Some people give generously all year long, supporting local nonprofits and taking care of their family members. If that’s you, perhaps it’s time to consider taking a more strategic approach to lifetime giving.
Not everyone gives because they are looking to minimize their taxes. If you’ve reached the age and stage where you have accumulated more than enough wealth to retire on, you may enjoy being generous and seeing the impact your gifts can have on the lives of those you love, or those who are less fortunate.
WMUR’s recent article, “Money Matters: Lifetime non-charitable giving,” explains that lifetime giving means you dictate who gets your property. Remember, if you die without a will, the intestacy laws of the state will dictate who gets what. With a will, you can decide how you want your property distributed after your death. However, it’s true that even with a will, you won’t really know how the property is distributed, because a beneficiary could disclaim an inheritance. With lifetime giving, you have more control over how your assets are distributed.
At your death, your property may go through probate. Lifetime giving will help reduce probate and administration costs, since lifetime gifts are typically not included in your probate estate at death. Unlike probate, lifetime gifts are private.
Let’s discuss some of the tax advantages. First, a properly structured gifting program can save income and estate taxes. A gift isn’t taxable income to the donee, but any income earned by the gift property or capital gain subsequent to the gift usually is taxable. The donor must pay state and/or federal transfer taxes on the gift. There may be state gift tax, state generation-skipping transfer tax, federal gift and estate taxes, as well as federal generation-skipping transfer (GST) tax.
A big reason for lifetime giving is to remove appreciating assets from your estate (i.e., one that’s expected to increase in value over time). If you give the asset away, any future appreciation in value is removed from your estate. The taxes today may be significantly less than what they would be in the future, after the asset’s value has increased. Note that lifetime giving results in the carryover of your basis in the property to the donee. If the asset is left to the donee at your death, it will usually receive a step-up in value to a new basis (usually the fair market value at the date of your death). Therefore, if the donee plans to sell the asset, she may have a smaller gain by inheriting it at your death, rather than as a gift during your life.
You can also give by paying tuition to an education institution or medical expenses to a medical care provider directly on behalf of the donee. These transfers are exempt from any federal gift and estate tax.
Remember that the federal annual gift tax exclusion lets you to give $15,000 (for the 2019 year) per donee to an unlimited number of donees, without any federal gift and estate tax or federal GST tax (it applies only to gifts of present interest).
While it’s wonderful to give for the joy of giving, it’s savvy to make gifting an integral part of your estate plan. After all, why not enjoy the side benefits that can giving creates? While it's a good "problem" to have, your Houston estate planning attorney will be able to best point out the benefits that a strategic giving plan can lead to for you, your loved ones and your estate.
Reference: WMUR (April 18, 2019) “Money Matters: Lifetime non-charitable giving”