Your IRS-approved gifting privileges are one of the most important overall steps in the estate planning and wealth preservation process.
Without some degree of gifting, or transferring of assets, many of the strategies outlined in our estate planning forum are simply not possible.
The $15,000 "Present Interest" Gifting Allowance
Currently, each of us can give $15,000 per year to as many individuals as we wish without gift tax consequences. These gifts can be made outright, or to a separate trust.
It is generally recommended, that if the gifted assets are designed for the future uses of the targeted beneficiaries that you consider using a separate trust.
The Lifetime "Future Interest" Gift Allowance
Every U.S. citizen also has a one-time, lifetime exemption, which can be claimed (gifted) now or at death (technically, the exemption is a unified credit). For 2018, each of us has a $5.6 million exemption.
Gift Tax Rates are the SAME as Estate Tax Rates
The federal gift tax rates are unified with the federal estate tax rate schedules as seen in the table below. This basically means that one COULD NOT give away everything on his or her deathbed without potentially paying large taxes.
Gift Now, Save Later
Your annual gifting allowances can be used as an effective tool to reduce the estate value over time, and potentially avoid costly estate taxation.
For example, let's say you and your wife gift $10,000 annually over 10 years to your 3 children each. You have effectively removed $300,000 from your taxable estate, which may normally be subject to as high as 40% estate tax rate. What's more is that the growth on that $300,000 has occurred outside of your taxable estate.
In only 10 years, using a 10% tax deferred growth rate, this asset will have increased to over $500,000 in value. The end result was a potential saving of over $250,000.
How to Avoid Killing off Your Children's Incentive
Many parent and grandparents are understandably hesitant to make large or substantial gifts directly to children or grandchildren. They fear that these monies may be misused, not properly invested, or serve to kill off their heirs incentive to work hard, be thrifty and become a responsible and productive member of society.
As a result, it is generally recommended that the grantors combine their gifting allowances with an Irrevocable Trust. This approach often times enables the parents/ grandparents to effectively maximize their wealth transfer objectives, benefits and control.
Complimenting Your Gifting Efforts
Because tax rates rapidly reach as high as 37% on investment earnings held by Irrevocable Gift Trusts, it is generally recommended that one take great care in selecting the type of investment(s) to be held in such a trust.
To that end, both Tax Efficient Mutual Funds and Insurance-Sponsored Investments (ISI's) can provide potential investment mediums for this purpose.
You can review information on each by clicking the links below:
Knowing how to effectively maximize your gifting allowances is an area that we excel in.
We have worked with some of the country's wealthiest families in formulating effective, long term gifting strategies with a high emphasis on tax mitigation.
Action To Take
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Securities offered through Fortune Financial Services, Inc. member FINRA, SIPC. Fielder Financial Management, Ltd. not affiliated with Fortune Financial Services, Inc. Mark Fielder, Financial Professional, CA. Insurance Lic. # 0690576.