Gifting During Life

As a result [of today's more favorable estate tax laws], it's usually more tax efficient for people to hold onto their assets until death than to gift them earlier in life. Some states, however, still impose a state estate tax at much lower levels, making gifting during life still a potentially viable tax efficient strategy. While every situation should be evaluated on its own merits, here are a few points to consider when evaluating if a gifting-during-life strategy is right for you and your family. 

As any estate planner will tell you, giving assets away to your heirs is all about how and when. There are many times to give, and many ways to do it, and every method has its own advantages depending upon the concern. A meaningful planning question now is whether it is still best to maximize your gifting strategy in life now that the lifetime maximum gift tax exemption is $5.34 million.

Formerly, the primary concern was the estate tax. The strategy was to gift during life using the annual gift tax exclusion, currently $14,000 per donee per year. After all, gifting lets you incrementally slide under that onerous estate tax ceiling.

Now, and with the more favorable estate and gift tax exemptions (both are a unified $5.34 million), many planning their wealth transfers are reassessing their strategies. This sentiment was captured in a recent article in The Slott Report titled "Gifting-During-Life Strategy: Does It Make Sense for YOUR Family?"

Why might one elect to use lifetime gifting rather than a bequest at death? One notable concern is that gifting does not offer the "stepped-up basis" of a bequest. Then again, it may be advantageous to use a present gift to shift radical future appreciation down to the next generation. This kind of leverage can be powerful.

The original article provides an even-handed analysis of the benefits and detriments of each approach. Like anything in wealth transfer planning, the unique circumstances will dictate the most favorable alternative.

It is a complex dilemma worth examining. Does the gifting-during-life strategy work for your family? Do bequests make more sense? And finally, is there an even further solution necessary to accomplishing your goals? Make sure you explore your options with competent estate planning counsel.

For more information about estate planning, please visit our website.

Reference: The Slott Report (February 28, 2014) "Gifting-During-Life Strategy: Does It Make Sense for YOUR Family?"

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