE limits and post-mortem transfers of wealth. Accordingly, maximizing transfers within the limits of the AGE has been and remains a prudent method to transfer wealth between generations. [Exception: Qualified payments in any amount made directly to an educational institution for tuition and directly to a provider of medical care on behalf of any individual are fully excluded from gift tax consideration. They may be made without dollar limitation.]

Learn more about transferring wealth to your loved ones...

Crummey Trusts

     There are many non-tax benefits to making lifetime gifts to loved ones, aside from the obvious tax benefits. For example, what better way to preview the financial maturity of your loved ones with an inheritance in the future than through a dress rehearsal in the present … while you are still in the audience?

Keeping Control

     If you are like most people, you may be reluctant to part with control over how your lifetime gifts will be used once transferred. Unfortunately, when you retain direct control over a gift, the value of the gift (and its appreciation) may be included in your estate for estate tax purposes upon your death. Worse yet, the gift may be taxable at the time of transfer as a future interest gift, rather than treated as a nontaxable present-interest gift.

Learn about the many non-tax benefits of making lifetime gifts with Crummey Trusts..