For many people, it is natural to want to share their acquired wealth with their kids or grandkids in the form of a monetary gift. Preparing an estate plan is a great way to determine how to settle your estate and distribute your assets to your heirs after you pass. But for those looking to gift some of their assets while they are still living, here are some strategies to consider.
Consider the Benefits of Gifting Now
When devising an estate plan, one consideration will be the issue of when to start distributing your assets. Some people may not be comfortable gifting any part of their assets while living, for fear of depleting their resources. When this is a cause for concern, holding onto your assets is the wise choice. But for those who can afford it, there are benefits to gifting now, rather than waiting. For one, there is great pleasure to be had watching your heirs enjoy your gift. Additionally, any assets that are gifted while living reduces the total value of your estate. This would result in lower overall estate taxes and probate fees applied to your estate after your passing.
Giving a Gift of Cash or Other Assets
Gifting cash to loved ones can certainly make a difference in their lives, by allowing them to pay off debt, start a business, or make plans for their futures. However, if you have decided that you are financially comfortable enough to start distributing some of your assets to your kids or grandkids, it is wise to stay below the IRS annual gift tax exclusion threshold. In 2022, you are allowed to gift up to $16,000 per year to each recipient without incurring a gift tax. This sum would include any type of assets, including cash, stocks, a car, etc. If you are married, each spouse is allowed to gift the maximum of $16,000 to each individual. For example, you could gift $16,000 to your granddaughter, and your spouse would also be able to gift another $16,000 to the same granddaughter without being subject to the IRS gift tax.
Contribute to Education or Medical Expenses
Another way to provide financial support to loved ones while you are still living is to contribute to medical or educational expenses. You can gift money to grandchildren and other family members by contributing to a 529 college savings plan account, which can be used for qualified education expenses. Or you may also make direct tuition payments to an educational organization on behalf of your family member and it would not be treated as a taxable gift. Likewise, medical expenses are also not subject to the annual gifting limit when paid directly to the provider, and helping to cover these expenses can do a lot to ease someone’s financial burden.
Determining your gifting strategy is a personal decision that needs to be made according to your current financial situation plus your potential needs for the future. The attorneys at Churchill, Quinn, Hamilton & Van Donselaar, Ltd. can help prepare an estate plan that meets your specific needs as well as explain the potential tax implications of any decisions. Contact our Grayslake office at 847-223-1500 to schedule an appointment with one of our experienced estate attorneys who will help you through this important process.