Many of our clients come to us with questions about how to effectively pass on assets from one generation to the next. When done well, giving money to children and grandchildren can have benefits not only for the beneficiaries but also for the person gifting the money. On today’s blog, we cover some fundamental strategies that can help you figure out how to gift money without suffering unnecessary tax penalties. As always, these recommendations are general tactics, and we recommend speaking with an experienced Houston estate planning attorney to find out how to apply these strategies to your individual circumstances.
Annual Exclusion Gifts
Under 2024 federal regulations, each individual is able to give a beneficiary up to $18,000 in tax-free gifts. For couples, this amount increases to $36,000. If you have three children, then, you could give each child $18,000 as an individual or you could give each child $36,000 with your spouse. If you instead choose to leave this money in your estate for when you pass, the money could be subject to a hefty estate tax, and by giving it away annually, you allow yourself to avoid the possibility of suffering these taxes.
Educational Gifts
As another gifting tool, you could pay for a child or grandchild’s education in part or in full. If you pay an educational institution directly, it both benefits your loved one and allows you to bypass any tax penalties. This strategy once again allows you to tangibly pass wealth onto the next generation without suffering a hefty estate tax later on.
Trusts
Another option is creating a trust that names children and/or grandchildren as beneficiaries. The trust can specify restrictions on how the beneficiaries are able to use the funds. You have the option of setting up what is called a “grantor” trust, which transfers the trust’s income tax consequences to the trust’s creator. By paying the taxes personally, you (as the grantor) can avoid taking annual income tax payments from the trust property itself, which would deplete the value of the trust. In the long run, paying these taxes personally also minimizes your taxable estate.
Is McCulloch & Miller the Estate Planning Firm for You?
No matter what strategy you choose, it is important to think through gifting money and assets strategically, to avoid tax penalties and minimize the negative impact to your long-term estate plan. At McCulloch & Miller, our Houston estate planning attorneys specialize in crafting individualized plans for each of our clients, recognizing that every estate plan is different because every client is different. If you are looking for an experienced, trusted team to help you navigate the world of estate planning, look no further. At McCulloch & Miller, we cover estate planning, elder law issues, trusts, public benefits planning, special needs planning, and the probate process. For a consultation with a Houston estate planning attorney from our firm, give us a call today at 713-903-7879. You can also fill out our online form with your contact information to have an attorney get back in touch with you as soon as possible.