Gift Tax

Estate Planning Gifting Strategies in Texas

Published on: May 22, 2024 | By David W. Miller

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.

Including Gifts for Minors in Your Texas Estate Plan

Published on: May 1, 2022 | By David W. Miller

When crafting their estate plan, many individuals want to leave assets or gifts to their children, grandchildren, or other loved ones under the age of 18. However, there can be unique issues presented when gifting assets to minors, as compared to other adults. Most people do not consider these implications when crafting their estate plans. But there are ways in Texas to still gift property and assets to minors in which they can benefit from these gifts in the future. Below is information about these options, along with explanations of the most common questions asked about gifting to minors in Texas.

Why is Gifting to Minors Different than Gifting Assets to Adults?

One reason why individuals must gift differently to minors is that people under the age of 18 lack the legal capacity to own property. So, when a loved one passes away and has left assets in their will to a child, there are different rules that apply. Similarly, people may be afraid to leave assets or property to minors—worried they would mismanage the funds or not be responsible enough to handle such a gift. This is a common concern; however, it should not be the reason that minors are not included in a will.

The Texas Uniform Transfers to Minors Act

One method to still gift to Texas minors—while avoiding all of the complications above—is the Texas Uniform Transfers to Minors Act (TUTMA). Under this act, all assets gifted to a minor will be held in a custodial account until they reach the age of 21. As well as invoking the TUTMA in the will, the individual gifting the property must also name a custodian in their will. This custodian will manage the assets for the minor’s benefit until they can utilize them.

2022 Texas Gift and Estate Tax Changes

Published on: April 26, 2022 | By Thomas W. McCulloch

Because there are proposed and implemented changes every year to the federal and state tax code, Texans should always be vigilant as to how these changes affect their gifting practices and their estate plans. In many cases, without the assistance of an estate planning attorney, these changes may seem minuscule and not even be noticed. However, newly passed laws may have a major impact on Texans and how they should implement their estate plan—plus changes they can make to take advantage of these changes. Below are some of the proposed changes that may occur in 2022 that Texans should be aware of and strategies to combat these changes.

Reduction to the Estate Tax Exemption

In the past year, there were proposals to reduce the estate tax exemption—meaning, lowering the amount after which individuals will need to pay a tax on their estate. The current amount is $12.06 million; however, this past year, there were proposals seeking to reduce the amount to $3.5 million per individual. If the amount were lowered this significantly in the upcoming year, many individuals who currently will not have to pay an estate tax will be forced to. However, even if this proposal is not adopted this year, the current estate tax law is set to reset in 2026 to $5 million—this is unlikely to be changed. Therefore, individuals should start planning and strategizing now if their estate value is around $5 million. Most of the strategies involve reducing the estate amount below the exemption limit—either by putting funds in irrevocable trusts or gifting it to loved ones or charity.

Are There Different Estate Planning Rules When Gifting to Texas Minors?

Published on: February 17, 2022 | By McCulloch & Miller, PLLC

When individuals are crafting their estate plan, they often think about the younger loved ones in their lives—be it children, nieces and nephews, or grandchildren. They may want to leave property, financial assets, or family heirlooms to these minors. However, because minors usually lack the legal capacity to own property, there are different rules in place for gifting to those under 18 years old. Because of this, it is important for individuals to reach out to experienced estate planning attorneys who can help them navigate the process and ensure they are complying with federal and Texas estate planning laws.

How to Include Children in an Estate Plan

Because minors cannot legally inherit property, individuals wishing to include their children in their will must take additional steps. Texas estate law provides for minors who are given assets and property through an estate plan. Under the Texas Uniform Gifts to Minors Act, children’s assets are held in a managed account until they reach the age of 21. While individuals are usually only considered a minor until they turn 18, the law considers a minor anyone under 21 years old. In the will, the parents must designate a custodian who will manage the assets for the child’s benefit until they are no longer a minor. While this may be upsetting to some children, the point of this law is to ensure the funds are not irresponsibly spent. Instead, with the supervision and assistance of a custodian, there is a much higher chance the funds will be sensibly spent—if used at all—until the minor is older.

However, the requirements of the Uniform Gifts to Minors Act do not mean that the funds given to minors cannot be touched until they are 21 years old. The custodian is given a lot of discretion in utilizing the funds—so long as it is for the minor’s benefit. For example, if the minor needs funds to pay for college or assistance with transportation, the custodian can either purchase items for them or pay tuition on their behalf. Since the custodian has a lot of discretion, individuals should not make this decision lightly: who do they trust implicitly, would communicate well with their children, and make the best—and responsible—decisions on their behalf.

2022 Tax Updates to Keep in Mind for Texas Estate Plans

Published on: January 11, 2022 | By McCulloch & Miller, PLLC

A new year often brings new changes. Along with New Year’s resolutions that individuals make to become healthier, improve their lifestyle, and be kinder, others may resolve to create or update their estate plan. Because of this, it is important to know the federal and Texas estate planning laws that impact estate plans. Some of these laws have provisions that changed at the beginning of 2022, so even individuals with estate plans in place may want to alter them so they can benefit from these changes. Below are some of the key tax concepts and changes that Texans should pay attention to in crafting their estate plan.

