You’ve worked hard, you saved, you invested wisely, and you controlled spending. Your financial plan worked, and now you have money (or other assets) to share. But questions linger in your mind about whether you should do so and with whom.
Many people do not give away money or assets during their lifetime, as life is uncertain. You may have a major health event and/or need health care for extended periods of time. These costs can add up quickly and eat away at your resources. If you have assets when you die, your will or trust documents will spell out whom will get your money.
If you are certain you have more than enough to cover all possible scenarios, there are things to consider. The current tax law permits you to gift $15,000 per person per year or $30,000 for a married couple. These gifts are not tax deductible for you or taxable income for the recipients. If you stay within the $15,000 limit, you do not need to file a gift tax return to report these gifts.
You are allowed to give away up to $11.7 million under the federal estate tax exemption without paying estate taxes. If you give any person more than $15,000 per year, you will use up some of this estate tax exemption. Note that this federal exemption amount will revert back to $5 million (plus inflation) in 2026 when the current tax law sunsets. However, Congress may pass new tax laws prior to 2026.
You can also give away assets such as a personal home, investment property, and stocks and bonds. If you give away assets during your life, your cost basis in the asset transfers with the gift. For example, if you purchased a vacation home 50 years ago in an area that has appreciated rapidly, you would have to pay the tax on the gain if you sold the home. By giving the vacation home to your children, they will have to pay the tax on the gain when they sell the home.
Currently, there is a provision in the estate tax law that allows for a “step-up” in the cost basis of property or other assets to fair market value at your death. If that vacation home you purchased for $40,000 is now worth $1.5 million, your heirs could sell the property the day after they inherit it and not incur any taxable gain on the sale.
There is certainly some planning to be done when you are developing a gifting plan. Considering the emotional and relationship side of gifting is just as important as the numbers. How will you feel if you and your spouse give each of your three children $30,000 this year and you don’t approve of how they handle this gift? You expected Johnny to pay down his credit card and instead he bought a new car. You hoped Sally would take her family on a well-deserved vacation and instead they paid down their mortgage. And Mark gave the money to his girlfriend’s son, who you think is irresponsible.
If you care how your gifts are spent, you can also pay college or medical expenses directly for anyone in any amount and not use up your estate tax exemption. Or consider taking the entire family on an extended cruise or a trip to Hawaii. This allows the family to spend quality time together and you better control and appreciate how the money is being used.
This commentary originally appeared August 1 in the Casper Star-Tribune.
The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Partners®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed.
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