When it comes to estate planning, one of the primary goals is to transfer as much of a person's assets to their intended beneficiaries at the lowest cost or, in other words, by paying the least amount of tax.
Giving your assets to your heirs is all about timing. When to do it and how to do it depends on your situation. Is it best to maximize your gifting strategy while you are living? Or should you plan your gifts for after death?
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.
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Reference: The Slott Report (February 28, 2014) “Gifting-During-Life Strategy: Does It Make Sense for YOUR Family?”