How Can Gifting Fit into My Estate Plan?

Gifting strategies
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Gifting is a popular estate planning and wealth transfer tool.

You are considering giving money to charities or family members as part of your estate planning strategy.

Perhaps you are what is now considered “wealthy” and desire to use the gift tax exemption to decrease your taxable estate.

Maybe you may simply enjoy supporting a worthy cause or organization.

According to a recent Financial Advisor article titled “No More Gift Tax Exemption?,” there are various gifting strategies and tools at your disposal, even if you already have used up most or all of your gift tax exemption.

What are they?

People have numerous gifting strategies available to them.
Estate planning can find tax benefits through gifting.

Outright gifts or gifts through a trust.

If you have used all of your exemption amount in 2020, you can still make gifts in 2021.

How so?

The exemption was $11.58 million per individual in 2020.

To account for inflation, the exemption amount was increased to $11.7 million in 2021.

This means an additional $120,000 gifting is available to individuals.

Annual exclusion gifts.

As an individual, you can gift up to $15,000 to a recipient each year.

If you are married, your gifting to a specific recipient can be $30,000 without counting toward your estate tax exemption and gift tax exemption.

Grantor Retained Annuity Trust (GRAT) options.

When it comes to gifting, a GRAT can be a beneficial tool.

What is a GRAT?

A GRAT is an irrevocable trust.

The grantor gifts property to the trust and retains a right to yearly payments from the trust for a set time.

These can be especially useful for assets expected to appreciate and concentrated positions.

A Sale to a Grantor Trust.

With a Sale to a Grantor Trust you can transfer assets you expect to appreciate at a reduced gift tax cost.

Often a trust must be funded before a sale.

For this reason, it can be a useful gifting strategy for those who have used their gift tax exemption to fund a trust.

Intra-family loans.

By loaning money to family members at a lower interest rate than commercial lenders, your family members can take advantage of your wealth transfer without the loan being considered a gift.

For this method to work, you will need to establish a bona fide creditor relationship with interest payments.

As you consider how you gifting will best align with your tax planning goals, work with an experienced estate planning attorney.

He or she will be able to help you navigate tax reform and how it impacts your specific situation.

ReferenceFinancial Advisor (April 1, 2021) “No More Gift Tax Exemption?”

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