How Should I Plan My Gifting to Heirs?

Gifting strategies
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Gifting can get you in trouble without proper planning.

The week of Thanksgiving marked the start of the holiday season.

Advent services began yesterday (Sunday) at my church.

Although Christmas traditions will look different, gifting will likely remain.

According to a recent Kiplinger article titled “Gifting sounds pretty simple, but there are many ways to do it, and several tax ramifications to be aware of as well,” making gifts is also an established tradition in estate planning.

If you plan to include gifting in your estate plan, there are several things you will need to consider.

What are they?

Gifting assets is not always simple.
You have several gifting options available within estate planning.

Exemption thresholds.

At the time of this blog post, the lifetime gift and estate tax exemption threshold is $11.58 million per individual and $23.16 million for a married couple filing jointly.

Although this exemption amount granted by the Tax cuts and Jobs Act is set to expire in 2025, new leaders in government may lower the threshold before its expiration date.

Gift Timing.

Is it better to give while you are alive or through your estate after you die?

This often depends on the priorities of each individual giver and receiver.

Many prefer giving while alive to witness the impact of their gifts and reduce their estate.

Others may need to keep money on hand in case of emergency and prefer to simply leave what remains to heirs.

Either method of gifting should involve discussions with an experienced estate planning attorney.

The Unified Federal Estate & Gift Tax Exemption.

Those who choose to make gifts while they are alive can take advantage of the annual exclusion amount.

What does this mean?

You can transfer assets or money up to $15,000 per recipient per donor in 2020 without triggering a gift tax.

If you gift above this amount, it will count against the lifetime exemption amount for the donor.

Once this exemption has been used, gift taxes will be owed on gifts.

Outright cash gifts.

In many instances, gifting cash is simple.

Those with greater wealth may have more challenges.

How so?

Gifting large sums to younger individuals may lead to poor financial management.


Many of those with greater wealth will utilize a trust in their estate planning.

This allows beneficiaries to receive provision from the estate under parameters set by the grantor.

The beneficiaries could receive their inheritance after a certain age or after achieving a specific goal.

In other situations, you could have a trust where the assets are managed and maintained by the trust throughout the lifetime of the beneficiary.

Trusts can provide asset protection against squandering, lawsuits, divorces, and bankruptcies of heirs.

Gifts for education or medical expenses.

You can avoid gift tax consequences by making direct payments for medical expenses or college tuition.

If you fund a 529 education savings plan, you will want to keep the amount under the lifetime exemption amount or you may face gift tax consequences.

Choosing to pre-fund an account up to $75,000 will allow the gift amount to be treated as if it were made as $15,000 over five years.

Uniform Trust to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA).

Trusts can be pretty restrictive depending on how these were set up.

Using a custodial account may allow the minor beneficiaries fewer restrictions in accessing funds at specific ages set by statute.

When it comes to gifting, there are several strategies and tools.

Working with an experienced estate planning attorney can help you to select the best method to meet your situation.

Reference: Kiplinger (Oct. 30, 2020) “Gifting sounds pretty simple, but there are many ways to do it, and several tax ramifications to be aware of as well.”

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