Gifting to Individuals & Trusts
In its simplest form, gifting is an opportunity to transfer assets to children or other beneficiaries during your lifetime and reduce your taxable estate. Sophisticated gifting techniques can also help you:
- Provide income for yourself or your heirs
- Leverage your annual exclusion gifts
- Pay for a child’s education
Beneficiary Designations
Annuities, life insurance, IRAs and retirement plans are just some of the assets that let you designate beneficiaries. The assets are automatically distributed to that beneficiary upon your death, which means they generally avoid the probate process. Also “transfer on death” designations can accomplish the same thing can nonqualified accounts.
Note: Beneficiary designations take precedence over any other instructions you provide in a will or trust. Keep that in mind when you’re developing your estate plan.
Annual gifting. You may gift up to $15,000 per person per year tax-free as of 2022 ($30,000 per recipient for married couples who combine gifts). This amount is called the annual exclusion. Any gift over that amount requires you to file a gift tax return.
- Medical and education expenses. If you pay someone’s medical or education expenses directly to the provider, the gift is not included in your annual exclusion amount. For example, if you pay $25,000 for your grandchild’s tuition directly to the school in 2010, you can still gift up to $15,000 as of 2022 tax-free to him or her this year ($30,000 for a combined gift from you and your spouse).
- Gifting to 529 college savings plans. If you’re helping your child or grandchild save for college using a 529 college savings plan, you can gift up to the annual exclusion per year tax-free or you can make up to five years’ worth of annual exclusion gifts ($70,000 per single donor; $140,000 per couple) in one year to benefit any one person. Note: If you contribute the maximum amount using the five-year acceleration rule, you will not be able to make other annual exclusion gifts to that beneficiary for five years without incurring gift tax consequences and filings. And if you die within five years of the date of your gift, a prorated portion of the original gift will be included in your estate tax calculation (any growth will not be included).
Before investing, you should consider whether your or your beneficiary’s home state offers any state tax or other benefits that are only available for investments in that state’s 529 college savings plan.
Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 college savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.
Transferring Wealth Using Trusts
Many types of trusts can help you accomplish your estate planning goals. Below are two common types of trusts designed to help you transfer your wealth efficiently while avoiding probate and reducing estate taxes:
Life insurance trusts. An irrevocable life insurance trust lets you keep the death benefit of your life insurance policy outside of your estate (and out of probate), which means your life insurance proceeds will not increase your estate tax liability. In fact, you can design your life insurance trust so that it will be applied toward your estate tax liability, leaving more of your actual wealth for your heirs.- Irrevocable gift trusts. You can give beneficiaries access to gifted funds according to the standards you set, until the beneficiary reaches an age that you select; these trusts can even continue for multiple generations.
- Revocable living trusts. Although revocable living trusts are still part of your taxable estate, they do help you efficiently transfer wealth to your heirs and help them avoid the probate process.
- Charitable Remainder trusts. These trusts allow you to benefit a charity while still receiving an income from assets while you’re still alive.
Estate, Trust, and Gift Tax Returns
In addition to traditional tax preparation, we’re qualified to prepare trust, gift and estate tax returns. We meticulously prepare these types of returns and file them on time to avoid penalties. We can help you navigate this complex arena and help you file everything correctly and on time.
How Soar Financial Can Help:
Preparing wills, gifting to beneficiaries and establishing trusts require the help of your attorney. We can work closely with you to provide the information they need to help you meet your goals. In addition, we can provide the investment and insurance services needed to implement your plan.
Contact Us to learn more about how we can help. We work with people locally in middle Tennessee and also virtually by phone and video conference.