Increases to the Annual Gift and Lifetime Estate Tax Exclusion Amount

In a very notable change, the federal estate tax exemption amount has increased. If an estate is valued over the exemption limit, then the estate will be taxed before assets are distributed to beneficiaries. In 2021, if an estate was worth less than $11.7 million—or $23.4 million for a married couple—then the estate would not be taxed. However, in 2022, the exemption limit has increased to $12.06 million—or $24.12 million for a married couple.

Is It Time to Update Your Houston Estate Plan?

Published on: November 12, 2021 | By McCulloch & Miller, PLLC

A federal bill working its way through Congress will have dramatic implications for Texans and their estate plans. Once the bill becomes law, some of the estate planning techniques that have assisted Americans with sizeable estates will no longer be available. Fortunately, there is still time for Houston residents to take advantage of several favorable laws still in place.

Changes to the Gift and Estate Tax

Perhaps the most notable change to the law will be a sweeping reduction in the unified credit amount. The unified credit amount for a married couple is currently $12 million. This means that married estate holders can make a combined total of $12 million tax-free transfers in the form of lifetime gifts and transfers upon death.

Gift Tax Exemptions Under Texas Estate Planning Law

Published on: November 30, 2020 | By McCulloch & Miller, PLLC

Estate planning is a critical process designed to designate and distribute a person’s assets upon their death, among other things. A Houston estate plan documents a person’s wishes if they become incapacitated or die and specifies who will effectuate the deceased’s wishes. These plans usually involve drafting wills and trusts, designating powers of attorneys and medical decision-makers, and addressing insurance issues and tax implications. It is crucial that individuals seek an attorney’s assistance to determine the current and predicted state of the law and how it may impact their beneficiaries.

What is a Gift Tax?

One area of estate planning that is currently under scrutiny is the federal gift tax. A gift tax is a tax on the transfer of wealth from one individual to another, when the gift is made during the gifter’s lifetime. In most cases, the person making the gift is responsible for paying the gift tax. The Internal Revenue Services (IRS) requires individuals to pay this tax if they give a gift to someone worth more than a specific amount. Currently, gifts made in excess of $15,000 reduce a person’s federal estate exemption when they die. For example, if a grandmother gifts her granddaughter $30,000 in a year, the first $15,000 is not taxable under the annual exclusion. However, after that, the remaining $15,000 counts against a person’s lifetime gift tax exemption and federal estate tax exemption.

Helping Pay for College Through a Texas Qualified Tuition Plan

Published on: September 4, 2020 | By McCulloch & Miller, PLLC

With colleges starting the fall semester around the country, worries about paying for higher education and making ends meet often come to students’ minds. Family members, like parents and grandparents, will often want to help their loved one pay for college if they are able to; however, at the same time, they do not want to do so at a detriment to their own financial future. One popular method to help a student with their college costs is a qualified tuition plan. A qualified tuition plan is a type of Houston estate planning tool that allows a person to contribute to another’s higher education expenses without having to pay taxes on these contributions.

What is a Qualified Tuition Plan?

A qualified tuition plan lets a loved one, called a contributor, to either prepay their student’s qualified expenses at an educational institution or to contribute to a designated account to pay these costs. A contributor can put their funds toward tuition as well as fees, books, supplies, and equipment required to participate in the educational program. However, contributions to a qualified tuition plan cannot exceed the amount necessary to provide for the beneficiary’s expenses.

IRS Postpones Gift and GST Tax Filing Deadline to July 15

Published on: April 3, 2020 | By McCulloch & Miller, PLLC

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The Internal Revenue Service is postponing the date for filing gift tax and generation-skipping transfer tax returns and making payments until July 15, 2020, because of the novel coronavirus pandemic.

The IRS has expanded the list of deadline extensions for federal taxes and tax returns to include gift and generation-skipping transfer (GST) tax returns. An earlier notice had applied only to federal income tax returns and payments (including self-employment tax payments) due April 15, 2020, for 2019 tax years, and to estimated income tax payments due April 15, 2020, for 2020 tax years.

Notice 2020-20 updates earlier guidance to include the gift and GST deadline extensions.

How Do Lifetime Gifting Strategies Work?

Published on: August 9, 2019 | By McCulloch & Miller, PLLC

Wealth transfer occurs in a number of different ways, and sometimes there are too many choices. How do you decide which strategy to use? Start by educating yourself about some of the fundamentals of lifetime gifting.

Gifting strategies are used to minimize the tax burden on estates and preserve assets, since they promote the transfer of wealth across generations. There are five frequently used lifetime gifting strategies outlined in a recent article from Forbes, “5 Lifetime Gift Strategies For You And Your Family To Consider.” For families with significant assets, these need to be discussed with their estate planning attorney to see how they will fit with the family’s overall estate plan.

A grantor retained annuity trust (GRAT) is an irrevocable trust that can be a good choice, if you want to transfer hard-to-value assets. A GRAT also lets you keep your income stream, divide property interests and make discounted gifts to future generations. With a GRAT, the grantor transfers assets to a trust but maintains a right to an annual income stream, or annuity payment, for a specific period of time. The income stream’s value is deducted from the value of the transferred assets when determining the gift’s full taxable value. Anything left in the GRAT after the annuity period expires, is given to the trust’s beneficiaries without any more gift or estate taxes. However, if the grantor dies before the end of the trust term, the whole value of the trust will be included in the taxable estate (like the trust had never been created). Therefore, you can see how important it can be to carefully choose the term of the trust, so the grantor is likely to live beyond its termination.